tip off

Qantas throws a match into bonfire of the airlines

The bonfires of airline consolidation are well and truly burning around the world today after the match was thrown by Qantas.

The QF+BA “merger of equals” discussion, which sources credit to former Qantas CEO Geoff Dixon, is to consolidation what the assassination of Archduke Ferdinand was to world peace in 1914.

It’s on.

Airlines with an arsenal of cash or rich backers are trying to seize the opportunities to get bigger by taking out the weak, either in pincer movements like a Qantas/British Airways combination, or by just driving them into a wall, like Lufthansa’s decision last week to start an Italian subsidiary, because Alitalia is such a basket case it isn’t worth buying.

BA has been struggling with efforts to merge with Iberia, especially since the Spanish made it clear they would be on top giving the orders, and with yet another limp-wristed effort to do a merger with American Airlines, which is itself in dire financial straits and put largely off limits by US restrictions on meaningful foreign equity in its airlines.

The UK media, which usually indulges in BA baiting, has lurched into indignation about a Spanish takeover of a forgiven national icon, especially after the Spanish took control of London Heathrow airport and succeeded in making it even more abominable than was thought humanly possible.

It is too early to know whether Qantas exerting influence over BA will lead to similar vilification. But until QF came along with a proposition that appeared even remotely possible, BA was looking flat footed in the consolidation race where Air France KLM and Lufthansa were miles ahead of them.

Lately it has been Lufthansa doing most of the running, mopping up control of struggling UK carrier bmi, buying a minimal stake in Jetblue, the US equivalent to Virgin Blue, and cornering a number of struggling smaller European carriers.

Richard Branson’s overtures to Lufthansa have been ignored.

However, the biggest blaze in monetary and strategic terms is in the Middle East, where Emirates is feeling the heat from Abu Dhabi, which sees getting control of the aggressively expanding carrier as part payment for bailing out the suddenly deflated Dubai economy.

Abu Dhabi has its own carrier, Etihad. A merger in any form with Emirates has devastating negative potential for Singapore Airlines and its hub at Changi Airport. Dubai is well and truly on the way to becoming the world’s leading super hub.

It can connect any city on earth non-stop, and is building a massive maintenance and overhaul aviation city as well. The announced investments in new fleet that will be deployed exclusively on Australian routes by Emirates and Etihad exceed the A380s on order by Qantas and Singapore Airlines.

Having spurned Qantas overtures to merge in the past, Singapore Airlines and Changi are under siege, not just by a QF+BA tie up, but super hub Dubai. Its investment at a seat in the table in future consolidation in Australia is as pathetic 5 jet narrow body fleet flown by its loss making Tiger Airways subsidiary.

The poor investment record of Singapore Airlines is discussed in more detail along with other aspects of any QF+BA merger in Plane Talking.

It is clear that Singapore Airlines, Virgin Blue, Air New Zealand and other SE Asian players with strong market shares and brands will be compelled to consider all options in the coming months.

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