Qantas reclaimed some of the headlines today with TV and radio bulletins saying it was “close to forging an agreement with Emirates Airways”.
An unfortunate choice of word, forging. The outing of a possible or potential closer commercial relationship between Qantas and the giant Middle East carrier, on which it has heaped years of insults and invective, had better be real otherwise the departure of the current group CEO Alan Joyce, and pressure on the entire board of directors, will be rapidly escalated by the investment community.
A deal, as discussed in sober terms by The Australian Financial Review, has been in and out of focus in recent months.
It is badly needed from the perspective of Qantas shareholders, and could prove pivotal for changing the current trajectory of the carrier, which is steeply downwards internationally, and of questionable strength in a domestic market where Joyce had admitted to “yield weakness”, yet embraced a capacity and fare war with Virgin Australia, a formula which, overseas, has always ended in disaster for large legacy carriers such as Qantas.
However, whether or not a deal is done, and done with an Emirates that doesn’t need any help from Qantas, not even domestic connections in Australia, the sudden media focus on the talks creates a new credibility challenge for the flying kangaroo.
It has recently done the rounds in Canberra, lobbying parliamentarians as to the evils of letting an Arab-owned airline Etihad Airways, expand its equity and influence in Virgin Australia.
But at the same time Qantas was literally begging an even bigger Arab airline, Emirates, to enter into a similarly beneficial relationship to that which now exists between Virgin Australia and Etihad.
It was only after it initially failed to persuade Emirates to enter such a relationship that Qantas suddenly remembered to inform the ASX, on June 5, that its so-called underling net profits would be up to 91% less than previous guidance, in the financial year to June 30.
This abuse of governance in terms of continuous disclosure didn’t raise an eyebrow in the ASX, but it did cause a collapse in the Qantas share price from which it hasn’t really made any significant recovery.
Qantas cannot afford another debacle like the so called Red Q project to set up an Asia-based, premium product, single-aisle carrier, which, for all the bombastic language from Joyce, came to nothing. That was in itself unsurprising given the complete lack of tact and cultural sensitivity with which the man News Corporation anointed as a gutsy little Irishman went about boasting that the carrier it was going to launch by December last year would take over established markets controlled by established carriers in south-east Asia and cross subsidise Qantas long haul.
It is thus really important for Joyce, as well as long-suffering Qantas shareholders, for him to deliver something real in relation to Emirates before the ignominious release of its annual results on August 23.
A straightforward code share won’t cut it either. If the deal is just to fly Qantas metal to Dubai to hand passengers over to Emirates, including a closure of its last continental European service to Frankfurt, the adverse reaction from carriers with whom it currently code shares, including British Airways Air France, Lufthansa and Finnair over Singapore, could be significantly damaging.
This displeasure could spill over into it other major one-world alliance partners, American Airlines, and Cathay Pacific, although the Hong Kong carrier hasn’t enjoyed a harmonious relationship with Qantas for a long time and is openly hostile to Qantas plans to set up a Jetstar franchise in Hong Kong.
Qantas is in trouble in its international operations. It is the only airline standing still or in retreat in the market between Australia and the rest of the world in what is a period of unprecedented expansion.
There is more than Joyce’s head at stake in this situation.