05 December 2013

The future for Qantas (and British Airways??)

This blogger published today this article on the magazine Business Travel ´s discussion forum. I thought why not share it on my blog.
The advantage for BA is quite obvious.


Buying Business Travel (BT´s sister publication??) today 5th December published this article:
"Qantas to cut 1,000 jobs as bookings slump"

This and other news media talk about Qantas´ difficulty in surviving in a difficult downward looking market and as a (at least) perceived government owned flag carrier.

This was in addition to the interesting article CAPA published today about Qantas which explains the whys and wherefores of its woes.
"Is Qantas and Australia’s aviation system in meltdown? No, but challenges are all around"

The comparison is made with Virgin Australia which is very boyant and aggressive. Apparently the rules and regulations about ownership are different in each airline.

Qantas has a limit of 25% to be owned by any single foreign airline (that is what BA bought in the tranch of shares sold by the Australian government on partial privatisation of QF.). To that must be added the clause which permits various foreign airlines together having up to a grand total of 35% of the stock.

That clause is the reason Etihad, Singapore Airlines and Air New Zealand as well as Virgin group are all shareholders of V.Australia. However, since there is another clause which permits 100% foreign ownership of domestic airlines(management must be local), the intrigue does not stop there.
"Virgin’s international ownership and control integrity is protected by ring-fencing the international operation from the domestic operation."(CAPA)
This means that the four aforementioned groups own 80% of the domestic operation.

The importance of this is mentioned by CAPA again "A recent equity raising by Virgin, made easier thanks to these shareholdings, has provoked indignation from Qantas that it is being forced to fight on unequal terms with Virgin Australia."

All this means that Qantas wants to bite the bullet, change its ownership structure to fight on equal terms against V. Australia and sort out its antiquated work pratices.

On the same lines Airwise/Reuters published this article today as well
"Qantas Pleads For Australian Govt. Intervention"

This explains the problems QF faces with the Australian government and Parliament as it wants to increase the 49% foreign ownership(not only airline) limit. It does, however, illustrate that the airline is attractive to investors not least because of its "underlying profit to AUD$192 million for the most recent financial year."(Airwise) and
 "...the world’s most valuable airline frequent flyer programme that serves to deliver considerable loyalty and enormous revenue streams."(CAPA)

That means a string of foreign airlines could be interested.
Emirates is the first and most obvious - in order to protect its partnership with QF. Could that then mean that Emirates would start on doing an Etihad - investing in other airlines to build world partnerships? My view is that Emirates would not invest (be allowed to invest??) alone. It would be with another or other partners but who?

The other obvious conclusion is to look at QF´s alliance - oneworld. Here there are various possible suitors BA, Qatar, Malaysian and Cathay Pacific, at least.
-BA is too far away to invest on its own.
-BA and Qatar - this is a possiblity with QF transferring its flights from Dubai to Doha. It solves the problems of connections with European cities (as with Emirates but not so threatening for BA)and solves the lack of penetration of Qatar in the Australian market.
-BA and Malaysian: not as attractive as Qatar but connecting through Kuala Lumpur is a possibility.
-Cathay Pacific with BA is probably an impossible dream but
-Cathay Pacific alone is a strong possibility especially with regard to the Chinese market with Dragonair. It might mean QF dropping its amibitions of a LCC Jetstar subsidiary based at Hong Kong.

In another thread on BT...
"British Airways Rumoured to be Axing Historic London-Sydney 747 Route"

....there is a lot of speculation as to why BA is the only remaining European carrier to fly the long route.
I would say that there could be two reasons
1- to protect its own market share on this traditional route with a lot of business, family and sporting connections whatever happens and
2- to reinvest in Qantas with others to protect its own interests and its plans with oneworld - especially with Qatar.

If the rules on foreign airline ownership were changed so as to be the same as Virgin Australia`s then I am sure that BA would(should) jump at the chance. We shall see.