Friday, July 20, 2012

Qantas, Hard Times Ahead

It all started when Etihad acquired a 4.99% stake in Virgin Australia. Etihad has petitioned and obtained approval, earlier in the week from the Foreign Investment Review Board to raise its holding to 10% in Virgin Australia. Etihad acted in a very transparent manner similar to its actions in regards to the investments in Airberlin, Aer Lingus and Air Seychelles.

Qantas hit back with accusations that Etihad is the plaything of oil rich Sheiks.

This is not the first time Qantas resorts to similar tactics, it has accused Emirates of being an unsafe airline after the March 2009 incident with an A340-500 aircraft that failed to climb properly due to erroneous performance data entered.

Qantas had its fair share of unsafe incidents with the A380; incidents not attributed to its own actions. The airline was shutdown last October 2011 over a dispute with the labor unions over jobs. The airline like the rest of the industry suffered from high fuel prices. It is expected that Qantas profits are down by 90%.

Qantas is not unlike the legacy airlines of developed countries, that consider the preservation of their home market share as a national priority and are willing to limit the tourist potential of the country to their capability. They fail to consider that competition that increases the market brings in revenues and creates jobs. Usually, more jobs in different sectors of the economy that far outweigh potential losses at the airline.

There are economic and political considerations that go beyond an airline. A prime example is the Canadian government that blindly backed Air Canada's position over traffic rights for Emirates and Etihad and now is working hard mending fences. Vancouver is still under served by Air Canada while Seattle reaps the benefits of Emirate's daily flights.

Qantas faces tough choices on how to deal with what it perceives as a major threat. There were earlier rumors that Emirates wants to cooperate with Qantas to further develop its Australia network. Of course, Qantas can always work closer with Oneworld partners to improve its position, but then that means expansion which seems to go against the grain with legacy carriers that believe in capacity control.

2012 is a tough year, it presents multiple challenges and risks but also great opportunities for the visionaries and the brave.

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