Qantas and Emirates - another nail

Qantas Airways on Thursday, this week announced an agreement with Emirates after months of speculation. Qantas CEO Alan Joyce called it “the biggest deal in Qantas history“. Qantas have publicly declared it is “The World’s Leading Airline Partnership”

The ten year deal, yet to be approved by the Australian Competition and Consumer Commission (which I see as a formality) means Qantas will

shift its main hub for London flights from Singapore to Dubai
fly daily Airbus A380 services from both Sydney and Melbourne to London via Dubai adding to Emirates 84 services a week out of Brisbane, Melbourne, Perth and Sydney
cease its 17 year long revenue-sharing agreement with British Airways in March 2013 on the “Kangaroo route” between Australia and Britain – a relationship that has existed in some form since the flying boats that used to ply this route decades ago
will stop its daily Sydney-Frankfurt and Melbourne-Frankfurt flights from April next year which lose money
make London its only European port (Qantas also used to fly to Amsterdam, Athens, Rome and Vienna)
code share on Emirates flights between Australia and New Zealand

two men in suits standing in front of a screen with airplanes in the background

Both airlines will align their frequent flyer programs allowing customers the ability to earn and redeem points with each airline. In addition the carriers will provide reciprocal access to tier status benefits including lounge access. A further benefit to Qantas Business and First passengers on flights of 12 hours plus is that they will be provided the chauffeur driven service Emirates has which takes passengers to and from the airport.

From a passenger point of view, the deal is brilliant. Passengers will have access to 120 Emirates destinations with just one connection at the Emirates Terminal (Terminal 3 in Dubai). Skytrax rates Dubai airport as a 3 star and Terminal 3 as 3 and a half star. I personally thought connecting at Dubai airport was superb.

close-up of a credit card and a gold card

The points sharing and reciprocal benefits are all great. As a Qantas Gold Frequent Flyer, I do not fly Emirates as much as I would like because of my lack of status with the carrier. Emirates has been my favourite airline in the world for the last few years. I love their trans Tasman (New Zealand- Australia) A380 services but don’t use them as much because of my lack of lounge access, priority boarding and points. NB Their Trans Tasman 777 is very squishy but still nice.

There is no word on fares. Emirates have been traditionally quite aggressive on fares. Will this continue under this arrangement?

Qantas have promised they will focus on better serving Asian destination from Australia with a schedule focussed on local passengers rather than those flying onwards to Europe. They don’t say, however, if this will be via Jetstar or Qantas International but it definitely sounds like it puts to bed Joyce’s strategy of starting a Premium Asian carrier.

One of my concerns is that passengers wanting to use Qantas to go to Europe will have a choice of Qantas to Dubai and then Emirates or Qantas to London and British Airways. With the Dubai option, one wonders how many people will ask “why bother?” and choose to book with Emirates the whole way?

Emirates has traditionally avoided alliances. They have some code sharing and Frequent Flyer links. For example, with JetBlue in the USA. earlier in This deal is indeed a major departure for them. Will this be the route for Emirates into the One World Alliance that Qantas is a member of? Or does this potentially mean Qantas may exit the One World alliance?

This new alliance raises the ante vis a vis the Virgin Australia-Etihad alliance. Despite speculation that it would be a Qatar -Qantas tie up: “Most certainly we will have a partnership with Qantas” said Akbar al-Baker Qatar CEO in July,
Qatar is now locked out of an alliance with an Australia domestic carrier. This is where it could get very interesting. British Airways Holding parent Company IAG had held discussions with the Doha-based Qatar over the purchase of the 12 per cent stake in IAG. There was intense UK media speculation that IAG would develop a new alliance with Qatar which would give BA reach into Asia and Australia. It does not give Qatar access to the Australian domestic market unless they take on Tiger Australia or REX (both scenarios are unlikely).

On the day the deal was announced, Qantas shares leapt almost 7 per cent. However, following the announcement Standard & Poor’s who placed Qantas on negative credit watch on June 7, 2012, lowered Qantas’s corporate credit rating from BBB/A-2 to “BBB-/A-3” over concerns that “Qantas’ business risk profile has weakened because of the structural pressures affecting the airline’s international business”. They noted the flow on effect of the Emirates deal “may take some time to eventuate”. The Standard and Poor announcement came after the close of trading on the Australian Stock Exchange, so it will be Monday Australian time, before we see the effect on their share price.

So the deal, I think “saves” Qantas International (and Alan Joyce’s job), at the expense of fewer direct Qantas destinations, a reduction in Qantas services, a farewell to the historic Kangaroo route and inevitable job losses. The deal does not change Qantas cost base or its acrimonious relationship with its staff. Longer term, I actually see this deal as another nail in the coffin for Qantas International. Qantas is now tied to Emirates. It makes it very hard to develop alliances with any other carriers. I wonder long how it will be before Emirates becomes Australia’s international airline with Qantas becomes simply a domestic carrier or Jetstar looking after international routes.