Home World Business Emirates tie-up puts bounce back into Flying Kangaroo

Emirates tie-up puts bounce back into Flying Kangaroo

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When Qantas entered into its first partnership with Emirates five years ago, the Flying Kangaroo was a very different beast to the one it is today. The international business was losing hundreds of millions of dollars, fuel was expensive, the cost base was too high and the airline was trying to ditch loss-making routes.

It’s fair to conclude that when that marriage was thrashed out, the Middle Eastern partner was in a far stronger negotiating position. There was plenty of commentary written that Qantas didn’t benefit to the same degree as Emirates.

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This may have been so, but the reality is that regardless of which airline posted the biggest gain, the deal did ultimately play a part in the revival of Qantas’ fortunes. It provided access to Qantas customers with greater frequency and a far wider network of European destinations without the need and the cost of using its own planes.

Fast forward five years and Qantas and Emirates are back at the negotiating table and so much has changed.

Qantas and Emirates are back at the negotiating table. Qantas and Emirates are back at the negotiating table. Photo: Nic Walker

Firstly Qantas is not the financially undernourished creature it was – indeed over the past two years it produced record profits and the international division reported underlying earnings before interest and tax of $327 million in 2017.

There are still plenty of reasons why the partnership with Emirates works, most of which involve access to routes and frequent-flyer programs.

But it is hard to imagine that this agreement cannot but favour Qantas more than the previous one.

While not suggesting (as Qantas boss Alan Joyce and Emirates chief Tim Clarke do) that this isn’t a win-win, one gets the impression that Qantas has spread its wings a bit further in this relationship.

London calling

There will be less overlap with Emirates, in that both carriers will no longer fly from Australia to London via Dubai. This will be strictly an Emirates route, even though Qantas will code-share on it.

Qantas instead will offer two different ways to get to London – using Qantas aircraft. The first will be from Melbourne via Perth then non-stop to London and the second will be from Sydney to London via Singapore. Emirates will code-share on the former route and on the Sydney to Singapore leg of the London flight.

The additional detail announced by the partners on Wednesday will see Emirates all but cut Australia out of its Dubai to New Zealand route, with one Sydney-Christchurch exception. This will allow Qantas to greatly boost the capacity of its east coast flights across the Tasman.

Qantas admits that the changes will see more people flying on Qantas livery. Logic suggests this will be more financially beneficial for Qantas because (again) logic suggests airlines will make more money from a passenger sitting on their airline than on one with which it code-shares.

The magic formulae that the partners use to share the spoils of this agreement is one of the best kept commercial secrets of all time.

But this is not something the partners are prepared to discuss. Indeed, the magic formulae they use to share the spoils of this agreement is one of the best-kept commercial secrets of all time. Both parties prefer to say that it is far more complicated and invoke the “win-win” explanation.

One of the other big changes over the past year has been the increasing importance of traffic between Australia and Asia.

Under the Qantas-Emirates partnership Mark I, Qantas abandoned its Asian hub to London, but these days clearly considers it a must in its route network.

Where five years ago Qantas international was looking to reduce routes, the huge reduction in the cost of fuel has enabled it to start adding new ones.

The third change in the airline industry is technology and this is likely to become the biggest factor in determining how the partnership will look in another five years.

Advances in aircraft technology now allow Qantas to offer a non-stop flight from Perth to London and Joyce is certain that in five years the airline will be flying from Australia’s east coast direct to London and New York.

There are whispers that even the aircraft being delivered next year will open up some interesting route options; one being talked about is Brisbane to Chicago.

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