Emirates and Qantas .... The World Has Changed

The suspense and speculation are over, Emirates and Qantas announced their anticipated code share agreement. An agreement that made Dubai the European hub for Qantas as of April 2013, replacing Singapore and Hong 

As a result Qantas terminated a seventeen years agreement with Oneworld partner BA on the London route and code share agreement with Air France and Cathay

So what does Qantas get in return, a Dubai hub that connects to thirty three (33) European and eighteen (18) African cities in addition to the Levant and GCC. Emirates gets access to the Australian market, providing passenger feed to its expanding network and a daily A380 flight to Christchurch from Sydney. It also offsets the advantage that Etihad has with its Virgin Australia tie up.

However, the real winner in this deal is Dubai. A Qantas hub reinforces Dubai's position as a global aviation hub and destination.

Emirates and Qantas

Speculations are over, the Chairman of Emirates Airlines HH Sheikh Ahmad Bin Saeed Al-Maktoom announced today that Emirates is in talks with Qantas for a code share agreement within six (6) months. There will be no revenue sharing and the aim is to get Qantas to fly through Dubai. (read full story here)

Qantas has been one of the more outspoken critics of Emirates and the way Emirates expand. Qantas had several problems starting with A380 problems and a two (2) days shutdown due to labour problems with its maintenance staff in addition to soaring fuel prices.

Etihad acquiring a stake (up to 10%) in Virgin Australia was not good news for either carrier. It provided Etihad with access to the Australian market. It was logical for Emirates and Qantas to code share; Emirates gets access as comparable to Etihad's and Qantas gets a boost to its international operations by tapping traffic feed from Dubai

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.

First Air Canada now Qantas.

It was Air Canada claiming that additional frequencies by Etihad and Emirates will cause the shedding of 10,000 jobs. Now it is Qantas complaining to the government that they will go under if Etihad is allowed to raise its stake from 3.96% to 10% in Virgin Australia. The reason is they might undercut Qantas by reducing domestic fares.

If Etihad and Virgin Australia wanted to reduce domestic fares they can do it anytime and without an equity stake. Qantas is complaining against "government owned" Etihad and Singapore, at least Emirates was spared this time.

Qantas suffered from rising fuel prices, labour strife that has grounded the airline for two days and of course A380 troubles. Qantas warned of a slump in profits. These problems are not the work of competitors. Still Qantas claims its international operations are suffering because they are being undercut by Singapore and Etihad.

The real issue for Qantas is for the government to remove the limit on foreign investment in the airline imposed under the Qantas Sale Act which dictates that the airline remains majority Australian owned.

It appears that legacy carriers find it easier to blame their problems on high visibility airlines like Etihad and Emirates than finding solutions.