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Qantas-Emirates Alliance Wins Initial Australian Backing

December 20, 2012

Qantas-Emirates Alliance Wins Initial Australian Clearance

An Emirates Airline flight attendant stands in front of a Qantas Airways Ltd. aircraft in Sydney, Australia. The venture will let Qantas sell tickets to 60 new one-stop destinations in Europe, the Middle East and Africa via Emirates’ Dubai hub, and help it overhaul Asian schedules. Photographer: Brendon Thorne/Bloomberg

Qantas Airways Ltd. (QAN), Australia’s largest carrier, won provisional approval from the nation’s antitrust regulator to cooperate with Emirates as it seeks to turn around unprofitable international operations.

The agreement will be approved for five years, rather than the 10 the carriers sought, the Australian Competition & Consumer Commission, or ACCC, said in a statement. Sydney-based Qantas said the venture is due to start in April.

The alliance will let Qantas sell tickets to 60 new one- stop destinations in Europe, the Middle East and Africa via Emirates’ Dubai hub, and help it overhaul Asian schedules. The Australian carrier sought the tie-up after losing market share on international routes to Middle East and Asian rivals offering a wider range of connections and more convenient flight times.

“This is very positive for Qantas,” David Fraser, an analyst at Nomura Holdings Inc. in Sydney, said by phone. “If they can get anywhere close to where the market is forecasting by 2014 they’ll be doing significantly better than they are today.”

Under the planned Qantas-Emirates accord, the two carriers intend to coordinate pricing, sales and scheduling, as well as aligning frequent-flier programs so passengers can earn points on both carriers’ flights.

Emirates will gain access to Qantas’ Australia and New Zealand network under the deal while the Australian carrier will be able to sell tickets on Emirates’ planes from Dubai.

Alignment of computer systems, loyalty-program benefits and an operational base for Qantas in the Gulf state were already being set up, the companies said in a joint statement today.

Consumer Benefits

Qantas shares rose 0.7 percent to A$1.46 at the close in Sydney. The stock has jumped 22 percent since announcing the agreement with Emirates Sept. 6, on speculation it will be better able to compete on international routes.

“The ACCC considers that the alliance is likely to result in material, although not substantial, benefits to Australian consumers,” the regulator’s Chairman Rod Sims said in the statement.

The carriers will have to retain a minimum number of seats on four routes between Australia and New Zealand they both operate and increase capacity at a specified rate, the regulator said in a separate statement.

Maintaining competition on the so-called trans-Tasman routes between the two countries drove the ACCC’s initial blocking of a 2010 alliance between Qantas’s main competitor Virgin Australia Holdings Ltd. (VAH) and Air New Zealand (AIR) Ltd. The partnership ultimately went ahead after the regulator set terms to ensure the carriers didn’t push up prices by limiting seat numbers.

International Losses

Qantas, which lost A$450 million ($471 million) on international operations in the year ended June, will shift its European hub to Dubai from Singapore under the accord. The carrier is also abandoning a 17-year partnership with British Airways and ending a loss-making Frankfurt route alongside the agreement.

The new hub will let Qantas reschedule services through Singapore to be more appealing for corporate travelers, Simon Hickey, head of Qantas’s international division, said in a Dec. 12 interview.

“This is the right deal for Qantas,” Simon Fitzgerald, a Sydney-based analyst at Moelis & Co., said before the announcement. “They can fly to a lot of destinations with this.”

The alliance has been backed by Australia’s transport minister Anthony Albanese, who described it as a “very good deal for the traveling public” according to the transcript of a Sept. 10 interview.

‘Dominant Position’

Virgin Australia, Qantas’s main domestic competitor, and partner Singapore Airlines Ltd. (SIA) raised objections to the Qantas- Emirates tie-up. Virgin also cooperates with Abu Dhabi-based Etihad Airways PJSC on Australia-Europe routes.

The deal “is likely to further entrench Qantas’s existing dominant position” in Australia’s domestic and corporate travel markets, Virgin Australia said in an Oct. 10 submission to the regulator.

Qantas and budget unit Jetstar have a combined 26 percent share of international passenger traffic from Australia, according to government figures. Emirates is the third-biggest carrier on the routes with an 8.2 percent share.

Virgin Australia

Virgin Australia and partners, Singapore Air and Air New Zealand have a combined 25 percent share, according to data for the year through June 2012. Etihad’s share wasn’t separately broken out.

Since the Qantas-Emirates deal was announced, Singapore Air has tightened ties with Virgin Australia by buying a 10 percent stake. Virgin Australia has also agreed to take control of budget carrier Tiger Airways Holdings Ltd. (TGR)’s local unit and announced plans to take over regional carrier Skywest Airlines Ltd. (SXR)

The Qantas-Emirates agreement still requires approval from authorities in Singapore and Europe, as well as a final sign-off from the Australian agency.

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

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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