• News
  • What next for Qantas?

What next for Qantas?

British Airways still has Iberia as a potential partner, but the next move for Qantas is unclear after it broke off talks with BA about a merger.

Alan Joyce, the new chief executive of Qantas, has not retreated from his belief in the need for consolidation.  He likens the current financial crisis to "a slow-moving earthquake" that is "accelerating the inevitable push to a new aviation world order".

But Joyce was less enthused, per local reports, than Qantas chairman Leigh Clifford or former chief executive Geoff Dixon about a possible merger with BA. Joyce has not said why, but he could have concluded that BA offered Qantas little relief from its two biggest international challenges -- the Kangaroo route to Europe, and the Pacific route to the US.

For years Qantas has been losing market share on the Kangaroo route to such sixth freedom carriers as Singapore Airlines and Emirates. Its share of overseas traffic, including its low-cost Jetstar's share, has slid in the past fourteen years from 43% to 31%. On its own, Qantas now carries only 25% of all overseas passengers.

Commenting on the current widebody orders by Qantas and Emirates, aerospace analyst Richard Aboulafia of the Teal group, says the two airlines are "punching each other for the same passenger," and both cannot win. Between them, Emirates and Singapore Airlines now claim more than 18% of all Australian traffic on the Kangaroo route. 

Etihad, new to this route in 2007, is starting to siphon off more of the Australia-Europe traffic that Qantas otherwise might carry. But the bigger worry is AirAsia, which plans in March to become the first low-cost sixth freedom carrier to fly from Australia to Britain over its Kuala Lumpur hub. This could hurt Jetstar's plan to extend its own low-cost network to Europe once it receives its Boeing 787s.

Qantas does not face this kind of pressure on the Pacific, where it controls 70% of the market and earns 20% of its profit, but more is coming. V Australia, the long-haul arm of Virgin Blue, is launching US flights in February. Delta, the world's largest airline following its merger with Northwest, is starting daily flights to Australia in July. This will bring the first US-Australia SkyTeam service since Northwest pulled out many years ago. Thus, within the next half year, Qantas is going from one non-stop Pacific rival -United Airlines - to three. 
The proposed BA-Qantas merger addressed none of these concerns.  Even without a merger, Qantas still had a joint services agreement with BA that allows both carriers, with antitrust immunity, to co-ordinate Kangaroo route fares and capacity.  Obviously, Qantas would be worse off without this agreement, but it is not stopping the inroads that Singapore Airlines, Emirates, and others continue to make.

Najib Razak, Malaysia's finance minister, says Malaysia Airlines and Qantas are discussing a strategic alliance. Qantas admits it held early exploratory talks with Cathay and MAS, but denies it is in active merger discussions now with anyone. Still, sources within the Australian airline agree with several analysts who say MAS would be the best partner for Qantas in Asia.

Less than a week after BA and Qantas called off their talks,  Malaysian papers also reported that AirAsia chief Tony Fernandes has spoken with Alan Joyce about a possible Qantas or Jetstar merger with AirAsia. All sides have downplayed but not denied this report. Says Jetstar's chief Bruce Buchanan, "I wouldn't read too much into it." 

MAS seems a more likely partner for Qantas than AirAsia.

Air New Zealand is the most obvious trans-Pacific partner. Competition authorities rejected a de facto Qantas-Air New Zealand merger four years ago, but new entrants like V Australia and Delta might sway them differently today.

Yet, Qantas is unlikely to merge with any foreign carrier.  Even if it and a partner could clear the legal, financial, and operational hurdles, nationalism seems certain to trump any cross-border merger. Short of this, some form of strategic alliance with equity links is the most Qantas can expect.  Whether this will deliver enough synergies and solve enough strategic concerns to make such a move worthwhile is a question Qantas will have to resolve.

Related Content