Race to the bottom of the world

Written by editor

Australia is in the news, aviation wise. The revered national carrier, Qantas (QF), has been featured quite a bit of late and most of the coverage focuses on its struggles to remain viable.

Australia is in the news, aviation wise. The revered national carrier, Qantas (QF), has been featured quite a bit of late and most of the coverage focuses on its struggles to remain viable. This week there were two additional bits of news regarding the carrier. In the first, a previously abandoned joint venture with Malaysia Airlines (MH) may still have a pulse. But that tidbit is overshadowed by word that Qantas and Emirates (EK) – one of its great nemeses of late – may be working on a plan to cooperate.

This has led to speculation that Emirates may not be completely adverse to joining a global alliance, with oneworld most often mentioned. While Qantas might benefit from such a move, it is difficult imagine that British Airways, a much larger oneworld member would be excited by that prospect. Emirates already drains UK traffic from 5 airports in the UK plus Dublin; cities whose travelers perhaps used to be BA customers but now travel with a single stop over Dubai.

Looking at the present reality, the more likely impetus is that Qantas has decided to simply accept the massive Emirates presence in Australia and try to extract benefit where it can be found, primarily in domestic feed to EK’s global reach. Emirates presently has 10 flights per day to various points in Australia, and on the few flights that stop enroute, EK has local traffic rights, meaning a competitive presence between points in Australia and Southeast Asia as well.

And soon, another
Later this year, Adelaide will be added, providing the city with its first and only long-haul service outside Asia. Though having a population of but 1.2 million, EK will provide the sole one-stop possibility for travelers to Europe, Africa, the Middle East, and even the US East Coast. Once this flight goes daily in 2013, Emirates will operate about 4,000 seats per day to and from Australia. Add to that the multiple services of Qatar and Etihad, and it becomes evident just why Qantas is having trouble mustering sufficient traffic to the west.

All of these seats are being operated into a country with 22.7 million inhabitants – number 52 globally in terms of population. In terms of GDP and personal income, it ranks in the low teens on various charts. It appears that the steady rise of Australia as a tourist and business hub has actually been a problem for Qantas: unable to create a hub due to geography and with few foreign destinations that will profitably support direct or nonstop service.

A quarter century ago, QF operated to most European capitals, bouncing across Europe on the aptly-named Kangaroo route. Now only London and Frankfurt remain, with London having but a single daily service and Frankfurt rumored to be on the chopping block – probably due to the fact that FRA is one of Star Alliance’s major global hubs – limiting feed to a oneworld member.

Some bright spots
One of the positives for Qantas is that its vast natural resources are vital to China and other developing Asian economies. A decade ago, there were 8 flights between Sydney and Beijing, 5 to Guangzhou, and 6 to Shanghai. While Beijing still has 8, Guangzhou and Shanghai have 14 and 18, respectively, with QF operating 7 of the Shanghai services. Though the Chinese carriers have an edge at present, at least geography puts China off limits for service via the Gulf.

If Qantas is to continue to have any portion of traffic to the west, it needs one of the Gulf carriers – or perhaps Turkish – with vast networks to Europe and Africa from their hubs. Unfortunately, Sydney-Istanbul is a bit far for current aircraft, so alternative connections are limited to Southeast Asian cities like Bangkok, Singapore, or Kuala Lumpur. The advantage that accrues to the Gulf hubs is a far greater number of destinations that are available with a single connection. At stake are hundreds of millions of potential passengers headed to Australia from across the western hemisphere.

And there is yet one more concern in such a link-up: Emirates claims to have rather low unit costs while Qantas is in a constant battle to get its unit costs down – the source of much of the current labor/management friction. That raises the question as to whether a Qantas/Emirates interline journey would have the same trip cost as a journey using only EK’s metal. If the cost components fail to match up, the economic viability of the venture is lost.

Skewed benefits?
And while a domestic-linked feed to its Australian services might be beneficial for Emirates and its peers, the potential market – even if everyone took a trip – is under 23 million, making it a “nice to have” as opposed to Qantas’s “need to have.”

Aviation is full of surprises and one is wise to never say never, but this observer is not anticipating the oneworld logo on any EK aircraft in the near future even if a deal is reached with Qantas.

About the author


Editor in chief for eTurboNew is Linda Hohnholz. She is based in the eTN HQ in Honolulu, Hawaii.