Coming to terms with the disruptors
Within the context of global aviation disruption, Emirates and its low cost long haul-to-long haul model is right at the top of the tree. For years, as Emirates grew rapidly in Australia, Qantas railed at the government's liberalisation of the UAE bilateral agreements, arguing this seriously undermined the flag carrier's economics. Added to the longstanding impact of Asian airlines' sixth freedom dilution of Qantas' Europe traffic, Emirates effectively spelled the end of any long term aspirations to serve Europe effectively.
- Emirates and Qantas formed a partnership in 2012, which has been successful in boosting Qantas' global relevance and expanding its reach in Europe.
- The partnership has evolved over the years, with Qantas now considering adding new routes and stopovers to its European services in collaboration with Emirates.
- The Qantas-Emirates partnership has set a new model for airline alliances, with a focus on intricate models for handling partnerships and multiple hubs.
- The partnership has allowed Qantas to maintain its presence in the London market, despite increasing competition from Gulf carriers and Asian airlines.
- Qantas is planning to launch the world's longest non-stop flight from Perth to London, using its new Boeing 787-9 aircraft.
- The partnership between Qantas and Emirates has been successful due to the mutual and complementary needs of the two airlines, as well as the ability to create a strong brand presence and attract loyal customers.
Despite a longstanding and deep partnership with fellow oneworld member British Airways, which helped greatly on what remains Qantas' main European market, the need for two-stop service to any other European point severely limited Qantas' competitiveness. And anyway, BA's own goals were evolving. As a result Qantas' long haul routes were haemorrhaging and the entire international system was under threat; in turn this aggravated pilot and other staff concerns over cutbacks and their own future, damaging morale right through the organisation.
Establishing an extensive partnership with Emirates was a radical, but ultimately enormously successful, move. A year of top secret negotiations led in 2012 to its own disruption, the first major airline partnership with a Gulf carrier. They have never looked back.
Now Qantas and Emirates are again evolving the nature of global airline alliances and partnerships. Four years after announcing their landmark joint venture, Qantas in late 2016 is expected to disclose additions to the way it serves Europe in partnership with Emirates. The possible changes - a new one-stop London flight, reintroducing an Asian stopover - may seem incremental. There will be a significant impact on the many airlines competing in the Europe-Australia market, but the underlying significance is globally relevant.
Expansion of the JV would not be possible without the increased comfort that Emirates and Qantas have developed towards each other, and their ability to create intricate models for handling the increasingly complicated partnership and number of hubs involved. The development illustrates that JVs are no longer in a binary classification of existence or absence; there is an emerging spectrum from rudimentary to near-consolidation.
As JVs like Qantas-Emirates become more sophisticated, airlines operating the basic model - or even without a JV at all - are increasingly disadvantaged. There has been a profusion of JVs in recent years, with more on the way, but they have tended to be confined in their scope. For partners to add additional airlines and markets they need to be entirely comfortable, consolidating as they stitch together individual partnerships. This begins at the top, but it is the pervasive compatibility through senior and middle managements that provides the basis for further consolidation.
The initial Qantas-Emirates partnership sought to give Qantas greater global relevance. Australia's flag carrier had long been challenged in serving Europe. Geography and the distance between the regions have necessitated a stopover on operations from Australia's three largest markets - Sydney, Melbourne and Brisbane. The necessity for Qantas to make a stop took away the home airline's traditional nonstop strength (and the accompanying yield premium) and removed the stopover disadvantage that normally challenges intermediate operators.
Lower cost intermediate airlines in Asia - mainly Singapore Airlines and Cathay Pacific - and later from the Gulf - were able to offer the same one-stop proposition as Qantas, but with the added advantage of a portfolio of non-stop European gateways.
Australia's air services agreements, while liberal, are generally proactive, although of the major intermediate markets only Singapore has an open skies agreement with Australia. This allowed Qantas to establish its long haul hub offshore, with each Australian capital city service feeding into the Singapore-Europe link. But intermediate operators had an increasing strategic advantage, offering one-stop links between a number of Australian and European cities, and at various frequencies during the day.
Despite losses and unfavourable geography, it has never been a serious option for Qantas to withdraw from London - a flagship route and the largest European market from Australia. Maintaining the London presence has strategic value and ensures that Qantas remains relevant to its home corporate accounts, who provide Qantas higher yields for domestic travel that is very profitable.
Already bombarded by sixth freedom competition and under growing pressure from the Gulf carriers, Qantas was forced to reduce its London Heathrow services from four to twice daily while then-partner British Airways reduced from two to one. Qantas maintained a Frankfurt service but overall it still lacked relevance at a time of multiplying travel options.
Emirates may have seemed a surprising partner - but it has proven eminently sensible. There were mutual and complementary needs to be met. Prior to its linkup with Qantas, Emirates had not entered any partnership nearly as important. Despite its much larger size internationally, Emirates found itself lacking by not having a presence in the Australian market loyalty arena, a powerful force among Australian travellers. In one stroke, Qantas ended its joint service agreement with British Airways and moved its European stopover hub from Asia to Emirates' Dubai hub.
Qantas as a result received a boost on Australia-Dubai flights and gained approximately three dozen European cities to connect to with one stop, compared with the previous two (London and Frankfurt; and Frankfurt was suspended when the stopover hub moved to Dubai). Qantas passengers could now make a single stop in Dubai rather than connect first in Asia, and then in London, to backtrack to continental Europe. Emirates in return received direct sales from Qantas while being an attractive option for passengers loyal to Qantas' frequent flyer programme.
Sample Australia-Europe routings on alliances versus Emirates (travel time in hours, stops): 2010
| ALLIANCE | ROUTE | AIRLINES | ALLIANCE | EMIRATES |
 Qantas/oneworld.png" alt="" width="75" height="75" /> |
Sydney - Madrid | Qantas/alliance1.png" alt="" width="200" height="23" /> |
26.25 hrs
2 stops |
24.35 hrs
1 stop |
| Qantas/staralliance.png" alt="" width="120" height="70" /> |
Perth - Moscow | Qantas/alliance2.png" alt="" width="150" height="65" /> |
24.25 hrs
2 stops |
20.15 hrs
1 stop |
| Qantas/skyteamtransparent.png" alt="" width="80" height="80" /> |
Melbourne - Zurich | Qantas/alliance3.png" alt="" width="200" height="17" /> |
25.25 hrs
2 stops |
23.50 hrs
1 stop |
And in its wider international strategy, Qantas' newfound ability to refocus on markets where it had a stronger position, has allowed it not only to turn around a loss-making international activity, but actually to begin expanding again. The change has been profound.
The JV has since evolved as Australia-Europe non-stops came into focus. Over the past four years, Qantas and Emirates have bedded down their partnership, experimenting with how the benefits work and accepting that not every set of circumstances would deliver equal rewards. This ranged from collaboration at the people level; alignment of products, fares and networks; and the model that underpins financial performance and distributes appropriate returns. Overall there were grounds to conclude that the two airlines were much better off together than apart. On that foundation, there is now sufficient trust to allow the partnership to develop further.
The existing JV has some fundamental strengths, from the range of destinations and frequency in Europe and Australia, to Qantas' home market strength. Yet at a simplified level the Qantas-Emirates proposition is little different from any other: the two offer a route via Dubai, while Etihad offers Abu Dhabi; Singapore Airlines uses Singapore; Cathay Pacific uses Hong Kong, etc.
Qantas' two London flights, Melbourne-Dubai-London and Sydney-Dubai-London, fly alongside existing Emirates routes. Rather than overlap and offer more of the same, the two want to broaden the appeal of their partnership.
One development is intriguing. Qantas is expected to announce non-stop Perth-London Heathrow service using its soon-to-be-delivered Boeing 787-9. With its introduction Qantas CEO Alan Joyce has canvassed the possibility of the Perth-London service, using the longer range of the 787 variant.
Perth-London would be the first non-stop Australia-Europe flight, and will be the world's longest non-stop flight at approximately 300km longer than the current longest-route - Dubai-Auckland.
In that respect, the route's title-holding tenure will be short, since Singapore Airlines' planned resumption of flights between Singapore and New York is approximately 1,000km longer. But Qantas' non-stop Australia-Europe flight is an enchanting proposition and one that has long been talked about.
Australia-London O&D traffic by Australian city: 2015
At 35%, Sydney is the largest market, and Melbourne is still significant at 26%, between them accounting for some 60% of the Australian total. The market from Perth to London is the smallest of Australia's main London-bound markets. A London service from Melbourne or Sydney is too long for the 787-9 (which will already be stretched on Perth-London). Most passengers on the flight will still need to connect, but Qantas will be able to link its new gateway of Perth with more Australian cities than Dubai, which Qantas only serves from Melbourne and Sydney. This is a segment of the market that will seek out a Qantas-operated itinerary as opposed to a codeshare on Emirates.
Mr Joyce has made it clear that Perth Airport will need to support renovations and the necessary government formalities to Qantas' domestic terminal so that connecting passengers can make a same-terminal transfer at Qantas' intimate facility. With the attraction of a boost in hub traffic, Perth is keen to cooperate.
Perth's international flights currently depart from a separate terminal that requires a landside bus transfer. A connection in Dubai or Singapore or Hong Kong brings passengers into sprawling major gateways. At Perth, assuming a one-terminal welcome, Qantas can control the experience and assert the brand it is increasingly refining.
It is difficult to see the flight turning a profit in its own right, even with fuel costs down and with significant hub feed. But it is likely the strongest benefit of the flight is one that cannot be calculated: Qantas will offer the world's only non-stop Australia-Europe flight, and it will push the ease of a domestic connection.
Qantas-Emirates partnership feeder flights between Australia and Dubai (red=Qantas and Emirates operated, blue=Emirates only): Oct-2016
Qantas domestic network from Perth: OCT-2016
Asia could be added back as a Qantas stopover - potentially with a third airline. As the JV further evolves and models are adjusted to account for different Australia-Europe flights, Qantas could return to having an Asian stopover option en route to Europe. This again increases the range of options under the JV. Qantas' European flights previously transited mostly in Singapore, but also at Bangkok and Hong Kong.
There are new hubs for Qantas to consider as alternatives. Shanghai, for example, is increasingly important to Qantas as its Chinese hub; China has granted Australian airlines beyond rights to Europe. Shanghai-London could build Qantas' presence and even grow it faster than if Qantas relied on O&D traffic. There would be an opportunity to bring into the fold China Eastern - based in Shanghai and Qantas' Australia-China partner.
London is not a major market for China Eastern, and Qantas offers an opportunity for the Chinese big three airlines to learn about connecting traffic, which China Eastern can extrapolate to other points in its network.
China Eastern also gains some positioning to begin to counter China Southern's "Canton Route" connections. Yet Qantas and China Eastern would need to work through British Airways' aspirations - to grow closer to China Eastern and cooperate on the London-Shanghai route.
United Kingdom to China (seats per week, one way): 21-Oct-2013 to 13-Mar-2017
Southwest Pacific to Middle East (seats per week, one way): 21-Oct-2013 to 13-Mar-2017
These are far bigger evolutions for the JV than were envisaged when the partnership was first announced in 2012. At the time it was stated that Qantas could later return to continental European points by flying to them via Dubai.
The possible changes here now are more ambitious, reflecting the ability of the partners to think and execute broader strategy, and respond more effectively to competition. Singapore Airlines and Lufthansa regard Australia as being a large offline market for their JV while Etihad and Qatar are growing in Australia.
The increased complexity of JVs may not always work in Qantas' favour. So far the possible changes appear to have been accepted by Emirates.
Emirates has explored operating trans-Pacific flights of its own, including from Australia/New Zealand to North America, which would overlap with Qantas and its proposed partnership with American Airlines. That will be a bigger ask, unless (or until) American decides to treat with Emirates.
It is challenging for other JVs to replicate the Qantas-Emirates partnership so easily. The Qantas-Emirates partnership represented Qantas boldly dropping an Old World partnership to embrace the advantages of new hubs. Just as Iceland and Amsterdam were early hubs, Singapore and Hong Kong followed, and then there was the growth in the Middle East. Hubs evolve, and so too should partnerships.
As much as the Qantas-Emirates partnership may be a model for others to emulate, it is also different, and it was comparatively easy for the partners to find a formula that was satisfactory. Meanwhile Air France and Etihad, despite years of apparent intent, have not formulated a deeper partnership. Lufthansa broke off ties with Turkish Airlines, was also unable to accept Etihad and is now experimenting with an array of attempts to serve Asia more effectively.
The fact that Qantas had to make a stop anyway made it comparatively easy to establish an alignment with Emirates: Qantas "simply" moved its hub from Asia to Dubai. Air France and Etihad would have to find how to manage very different hubs at Paris and Abu Dhabi (and presumably Amsterdam, too). Calculating how to share revenue becomes complicated when the airlines are, at best, break-even and, at worst, structurally loss making.
It took considerable time for British Airways and Qatar Airways to conclude JV discussions, despite the closeness of their senior management and Qatar's now 20% stake in IAG. Even then the JV was announced as being between BA and Qatar, and not also with BA's sister Iberia.
Some JVs already incorporate multiple hubs, but they are generally in the same region. There are numerous JVs that already incorporate multiple hubs, but they are within the same region and not as broad as that of Emirates-Qantas - with possible expansion at some point to comprise Dubai, Perth and a point in Asia.
The trans-Atlantic immunised JVs, for example, include the numerous European hubs of European members. Some routes under the JV overlap with others, some are strong connecting routes and others are stronger for O&D. The ANA-United and JAL-American trans-Pacific JVs include Tokyo-US non-stop, but also US airline non-stop flights to other Asian destinations: Hong Kong, Singapore, etc. A Singapore passenger in the ANA-United JV may transit via Tokyo or Hong Kong, or fly non-stop from San Francisco.
Qantas and American's proposed JV includes American's New Zealand-US service, whereas United and Air New Zealand's JV excludes Australia, despite Air NZ relying on Australia-North America connections.
KLM and Kenya Airways partner on hub Amsterdam-Nairobi services but also other Europe-East Africa flights. Delta and KLM jointly worked to partner with Jet Airways' India-Amsterdam services, even though Jet remains outside the JV per se and has a large minority ownership by Etihad. (Emirates has partnerships to Asia with both Qantas and Malaysia Airlines, but there does not appear to be intent to fold them into one.)
JVs can only successfully expand with trust and familiarity between airlines. As JVs have settled, airlines have often been added: to the JAL-British Airways JV, Finnair and Iberia were added. JAL and BA typically have strong O&D while Finnair is more of a transit operator, and thus has different considerations for the way revenue is appropriated. Some JVs limit the club: ANA has been unsuccessful in persuading United to have Air Canada join their Japan-North America partnership.
Delta, Jet Airways and KLM partnership: Dec-2015
The Air China-Lufthansa and Singapore Airlines-Lufthansa JVs came only after prolonged discussions. Even when implemented they will be limited initially, reflecting the conservative nature of Air China and Singapore Airlines. China Eastern and China Southern have route-specific JVs with AF-KLM and show much opportunity for expansion.
As value is increasingly derived - and evolves - from JVs, establishing a JV is the necessary first step. Depending on how the partners mesh (and this is more art than science), it can be a long march to the front. The human factor of airline relations can take precedence over logical strategy and having the numbers in their favour. Some potential partnerships would first need mending, while others need a kick-start in their relationships to accelerate the scope of the JV. The default position for many airlines entering partnership still remains distrust. It is only when the partners recognise that the outside competition is more threatening that the JV can evolve.
There are many airlines excluded from JVs. Some, like TAP and LOT, wish to join their alliance brethren but have been rejected. Others may be restricted due to lack of the right regulatory environment (such as US-China, where open skies is lacking), while others prefer to go at it alone (Korean Air, but increasingly weighing a Delta partnership).
The next evolution may be to expand market-specific JVs to region-specific JVs. But for United to go from having ANA as a JV partner to encompassing other Asian members of Star Alliance is a leap in itself, and persuading others that it is in their best interests is not always easy. It may be that, as the evidence grows - along with the intensifying competition - there will be a quantum shift in attitudes. A preparedness to risk losing on some aspects is an essential requirement, along with a recognition that there can be strength in numbers.
Qantas-Emirates, as arguably the industry's still-boldest partnership, shows that solutions need to take precedence over history as JVs become not merely a matter of their simple existence, but a product of how all-encompassing they are.