When Qantas unveiled its stonking $2.8 million loss last month and revealed that it was spinning off its Qantas International business, it looked awfully like it was setting itself up for a partial sale to one of China’s ever-growing state-owned airlines.

The big four in China — Guangzhou-based China Southern, Shanghai-based China Eastern, Beijing’s Air China, and the upstart Hainan Airlines (the best of the lot as far as the in-flight experience goes) — are now the main conduits for the 709,000 Chinese tourists who piled into Australia last year. Qantas has egregiously missed the Chinese market.

It has tried to rectify this with half-baked code share agreements with Southern and Eastern. Last year, Qantas had investment talks with Southern, along with Eastern and Hong Kong gambling magnate Stanley Ho’s Shun Tak Holdings, the frustrated owner of a third share in Jetstar Hong Kong, still waiting for a licence, two-and-a-half years after applying.

Qantas International’s business — at both the full service and low-cost carrier (LCC) level — is looking much more like a mangy old kangaroo than a flying one, losing $497 million in underlying earnings before interest and tax last year. About half of this — more than $200 million a year or so in amortisation annually — was removed care of its overdue fleet write-downs, but there’s lots of work to be done on further cost-cutting. Qantas’ last remaining branded flight to Asia’s most popular city (the Sydney-Bangkok route) is about to face off against direct flights from the formidable Air Asia and NokScoot — a Thailand/Singapore cost venture — as early as the fourth quarter.

Jetstar’s offshore forays have also failed to convince. None of its other three Jetstar ventures — Jetstar Asia out of Singapore, Jetstar Japan and Jetstar Vietnam — now make any money. Vietnam is breaking even; Singapore just posted its first loss and is being pummeled from all sides by overcapacity and competition. In 2011, Qantas CEO Alan Joyce prematurely said that Jetstar was the region’s “leading low-cost carrier” — not any more it ain’t.

Clearly something needs to give. Without substantial investment, Qantas and most of Jetstar’s international business will have to be put down.

There is now bipartisan political support to increase the percentage that foreigners can own in Qantas to 49%, plus a further 49% of the soon-to-be-separately listed Qantas International.

Qantas and its odd bedfellow, Dubai-based Emirates, have made it clear time and time again that the Dubai-based airline is not interested in a financial stake in Qantas. Why would it be? As a state-owned operation, Emirates has a seemingly endless well of funding to draw upon; ditto its Gulf competitors Qatar and Etihad. They do not need Qantas.

It’s now been 10 years since British Airways sold out its 18.5% share in Qantas, the last we are likely to see of a European airline on the share register.

A slice of Qantas International, as well as potentially what will be the headstock, would also give a Chinese airline access to Qantas’ deep experience in providing top-of-the-range first and business class services; in this respect, the Chinese airlines are still neophytes. And they would get ready-made LCC Jetstar businesses to feed into and maybe move into the black.

Backing from Beijing would provide some desperately needed oomph to the company’s stumbling regional strategy. And Clive Palmer would doubtless back it to the hilt. As part of its so-called “transformation review”, the company promised no new Jetstar ventures. In many ways this is a no-brainer, as the low-cost carrier’s forays offshore have been pretty much a disaster.

With its proposed full-service Asian venture with Malaysia Airlines nixed by state-owned Singapore Airlines, which would not brook such completion on its doorstep, Qantas was left with a shotgun marriage to Emirates. The company is now getting similar treatment for its Jetstar Hong Kong venture, with no licence in sight. The addition of  Shun Tak and the move to hand the group the majority of board seats — a decision made earlier in the year but only announced publicly two weeks ago — as well as Ho’s decision to install his daughter, Pansy Ho, as chairman does not seemed to have helped.

Cathay Pacific is pushing back with all its firepower; the relationship between the two oneworld partners is poisonous. Cathay is pushing Qantas Frequent Flyers to the  head of its upgrade queues in the hope of winning them over to its newly configured business and premium economy services — Cathay was recently voted the world’s best airline.

Qantas is on the verge of pulling its double-decker A380 off the Hong Kong route (and onto the Sydney-Dallas run). This would be replaced with reconfigured 747s with roomier business class — a sign Cathay is eating into its market share. The latest signal that Jetstar Hong Kong may be hanging by a thread was China Eastern recently announcing its own Shanghai-based LCC. Jetstar Asia has sold off six of its nine planes, with the other three gathering dust in the hanger at Airbus Industrie headquarters in Toulouse. Yet Qantas/Jetstar is stubbornly hanging on for what is potentially a big prize.

“There is no doubt that the approval process is taking longer than expected for Jetstar Hong Kong.  However, all three shareholders — Shun Tak, China Eastern and Qantas — remain committed to the airline, which will provide low-fare travel for the people of Hong Kong,” a Jetstar spokesperson said. Even Trade and Investment Minister Andrew Robb has weighed in with a behind the scenes lobbying effort, Crikey understands.

Joyce has consistently railed against government-funded carriers pumping money into rival Virgin, which is now bleeding cold, hard cash; could he, in all good conscience, stomach such a rescue? Of course he would. It may be his last roll of the dice.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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