An intriguing story of Qantas and Singapore playing kiss and make up
Readers of Wednesday’s Australian Financial Review would have
noticed a story on the front page about Qantas and Singapore Airlines,
with this headline, “Turbulent times unite Qantas, Singapore” (the
story is in the premium section of the website).

It was an unusually well informed story about the burgeoning “love
affair” between Qantas CEO, Geoff Dixon (known to Qantas staff as GOD)
and Singapore Airlines, for years the company Dixon and his
predecessors have done most to keep out of Australia.

Now they are all palsywalsy, according to the Tansy Harcourt story,
co-operating on the infrastructure to train people and service and
maintain the new Airbus A380 super airliner, for example. But
it’s also a story full of code. Take the third paragraph which reads,
“both face growing competition from Middle East carriers such as
Emirates Airline picking off lucrative Asian and European routes and
the relentless pressure on costs”.

This new code was first exposed in a letter last month to the AFR by Mr Dixon which was discussed at length by Crikey.
In it Mr Dixon hits out at unfair competition from foreign
government-owned carriers, such as Emirates, and how the international
playing field isn’t level. (And it isn’t level in Australia either,
GOD).

Now in a report, that was obviously based on a good briefing, the same
code word pops up. Emirates, and the sort of airlines it represents,
are the new bogeymen at Qantas, replacing the giant low cost operators,
which was always code for Singapore (and to a lesser extent Cathay and
the bankrupt carriers of the US and Europe).

There’s a touch of “Reds under the Bed” paranoia in all of this.
That Qantas is now openly talking of or suggesting closer relations
with Singapore is a sign of how quickly the new campaign has swung into
gear. Expect a lot more of this when the company produces a very good
profit on August 19.

It’s as though the ambition to secure a foothold over Air New Zealand
is rapidly passing and GOD and the Qantas board are looking very much
to a newer and bigger playing field, and doing what every ambitious
business tries to do, tilt the field in its favour.

So if Air New Zealand’s case gets the greenlight after the current
appeal in New Zealand ends, and Qantas persists with an appeal in
Australia, there could be quite a difficult decision for the airline to
make.

So what else comes out of the article. Well its amazing how long
it’s taken for the penny to drop about Qantas’ ambitions in Singapore.
This is what Crikey said in April when the low cost Asian airline idea
was announced.

“So with Temasek on board, Qantas’ move into Singapore has the blessing
of the Government and more importantly, the Lee family And while the
new airline has to get a Singapore air operating certification, the new
start-up is not expected to have any hiccups and will start operations
later in the year.”

Here (Strange Qantas alliances in Singapore) that was the first overt sign that Qantas was trying to make peace in Singapore.

But there will be a cost, and it will test the resolve of Qantas to this new ‘friendship’.

Singapore (and Cathay) want to fly to Australia, and then onto the US
west coast. When the so-called Open Skies Agreement was signed with
Singapore, Qantas managed to get any discussion of that put off
indefinitely.

There are now reports that Singapore Airlines and the Government are wanting to progress those talks again.

Likewise Cathay. When Qantas won the right to fly Hong Kong London
(with Virgin Atlantic also approved) Qantas again managed to fight off
an attempt by Cathay to fly to the US from Australia. Should Singapore
now win approval because its new best friend is Qantas, then you can
expect Cathay to come calling very quickly. How will Qantas play that
one? How will it justify hopping into bed with a Star Alliance giant
like Singapore, while spurning a One World fellow carrier?

Then there’s the question of why Qantas doesn’t service the Middle East
any more. The Red Roo likes flying the Kangaroo Route through
Singapore, with the other main route through Bangkok, because of the
number of Australians who want to travel to Thailand.

Both are very profitable, the Kangaroo Route immensely so at the
moment. From both Bangkok and Singapore, people wanting to travel into
the Middle East can go Thai, SIA, Emirates, Gulf Air or a number of
other carriers. Qantas used to fly into the Middle East years ago. It
is well within its capabilities to return and compete with Emirates and
Gulf and others, but it seems to be choosing to play the injured party,
with the ‘unfair competition and titled playing field line”. That’s a
phoney argument, but one that seems to have been swallowed by the AFR.

Then there’s the question of the Joint Services Agreement with British
Airways that covers the Kangaroo route to London via Singapore. By
hinting at closer relations with Singapore, Qantas is saying to BA that
the JSA is not as important as it once was and that if it cuddles
closer, a new agreement could be quickly struck with Singapore.

BA owns around 18 per cent of Qantas. Could a spurned BA, which needs the cash, sell to Singapore?

That way there would be no problems with the Qantas (Foreign
Shareholdings Act) that limits total foreign holdings in the Australian
airline to 49 per cent.

Having Singapore join BA on the Qantas register and board would be
fraught with tension. And would in all likelihood be rejected by the
Government, the ACCC and probably shareholders.

Getting BA off and its shares into Singapore’s hands would be a much simpler way to go.

So what can be done to convince BA boss, Rod Eddington, that it should
happen. Well, Rod’s returning home to Australia in the next year, so he
might not be around to frustrate any sale.

And finally, Qantas seems to have put a lot of trust in dropping this
new line to the AFR. But then for the past couple of years or so the
Airline had a receptive ear in journalist Jane Boyle, who managed to
get a number of scoops and good stories. She left the AFR and went to
work in Qantas.

But there’s another fascinating link to remember. AFR editor
Glenn Burge is good friends with John Alexander at ACP and PBL. They
worked together at John Fairfax. JA is close to Geoff Dixon, and James
Packer is on the Qantas board (and Qantas chair, ‘Dame Margaret Jackson
has just decided to bail from the Fairfax board).

An intriguing network and a fruitful basis for speculating at just how well based the AFR story was.

Whether Qantas and Singapore do kiss and make-up, or whether this is
just an ‘unholy alliance’ created to fight these big nasty foreigners
from the Middle East, will take time to emerge.

Certainly Qantas wasn’t backward in frustrating Singapore’s ambitions
with Air New Zealand and Ansett, so there would be a lot of “don’t
mention the war” if an Alliance is to happen.

But will a deal be done if it involves any diminution in the Australian control and shareholding of Qantas?

Not under a Mark Latham Government.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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