Bloomberg News

Qantas Looks at Splitting Licenses Amid Interest From Emirates

May 25, 2012

Alan Joyce, chief executive officer of Qantas Airways Ltd. Photographer: Ian Waldie/Bloomberg

Alan Joyce, chief executive officer of Qantas Airways Ltd. Photographer: Ian Waldie/Bloomberg

Qantas Airways Ltd. (QAN), seeking to turn around losses on international flights, is looking at getting separate licenses for its international and domestic businesses amid interest from Emirates Airline in an enhanced tie-up between the carriers.

Qantas has a group looking at whether a split license would be the best way of running the businesses after announcing a restructure May 22, Chief Executive Officer Alan Joyce told a media event in Sydney today.

“We’re exploring that as we speak” he said. While Qantas’s constitution and a 1992 Australian law cap foreign investment in the carrier at 49 percent, second-ranked Virgin Australia Holdings Ltd. (VAH) recently separated its international and domestic businesses to get around similar rules.

Qantas earlier this week said it will split its businesses into domestic and international units, a move that could lead to Emirates buying a stake in the Sydney-based carrier’s domestic service, according to Deutsche Bank AG. Such cooperation may help Qantas revive overseas operations that have lost market share to Middle East carriers able to offer one-stop flights to a larger number of European cities.

“There’s no subtext behind this” Joyce said. While the carrier is in talks with Emirates about connections between its international network and Qantas’s domestic business, Joyce said he had no comment about any other talks between the carriers.

Both Benefit

Tim Clark, president of Dubai-based Emirates, the largest international airline, this week said both carriers would benefit from a tie-up, the Australian Financial Review reported.

“If I was a shareholder I’d love that,” Neil Hansford, chairman of consultants Strategic Aviation Solutions, said by phone yesterday from Salamander Bay, Australia.

Emirates could take a stake of as much as 30 percent in a Qantas domestic unit, with its share of debt and equity worth as much as A$1.9 billion, Sydney-based Deutsche Bank analyst Cameron McDonald wrote in a May 24 note. The Dubai-based carrier has no interest in buying stakes in other airlines, Thierry Antinori, its executive vice president for passenger sales, told reporters in Lisbon on May 24.

Qantas’s international business lost A$200 million ($195 million) in the year ended June 2011. Joyce has already pared overseas flights and delayed the arrival of new Airbus SAS A380s to cut costs.

Rising Fuel Prices

Airlines worldwide are also contending with fuel prices that have risen about 50 percent in two years and the economic slowdown in Europe, which has damped demand for international travel.

Qantas and partners, including British Airways, only fly one-stop to five destinations in Europe and the Middle East. Virgin Australia is able to fly one-stop to 19 destinations in the region from Sydney, Melbourne and Brisbane through a tie-up with Abu Dhabi-based Etihad Airways PJSC.

Qantas could potentially add more than 40 one-stop destinations through an Emirates deal, based on the Dubai airline’s website.

Qantas shares fell 1 percent to close at A$1.455 in Sydney yesterday, compared with a 0.7 percent drop in the benchmark S&P/ASX 200 (AS51) index. The stock is down 0.3 percent this year, in line with index’s 0.7 percent drop.

The airline also said May 24 that it will add 25,800 seats a week on services between some of Australia’s largest cities. Adding capacity may harm ticket prices as carriers struggle to fill planes amid weak consumer demand, Russell Shaw, an analyst at Macquarie Group Ltd., wrote in a note to clients May 4.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editors responsible for this story: Paul Tighe at ptighe@bloomberg.net; Neil Denslow at ndenslow@bloomberg.net


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