Transport Airlines

British Airways seeks new Asian partners after Qantas deal ends

Sep 06, 2012 8:32 am

Skift Take

Does this mean BA will run into the arms of Qatar Airways, the only mid-east giant left after Qantas-Emirates, Virgin-Etihad?

— Rafat Ali

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British Airways said it’s seeking a new partner on flights to Asia after Qantas Airways Ltd. terminated an existing alliance to cooperate with Gulf carrier Emirates, the world’s largest airline by international traffic.

A revenue and cost-sharing tie-up between BA and Qantas that has spanned 17 years will end in March as the Australian company seeks to end losses on international routes through an accord with Emirates that will let it add more than 60 one-stop destinations via the Middle Eastern carrier’s hub in Dubai.

Willie Walsh, chief executive officer of International Consolidated Airlines Group SA, BA’s parent, said “the world has changed” since the tie-up with Qantas began in 1995 and that any new arrangement is likely to address the wider Asian market.

“This is a small part of our overall network and this move fits in with changes in our global strategy,” Walsh said in a statement. “Asia has become a key market focus for IAG and we’re talking to a number of airlines about alternative options.”

Revenue-sharing alliances are the deepest form of airline cooperation short of full mergers, allowing carriers to split sales receipts and expenses, coordinate prices and align timetables. Qantas will remain in the Oneworld grouping and continue joint sales with BA via codeshares, which let carriers sell tickets on each other’s flights as if they were their own.

‘Amicable’

IAG traded 1 percent higher at 141.10 pence as of 9:26 a.m. in London, paring the stock’s decline this year to 4.3 percent and valuing the company at 2.62 billion pounds ($4.2 billion). Qantas closed up 6.7 percent at A$1.20 on speculation that the 10-year Emirates deal will revive long-haul operations that lost A$450 million ($461 million) in the year ended June.

Under their joint venture, the airlines have shared revenue and costs on all U.K.-Australia flights, with British Airways operating daily between London Heathrow and Sydney via Singapore and Qantas daily on that route and also to Melbourne. IAG’s Walsh said the accord was ending on “amicable terms,” and that he supports Qantas CEO Alan Joyce’s plan to link with Emirates.

Qantas has struggled to compete with Mideast airlines that have built hubs in the Persian Gulf to offer a wider range of connections to Europe. Under the Emirates accord it will shift its European transfer hub from Singapore to Dubai, which will be served by 98 flights a week from Australia by the two airlines.

“It’s a huge step in the right direction,” said Sondal Bensan, an analyst at BT Investment Management Ltd., whose parent Westpac Banking Corp. owns 5 percent of Qantas and who estimates the Emirates deal will probably be worth more than A$90 million a year to the Sydney-based carrier.

Fare Coordination

Emirates and Qantas will coordinate pricing, sales and scheduling under the new accord, which still requires regulatory approval. The airlines will also align their frequent-flier programs, allowing passengers to earn points on both carriers’ flights. Neither company will buy equity in the other.

Qantas will begin flights to Dubai from Melbourne and Sydney using Airbus SAS A380s. These trips will continue to London. The carrier will end operations to Frankfurt.

The deal gives Qantas passengers one-stop services to more than 70 Emirates cities in Europe, the Middle East and Africa. Emirates will gain access to Qantas’s domestic network covering more than 50 destinations. The airlines will also coordinate Australia-New Zealand and Australia-Southeast Asia services.

The Australian carrier will also reorganize services to Asia to offer passengers a 25 percent increase in connections via Singapore, boosting dedicated capacity to the city-state as it shifts Europe services to Dubai.

Qantas posted its first annual net loss since listing in the year ended June and CEO Joyce has already pared overseas services, delayed arrival of new A380s and split international operations into a new unit in a bid to end losses.

Standard & Poor’s placed the airline’s BBB rating on review for a possible downgrade on June 8. The company and Southwest Airlines Co. are the only carriers worldwide to have investment grade ratings from both S&P and Moody’s Investors Service.

Shares of Virgin Australia Holdings Ltd., which cooperates with Abu Dhabi-based Etihad Airways on European routes, dropped 2.2 percent in Sydney.

–With assistance from Sarah McDonald in Sydney. Editors: Chad Thomas, Neil Denslow.

To contact the reporters on this story: Chris Jasper in London at cjasper@bloomberg.net; David Fickling in Sydney at dfickling@bloomberg.net

To contact the editors responsible for this story: Neil Denslow at ndenslow@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net

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