Alliances key to Qantas future – OAG

Qantas’ recent alliances with Emirates and China Southern Airlines could provide the key to securing the airline’s future, according to aviation analysts OAG.

The ‘Flying Kangaroo’ unveiled a major cost-cutting programme last month, as its braces for an expected AU$250-300 million (US$224-269m) half-year loss. But according to OAG, Qantas could have already secured its future by embarking on a series of new alliances that it says “may prove strategically sound”.

Qantas and Jetstar currently account for 61% of Australia’s domestic market share, compared to Virgin Australia’s 35%, and 24% of international seat capacity, compared to 8% for Virgin Australia.

But this lead masks the fact that Qantas’ international capacity has remained flat over the last five years, while Virgin Australia has increased 84%.

In addition, Qantas’ share of the Australia-Asia market has fallen to just 11%, with the airline having been overtaken by China Southern Airlines (21%). All of which means that Qantas’ recent partnerships with China Southern and Emirates (which now holds a 10% share of Australia’s international market) could be crucial to ensuring the airline’s future competitiveness.

“Although the outlook seems challenging for Qantas at the start of 2014, its new relationships with Emirates and China Southern may prove to be strategically sound moves and provide a much needed shake-up of the Qantas-Asia network,” said John Grant, executive vice president of OAG.

“Given the evidence and the rapid growth of foreign carriers in Australia, it is understandable that Qantas have asked the Australian government to relax foreign investment rules in the company,” he added.

Last month, Qantas CEO Alan Joyce described the Australian international market as “the toughest anywhere in the world”.

“Since early 2012, there has also been an unprecedented distortion of the Australian domestic market, with Virgin Australia’s strategy to seek majority ownership and massive financial backing from foreign government-owned airlines,” Joyce complained. “This foreign government capital has been used to finance dramatic increases in domestic capacity, with profound implications for the future of Australia’s aviation industry.”

Virgin Australia is now part-owned by Etihad Airways, Singapore Airlines and Air New Zealand, and Qantas is urging the Australian government to increase the maximum stake an international airline is able to own in Qantas from the current 35%.