Qantas and Emirates airline about to reach higher profit altitudes
By: Muzzafar Rizzi
Australian national carrier Qantas managed to come back in black last week as its partnership with Emirates airline started to pay dividends by significantly reducing its losses on international routes.
The annual results, showing a meager net profit of $6 million for the financial year 2012-13 ended June 30, are not the true reflection of the alliance as it only became effective in April this year. The best of the alliance between the two leading global carriers is yet to come.
The main credit of better-than-expected results, without a doubt, goes to the airline’s management that implemented drastic changes in past year to bring the airline in the positive column. Apart from some corrective administrative and financial measures, the major shift in policy was to move its hub for European destinations from Singapore to Dubai with effect from last quarter of the airline’s financial year (April-June). The wise policy decision restored the confidence of investors and passengers on the airline and as a result, the carrier has managed to lift its bottom line back into the black despite tough competition on international and domestic routes, high fuel prices and a falling Australian dollar.
This hard fact is also acknowledged by Qantas chief executive Alan Joyce, who said the Emirates partnership is the latest and most important element of Qantas’ restructured international network.
“The Emirates partnership gives us a clear network advantage over our competitors to London and Europe. Codeshare bookings by Qantas customers on Emirates’ network are running at about twice the level of our previous network to Europe, which included British Airways, Cathay Pacific, Air France and Iberia,” Joyce said in a statement announcing the financial results.
In last September, the Australian carrier forged a 10-year partnership deal with Emirates by ending a long-term relationship with British Airways and moved its base for European flights from Singapore to Dubai in a bid to boost its struggling international division. Joyce said the airline is on track to achieve its target of making international operations profitable in 2015 financial year.
“We saw a surge in bookings when the partnership went on sale, reflecting latent demand. Since then, bookings have stabilised and continue to be very strong,” he said, adding that the bookings by Emirates customers on the Qantas domestic network are running at about three times the level of its previous network.
“The Qantas-Emirates partnership gives the group a strengthened position on routes to Europe, the Middle East and North Africa, via the global hub of Dubai. While the early signs are very promising, much of the partnership will be bedded down during financial year 2013-14 and we expect full benefits to flow from financial year 2014-15,” Joyce said.
Saj Ahmad, chief analyst at London-based StrategicAero Research, said Qantas’ annual results showed a stark turnaround and the partnership between the two airlines is yielding benefits to them. However, he said Qantas has a tonne of work to do to improve performance and its weakened reputation. The airline is far from being out of the woods.
“Over the past 12 months, Qantas has made improvements, but we’ve seen such corrective moves before where these were short-lived and the carrier hit the skid pan back into a loss,” he said.
He said Qantas never operated a single flight to the GCC before their deal with Emirates, but now the flying Kangaroos will have to expand their coverage and take advantage of the growing GCC traffic to bolster earnings.
Tasman, New Zealand market
Analysts said Qantas and Emirates will realise the benefits of their partnership on newly-opened New Zealand and Tasman network in financial year 2013-14, which started in July.
The two airlines secured approvals from Australian and New Zealand authorities in May this year to extend their alliance across the Tasman for a period of five years. The Emirates-Qantas/Jetstar partnership, holding about a 43.7 per cent market share, will be facing stiff competition from the Air New Zealand-Virgin Australia alliance, which holds a 51 per cent market share on the Tasman.
“Emirates will be keen to take advantage of Qantas weak state to exploit the Tasman and New Zealand markets, giving its customers more connectivity options,” Ahmad said. Emirates and Qantas have enhanced their joint network as bookings opened from August 14 for the new schedule between New Zealand and Australia. The new schedule offers around 130 services per week from Auckland, Christchurch, Wellington and Queenstown across the Tasman to a joint network covering more than 175 destinations in Australia, Asia, the Middle East, North Africa, the UK and Europe.
“The partnership with Emirates has allowed us to strengthen our network in Asia and over the Tasman. We have reworked our schedule on services between Australia and Asia to provide better connections to the region’s major hubs, and expanded our alliance with China Eastern — part of a long-term strategy for the world’s biggest aviation market,” Joyce said.
Analysts said Qantas transformation is well-advanced, but competitive pressures are unlikely to ease in coming years. The Australian carrier’s international strategy is revamped around the Emirates alliance and it is expected to make solid progress and yield positive results during the airline’s five-year transformational plan, which is in its second year and sees the light at the end of the tunnel. The airline, which reduced its international losses from $484 million to $246 million in financial year 2012-13, still has to cover a long distance before flying on high altitude.