Qantas Smartly Leaves British Airways for Emirates

Alliances, British Airways, Emirates, Qantas

There was huge news from down under last week when the rumored link between Qantas and Emirates was officially unveiled. This certainly creates some confusion around Qantas’s role in oneworld as the airline backs away from British Airways but it is without question the right move to make.

Emirates and Qantas are In a Relationship

The Australia to Europe market is one of the most difficult around. There is no aircraft that can fly it nonstop due to the extreme distance. That distance also means that to fly it, you need to dedicate a lot of aircraft time to make it work. The result is that most European airlines have abandoned the market because they can’t generate the revenue to bother. Virgin Atlantic runs a flight via Hong Kong to Sydney but other than that, British Airways is it. (And whether either of them should be in the market is questionable.)

Australia from a BA Point of View
BA has long connected the Empire but it has cut services back dramatically in recent times. Long gone are flights to Perth, Melbourne, and Brisbane. Sydney service was recently scaled back as well. Instead of connecting through several different points in Asia, BA now runs a single flight via Singapore.

Part of the reason for this cut was that, of course, the flights didn’t perform well enough. But BA also felt comfortable knowing that its long-standing revenue-sharing agreement with Qantas on the so-called “Kangaroo Route” provided a great deal of service for those who wanted it. That worked for BA because it freed up a lot of airplanes, but it wasn’t a great deal for Qantas.

The Middle East Puts Qantas in a Pickle
Think about it this way. If you’re Qantas, you can send people to London and connect into the British Airways network. That isn’t really that appealing. Sure, you have better heft and service to London than you can offer on your own, but the connections from there aren’t great since travelers have to backtrack to most places in Europe. Most importantly, your customers have to stop twice; once in Asia and again in London. That may have worked for years, but then the Middle East woke up.

Emirates and others started to tap into the Australian market and promptly kicked Qantas in the butt. See, it’s easy to go nonstop from Dubai to Australia. In fact, for the upcoming southern summer, Emirates flies 19 times a week to Perth, 4 times a week to Adelaide, 21 times a week to Melbourne, 14 times a week to Brisbane, and 21 times a week to Sydney. Some of those go via Southeast Asia, but most are nonstop. And we are talking big aircraft here with a mix 777s and A380s. Emirates then goes beyond those cities into New Zealand and has started to take traffic there as well.

What does it do with all of those Aussies (and Kiwis)? It brings them to Dubai and then gets them with just a single stop to anywhere in Europe and Africa. The idea that you can fly Emirates with one stop from Adelaide to Birmingham in the UK is mind-boggling but it works. Why would you ever fly Qantas and BA if you could go far faster via Dubai?

This isn’t much of a secret. Emirates has made a huge name for itself in Australia over the last few years, but it isn’t just Emirates. Etihad now owns 10 percent of Virgin Australia and wants to do the same thing via Abu Dhabi. But clearly, Emirates and its expansive network is the real prize.

The Details
So what exactly is happening with this deal? Qantas is walking away from its agreement with British Airways and will enter into a new one with Emirates. There won’t be any equity exchanged, but it will be a “benefit sharing” operation with tight integration including coordination of pricing and schedules, or so they say. The details seem a bit fuzzy at this point but it’s not just a run-of-the-mill codeshare. It’s going to be deeper than that.

Qantas will now send daily A380s to Dubai from Melbourne and Sydney. Both those flights will go on to London, but that’s it for Europe. Qantas will axe its Frankfurt flight, as it should have done long ago. Really, I imagine it’s a national pride thing to even keep the London flight. Were I Qantas, I would just turn around in Dubai and let Emirates take people on to London as it’s doing in the rest of Europe. As part of this, Qantas will also end its codeshare with oneworld partner Cathay Pacific and with Air France.

Qantas Focuses on Asia
All these moves make sense for Europe, but they make even better sense for Asia. As Qantas put it, Asia has served a waypoint for Europe services and that meant that the times between Australia and places like Singapore and Hong Kong weren’t optimized for local traffic. The two Qantas flights from Singapore to Sydney, for example, both leave around 8p at night. The northbound trips both leave around 5p in the afternoon. That isn’t great for local traffic to bunch your flights up like that. Now Qantas can (as it should have done long ago) reschedule the flights for local demand.

What does this mean for oneworld? It shouldn’t mean much, to be quite honest. Sure, BA loses a big partner to Australia, but it should be able to route passengers via Hong Kong on oneworld partner Cathay Pacific if it wants to ramp that up. And it still has its own Sydney flights… for now. There are also rumors of Qatar Airways joining oneworld, and that would prove more feed. Besides, it appears that Qantas will remain part of oneworld for now, just a more distant partner in what is now a more fractured alliance. But Qantas will keep strong ties with Japan Air Lines – they have a joint venture for a low cost carrier in Japan – and presumably will keep strong ties to American here in the US. The alliance itself, however, is a bit weakened.

In the end, there is no doubt in my mind that Qantas made the right move here. Others may not like it as much, but that isn’t Qantas’s problem.

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23 comments on “Qantas Smartly Leaves British Airways for Emirates

  1. There’s, potentially, a huge upside for Emirates as well. EK is hitting the limit on the number of flights they can operate to key European countries (and Canada) that don’t have an open skies deal with the UAE (and aren’t going to strike deals as long as AF, LH and AC are squealing like children). QF, on the other hand, has any number of unused route authorities to these same countries.

    In the coming years (particularly once QF starts taking 789 deliveries), I’d expect to see a rebalancing of EK capacity – perhaps they’ll hand some Oz-DXB frequencies over to QF, who can then send the aircraft on to destinations that are restricting EK. MEL-DXB-BER, BNE-DXB-DUS, SYD-DXB-CDG, PER-DXB-YVR…

    1. Interesting thought, though I would be surprised to see Qantas dedicate its own metal to help advance the Emirates cause. Still, it is interesting to consider.

      1. But it’s a profit sharing arrangement, right? So why wouldn’t QANTAS operate these flights if they provided a sensible return on capital?

        1. It’s not entirely clear to me that this is a profit sharing agreement. I haven’t seen that anywhere. It’s a “benefit sharing” agreement. There are too many question marks for me at this point.

    2. +1 on the point of Qantas metal to use rights that EK doesn’t have. Germany is the obvious one. I think India could work to. Maybe SYD-BOM-DXB?

      Curious to see what the South East Asia cooperation is. EK flies DXB-KUL-MEL so maybe this involves Malaysian Airlines somehow.

      Interesting times and a bold move by Qantas for sure. QR’s alliance decision and India’s government are the next big things to look out for.

      1. Does Qantas actually have traffic rights between Germany and the UAE, regardless of what the UAE Govt may decide behind closed doors ? I would have thought someone in the Govt in Berlin would say the rights are available to just UAE and German domiciled airlines. Qantas would presumably be deemed an Australian airline and while it would have rights for Germany-Australia, would Berlin really let Qantas fly passengers BER-DXB in the face of lobbying from Lufthansa ?

        1. QANTAS certainly had traffic rights between many European countries and the UAE back before the 744, when most of their flight had a stop in the Middle East and/or India. I can’t imagine that the UAE has agreed to a more restrictive bi-lateral in the last 25 years.

        2. I kinda think this is what Rory said, but since these flights aren’t doable direct, they’ve probably had rights to haul traffic from their interim stops. So in this case they’re replacing Singapore with Dubai…

  2. Qantas’ problem was that it completely missed the 777 phenomenon. It therefore still runs a lot of older 747s in an environment where its competitors can run 777s with much higher load factors and much lower fuel burn and maintenance costs. ie it failed Fleet Management 101.

    By teaming up with Emirates, it effectively can dump some of its 747s and take advantage of the Emirates’ 777s to get to those other European cities.

    Had Qantas done as ALL its major competitors had done, bought the 777, then the strategy may well have been a tad different. Hub through somewhere in the middle east for sure with its A380s, but it could well have then used 777s to access a few more European cities of its own….profitably.

    1. Marks – I don’t think the 777 solves anything. It still doesn’t make sense for Qantas to serve a bunch of European cities. Maybe they lose less money with 777s than 747s/A380s but they still should just codeshare.

      1. Oh, indeed.

        But following that reasoning, why would Qantas even have an international long haul business to Europe?

        Quite apart from the fact that Qantas’ competitors ALL fly the 777 (which tells me that Qantas did make a strategic decision about the price of fuel and passenger numbers that went horribly wrong), Qantas, if it had the 777, could fly them from Dubai to various European capitals as a real partner to Emirates or Qatar or Etihad.

        1. “But following that reasoning, why would Qantas even have an international long haul business to Europe?”

          This is really the key point. At the risk of bruising the national ego, Australia is a small country (population-wise). Even throwing in New Zealand and some feed from the Pacific islands, there’s less than 35 million people in the South Pacific.

          As these are Commonwealth countries and the vast majority of the population are of British descent, it certainly makes sense for Qantas to fly to the UK. Beyond that, however, what European destination would have enough traffic to make a flight profitable even on a 777 or 787, particularly given the heavy competition from Middle Eastern and Asian carriers? Indeed, Qantas has progressively pulled out of all European destinations except LHR and FRA.

          Alan Joyce likes to go on at length about how unprofitable the international division is currently. Given that Australia’s future lies with Asia, he’s making a tactical shift by essentially abandoning the European routes to focus on the Far East.

          Presumably EK offered the best (or at least most profitable) option for connectivity to Europe. They’re bigger than EY or QR so they offer more options for passengers, and I imagine fuel and service costs out of DXB are cheaper than via HKG with CX, for example.

          The real question is how this will affect the airline alliances. If Qantas were really committed to OW they could have aligned more closely with CX or shifted the FRA flight to BER to connect to AB. Will EK join OW? Will QF leave and join EK elsewhere? What of the rumoured AA/US merger and those unattached Virgins? Could we see a new alliance forged?

          The airline industry is like a soap opera sometimes… or maybe more like Survivor.

  3. I think this puts Qantas into temporary respite, but long term danger with regards to customers flying to/from Europe. Emirates already (or soon will) flies to all the major Australasian destinations. They will use Qantas to increase the frequency, but will still serve all of Australasia in their own right anyway. Qantas will be left with just London (at least for the time being), and thus heavily dependent on Emirates to supply passenger feed. O&D traffic between Australasia and Dubai is minimal.

    What’s to stop Emirates terminating the agreement in a few years time, and effectively pushing Qantas out of Europe completely ?

    I think Qantas should have waited until Qatar Air was in One World, and then used Doha as their main hub – if only to guarantee long term mutuality of benefits and risk.

    1. Technology is mostly whats going to be the saving grace of most of the flag carriers. After all, if people can have direct flights without having to go through a hub, why would they? Theres always the argument about price, but its increasingly clear at most megahubs that there can only be so many connections and schedules made before people have to wait in an airport overnight or for multiple hours. I really do believe that as the 787 comes on board you’re going to see direct flights between medium sized markets open up and start to wrest back pax and business.

    2. David – There is nothing preventing Emirates from walking away down the line, but then there is also nothing preventing Qantas from partnering with others or reinstating its own flights. It’s not like Qantas is giving something up here it can’t get back if it so wanted.

      1. CF – I agree Qantas can start flying to anywhere in Europe again, but for such a long-haul route, it’s extremely difficult to get it going profitably in a short space of time. Once Qantas closes a station in Europe, it’s not going to be reopened anytime soon.

        I still think that Qantas is putting itself in a rather weak position / entering the lion’s den, making itself very dependent on Emirates for European passenger feed, while Emirates is not dependent on Qantas at all.

  4. Are you sure that no aircraft can fly nonstop from Europe to Australia? It can’t be that much further than say LA to Dubai, or New York to Singapore.

    1. Jim – Well, it depends on what we’re talking about here. Technically, can a plane fly between any part of Europe and any part of Australia nonstop? Yes. Istanbul to Perth is only 7,500 miles. But if we’re talking continental Europe to the business centers, then it’s a different story. Even Istanbul to Sydney is 9,293 miles. That’s just a couple hundred miles shorter than Newark-Singapore. London to Sydney is 10,573 miles, a full 1,000 miles longer than Newark-Singapore!

      1. The A340-500 (which is used on the Newark-Singapore Flights) can fly from London to Perth (on Australia’s West Coast) but not back. The next A380 is said to be able to fly from Sydney to New York and London. Link here

    2. Qantas has actually flown a couple of demonstration non-stop flights iirc, but the problem is weight. For that distance apparently, they can’t take a full load of pax and/or freight, so it is an economic issue.

  5. QF keeping London makes sense since its a large commonwealth nation and it’s the pride factor keeping the route so it’s government leaders can fly the home carrier to the U.K.

    Getting in bed with EK could help them since EK is bent on having a zillion large aircraft and flying to just about everywhere. So until that back fires one day it all sound perfect for them.

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