Isn’t retrospect a marvellous thing? Here is a prospective view on something that will over time be subject to retrospect. One day, we will look back at the Emirates-Qantas deal announced on Thursday and opine that it was a turning point.
It is too early to make that call, of course, but the deal itself is worthy of inspection now. It is a major move from two of the world’s most influential airlines. Emirates’ position in the industry needs no introduction. It is now the world’s largest international carrier. Qantas is no longer the international powerhouse it once was, but its CEO [Alan Joyce] is the chair of the industry’s trade association, IATA (International Air Transport Association). It sits on many of the most important committees in the industry and it has been a significant player in many of the air transport industry’s developments.
That includes alliances and “metal neutral” agreements with anti-trust immunity. The Qantas (QF)-British Airways (BA) deal was in fact the first of these arrangements. Judging from the announcements Thursday, that expertise will once again be put to use in negotiating what appears to be a very similar deal with Emirates.
The deal is interesting on at least three levels.
First, from Qantas’ side, it is a complete admission that it can no longer offer competitive products to Europe over Singapore/Bangkok and then Heathrow. Its passengers worked that out years ago and have been deserting the airline in droves. By outsourcing its European operations to Emirates, it can focus on its Asian operations. Qantas may have decided to become an Asia-Pacific regional airline, but that is not a bad region to focus on.
Secondly, this shows that Emirates’ management is not doctrinaire, but pragmatic. Having said for years that alliances were anti-competitive and destructive, this looks a lot like an alliance from the outside. But it is more than just a case of if-you-can’t-beat-them-ism. This deal cuts across the entire BA-QF relationship, making the BA European network irrelevant to most Qantas passengers and the revenue that BA expected from them disappear.
Thirdly, the deal is a double down on the strategy Etihad Airways has been pursuing around the world, without the capital expenditure. The management of Etihad can almost take it as a compliment. It shows that in a network industry like aviation, passenger feed is everything. Passengers need to get onto the network and then stay on the network.
By doing the deal with Qantas, which has a larger network within Australia and across the Tasman than Etihad’s partner, Virgin Australia, Emirates is taking the fight to Etihad’s Australian aspirations.
Prospectively, this will in retrospect be seen as an interesting day.
(Andrew Charlton is Managing Director of the Europe-based strategic advisory, government and public affairs firm, Aviation Advocacy)
