Qantas mulls partnership with Emirates

DUBAI, United Arab Emirates — Australia’s biggest carrier Qantas confirmed on Thursday that it’s in talks with Emirates and other airlines for potential alliance to help revive its struggling international arm.

On the other hand Dubai-based Emirates airline declined to comment. “Emirates does not comment on rumour or speculation,” Emirates spokesperson said in a statement.

Last month Emirates chief executive Tim Clark told Dow Jones Newswires he was not interested in an equity investment in Qantas but was keen on other types of commercial arrangements, such as code-sharing.

“Qantas is in a downward spiral and is desperate to ward off losses as well as losing passengers to GCC airlines. It has little choice but to work with an Arab carrier since it is in no shape to compete directly,” Saj Ahmad, chief analyst at London-based StrategicAero Research, said.

The Australian Financial Review (AFR) reported earlier in the day that Sydney-based carrier was in talks with Emirates airline on a deal to help its loss-making international division by giving the airline access to greater number of passengers from Dubai-based airline’s hub in the Middle East.

“The Middle East has become the travel nexus of choice and there is no way Emirates will allow Qantas to encroach its core business from its Dubai hub and Qantas will equally be loathed to move any key flights via Dubai if it can’t gain freedom rights for onward connections to Europe,” Ahmed added.

The AFR said that codeshare negotiations were at an advanced stage and would give Qantas access to the network of the largest international carrier in the world, according to AFP.

Hub carriers are increasingly joining hands with so-called “end-of-line” carriers like Qantas and analysts said a tie-up would provide much needed clarity to the international business, according to Reuters.

“The business is very challenged on a stand-alone basis and they need to get a tie-up,” said David Liu, head of research at ATI Asset Management which sold Qantas shares after a loss warning in June. “The sooner that’s done, the sooner people get some sort of certainty with regards to how they are going to reduce losses in the international division,” he said.

But analyst Neil Hansford, from Strategic Aviation Solutions, said he doubted an Emirates tie-up could save Qantas. “It’s a good theory but code shares are band-aid solutions,” he said. “Just by Emirates giving Qantas a bigger network won’t save a business losing $500 million,” Hansford added.

Qantas is struggling with soaring fuel costs and worsening global conditions and recently warned its underlying profit before tax was expected to drop from A$552 million ($574 million) last year to A$50-100 million.

AFR said if a deal is reached, Qantas will route many of its international flights through Dubai rather than Singapore, and will rely on its new partner to ferry customers to some European destinations, as well as the Middle East and parts of Africa. Qantas would also pull out of its Frankfurt base, leaving London as its only port in mainland Europe, with the proposed deal likely to see an end to Qantas’s existing relationship with British Airways, it said. Macquarie Equities aviation analyst Russell Shaw said there was growing acknowledgement that hub carriers can service Europe to Australia routes better, picking up passengers from multiple European, Asian and Middle Eastern departure points.

“When you look at growth plans, it makes sense to partner with them, particularly as we are seeing more competition from China carriers coming in to the market,” Shaw said.

Shaw added that Qantas would likely save A$5-6 million in capital expenditure by using Emirates aircraft to fly from the Middle East to Europe.