Qantas takes flight to Asia

Combine an international division that is chronically losing market share and money, the success of its current joint ventures in southeast Asia, and Asia's huge growth potential, and it is little surprise Qantas has tilted its restructuring towards Asia.

The Oneworld carrier's decision to base a new premium airline in southeast Asia and to form Jetstar Japan as a low-cost joint venture with Japan Airlines and Mitsubishi, are the cornerstones for what Alan Joyce, Qantas chief executive, calls, "a new direction for a great airline that has become a poor business".

In tandem with these Asian forays, Qantas will fly fewer seats on the Kangaroo route as it turns over its flights beyond Hong Kong to London to Oneworld partner British Airways.

Qantas will order 110 A320s (including 78 A320neos), along with 194 options and purchase rights and defer delivery of its final six A380s by up to six years to save costs. The fleet revamp will also see all but nine of its Boeing 747-400s retired. A thousand long-haul flight crew and managers are being laid off as a result of these cutbacks.

Qantas will refurbish its remaining 747s to extend their life, and bolster its alliance agreements with American Airlines to North America, LAN to South America, and Malaysia Airlines within and beyond Asia.

The overall thrust of this restructuring is to place less emphasis on Qantas flying long-haul with its own metal, more emphasis on alliance partners and, most significantly, more emphasis on Asia.

In what may be only a slight overstatement, one Australian commentator says the focus is on "transforming Qantas from an Australian to an Asian global carrier". Joyce himself describes the new Qantas as a "global, multi-branded" enterprise.

Joyce makes no apologies for tilting Qantas towards Asia. The airline is about to do the "smart things that smart companies should be doing in Asia", he says. Jetstar Japan, which has been in the pipeline for some time, will give the group access to north Asia, just as the low-cost phenomena there starts to take off.

"Asia must be part of the rebuilding of Qantas International," Joyce says. "Lowy Institute research shows 16% of the world's middle class will be located in Asia within 20 years." In his view, "no Australian company can afford to ignore these opportunities".

Joyce has not disclosed the base for this new airline. Singapore and Kuala Lumpur head the speculation. Nor has he proposed a launch date, but he is certain the new airline will not carry the Qantas or Jetstar brand.

"The carrier's location is being finalised," he says, "but it will draw on Qantas's credentials in brand management, aviation safety, customer experience, finance and marketing. It will deploy 11 A320s in a premium configuration one same-day services within Asia and between Asia and Australia.

Nationality laws prevent Qantas from owning this new carrier outright, but that is not a novel concept. Qantas already holds minority stakes but effectively runs Jetstar Asia in Singapore and Jetstar Pacific in Vietnam.

As Alan Khee-Jin Tan, a University of Singapore law professor, has noted: "As far as [southeast Asian] governments are concerned, the question of effective control seems less critical as long as foreign investors own no more than 49%."

A key difference here is that all cross-border joint ventures in Asia so far have involved low-cost carriers. A full-service airline could draw a different kind of flak from the incumbent network airline in whatever country Qantas picks for the premium carrier's base. Indeed this opens the prospect of Qantas taking a minority stake in an existing Asian carrier if it can gain sufficient control, rather than starting a new one from scratch.

In any case, as another Australian commentator puts it, the new Asia emphasis is "brash, bold and certain to anger" Qantas unions. As expected, it already has.

Source: Airline Business