The QANTAS Emirates Alliance

By Rachel Mules Head Teacher HSIE, Newtown High School of the Performing Arts

The Long Haul:

Introduction
On 31st March 2013, two Airbus 380s flew over Sydney Harbour to mark the beginning of the QANTAS Emirates alliance, whereby the two airlines combine operations and aspects of marketing, as part of a major restructuring being undertaken by QANTAS. QANTAS is an Australian icon. Think QANTAS, think flying kangaroo, 'I Still Call Australia Home', think the Sydney Harbour Bridge and Uluru, the Twelve Apostles, the Great Barrier Reef. QANTAS has its origins in 1920 when it began operating as Queensland and Northern Territory Aerial Services Limited. QANTAS pioneered the Kangaroo Route to London via Singapore in 1947, which became the main way Australians would travel to Europe. It is Australias leading domestic and international air carrier.
Figure 1: Kangaroo Route Source: Business Day: Executive Style: Hopping Off The
Kangaroo Route? - http://www.businessday.com.au

Weaknesses
High costs Industrial relations dispute record and impact on brand image Inconsistent product offerings to Asia, Europe and China Network and scheduling issues - less destinations and frequency than some other airlines Low employee engagement (70 per cent versus 80 per cent Australian average; below 79 per cent for pilots and engineers); could be linked to IR problems and lack of effective HR management QANTAS International business poor performance Challenges associated with the maturity stage in the business life cycle.

Opportunities
Strong Australian dollar (Australians travelling overseas) ASEAN Open Skies soon to emerge (single aviation market to begin in 2015); Bilateral trade liberalisation should increase access to markets Geographical positioning in the Asia-Pacific: fastest growing region in the world with a large market and rising middle class Forge alliances with competitors, eg recent Emirates alliance Resources boom: regional, freight and charter target markets Online retail.

Threats
Strong Australian dollar (less demand from overseas inbound travel; less domestic travel as Australians go overseas) High oil prices Business traveler preferences switching to alternative schedules and routes, e.g. via the Middle East, and to many more cities in Europe than London Growing competition on the traditional Kangaroo Route via Singapore and Asia Growing competition especially from the Middle East; these competitors have an added advantage as they are government backed, eg Emirates and Etihad Global and domestic economic uncertainty.

QANTAS SWOT Analysis

A SWOT analysis of QANTAS is useful to identify the internal and external influences creating challenges for QANTAS, as well as its sources of strength and opportunity.
Strengths
QANTAS domestic business strong performance People and customer service Integrated management system Global brand recognition- iconic flying kangaroo Safety record Customer loyalty, especially in corporate and SME target markets Strong partnership and alliance networks in Japan, North America, South America, Africa; new alliance with Emirates Strong multi brand model including QANTAS, Jetstar, QANTAS Frequent Flyer, and QANTAS Freight, allows flexibility, diversification and economies of scale Advanced check-in technology One of the only airlines with Investment Grade Credit Rating (IGCR): gives improved access to debt at lower cost, facilitating increased liquidity and debt terms, keeping costs down, ultimately enhancing profitability.

Growing competition on the Kangaroo Route:

China Southern: Canton Route from Sydney to London via Guangzhou Singapore Airlines: Singapore to Heathrow Malaysian Airlines: Sydney to London via Kuala Lumpur

STUDENT ACTIVITIES
1. Give reasons why QANTAS may have marked the beginning of their alliance with Emirates in such spectacular way. 2. Explain the advantages of combining operations and marketing between the two airlines. 3. What images do you think of when you think of QANTAS? Are they the same as in the article? Why are these images of Australia so recognisable? 4. Account for QANTAS being Australias leading domestic and international airline.

Vocabulary/concepts

Define each of the following terms in their correct business context: alliance, operations, marketing, icon, SWOT analysis, global brand, liquidity, bilateral trade, liberalisation

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QANTAS Transformation Plan

QANTAS is undergoing a period of significant transformation in the face of a growing and changing global market. Growth in Asia is seeing rising demand from emerging middle classes, as well as significant growth in competitors. Global forces are posing challenges for QANTAS with the impacts of a strong Australian dollar and high oil prices. Globalisation is subsequently having a profound impact upon QANTAS competitive situation, creating the need for rethinking marketing management and operations strategy, to ensure success in the future, especially in terms of the long haul component of its business. This involves strategies to shore up QANTAS competitive positioning and turn a loss making international business into a powerful global aviation company with a significant competitive advantage. QANTAS has adopted a range of extensive and at times controversial strategies to ensure that the company remains relevant and cost effective in the aviation market for the long haul.. QANTAS announced a five year transformation plan in 2011, with the strategic goal of becoming one of the worlds best premium airlines, setting global standards for long haul travel while delivering attractive returns to shareholders. This includes a major restructuring of its business announced in June 2012, involving separating the management of the domestic and international arms of the company, significant job cuts, global outsourcing, efficiency measures and cost reductions, and the broadening of strategic alliances. The primary strategic goal for QANTAS international is long-term shareholder value. The strategy is operations and marketing focused with financial goals the ultimate aim; and implications for finance and human resources. The strategy targets four pillars identified by management: Pillar 1: Focus on the Customer Experience Pillar 2: Strengthen Asia with regards to flight frequency and Asian destination routes Pillar 3: Deepen and broaden alliances to target global gateways Pillar 4: Ongoing business improvement incorporating disciplined financial management

Figure 2: QANTAS Emirates fly over Sydney Harbour

Source: QANTAS

Student Activities
5. Describe how the global market is changing. Why would QANTAS also have to change? 6. Analyse the strategies that could be used to shore up QANTAS competitive positioning and turn a loss making international business into a powerful global aviation company with a significant competitive advantage.

7. QANTAS announced a five year transformation plan in 2011. Why would it take QANTAS five years to transform itself into one of the worlds best premium airlines? 8. What are the implications for finance and human resources as QANTAS pursues its primary strategic goal? 9. Outline the advantages and disadvantages of strategic alliances.

Vocabulary/concepts

Define each of the following terms in their correct business context: global market, globalisation, competitive positioning, competitive advantage, global outsourcing, strategic alliances.

Strategic Alliances A strategic alliance is an agreement between two independently owned businesses, to join forces to achieve specific goals, involving the alignment of specified services or activities, in order to take advantage of economies of scale to the mutual benefit of each business. Types of Strategic Alliance:
An equity strategic alliance, involving partial ownership of equity in another business A non equity strategic alliance, involving an agreement to cooperate in activities such as operations and marketing A joint venture, involving combining the assets of the partner firms in an independent project Generally an alliance should create reduction in costs and improved customer service, leading to greater profitability for the businesses involved. Alliances often result from a crisis faced by one or more of the parties.

QANTAS Emirates Alliance

QANTAS is involved in alliances and partnerships with a number of other businesses. For example, QANTAS was a founding member of the One World Alliance of 12 major airlines, one of the biggest global aviation alliances, in 1999. That alliance gives customers access to a much broader range of air travel options, frequent flyer rewards and benefits than a single airline could deliver. The QANTAS Emirates Alliance is the latest and biggest such agreement entered into by QANTAS. It is a non-equity strategic alliance which centres on combining forces to increase the network coverage of both airlines, e.g. customers who fly with QANTAS are now able to fly to an increased number of destinations such as in the Middle East and North Africa. Other benefits to QANTAS customers will include greater flight frequency, i.e. flights leaving more often; access to more airport lounges; expanded loyalty programs and an enhanced customer experience. The QANTAS Emirates Alliance seeks to enhance QANTAS competitive positioning, maintaining its market dominance within Australia and enhancing its global branding in the international aviation market.

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QANTAS Emirates Alliance

(cont'd)

Prospects For QANTAS

QANTAS domestic business is performing strongly, with combined profits for QANTAS Domestic and Jetstar of $600m announced in 2012. It is the international arm of QANTAS, the so called long haul flights, which is in need of transformation to turn from a loss maker ($450m in 2012) to a profit maker. By forging an alliance with one of its competitors, Emirates, QANTAS hopes to transform its international business as part of a successful renewal strategy for the long term. Short-term impacts of the agreement so far include the $50m cost incurred in shifting operations from Singapore to the Dubai base. On the other hand, the airline experienced a 600 per cent increase in sales on flights to Europe, and a 700 per cent increase in bookings from Emirates passengers to travel on QANTAS domestic flights, in the first nine weeks of operation of the alliance compared to the sales figures in the same period 2012. QANTAS believe that this indicates they are already improving their competitive position. QANTAS plans to pursue the development of more partnerships in Asia, for example in May 2013 the company expanded their code-share agreement with the airline China Eastern which offers passengers 18 direct flights to China per week. As QANTAS seeks to increase its use of strategic alliances and create a competitive advantage, clearly QANTAS is in it for the long haul.
ACCC Approval
The QANTAS Emirates alliance could not have proceeded without the approval of the Australian Competition and Consumer Commission (ACCC). The ACCCs approval was granted because they were satisfied that the partnership will benefit stakeholders, especially customers, by improving operating efficiency and delivering better products and services in the aviation market. Examples cited by the ACCC included increased frequency of flights and number of destinations available under the one flight code, enhanced connectivity, scheduling and access to frequent flyer benefits. The ACCC granted approval for a five year period agreement, rather than the 10 year period proposed by the airlines. While the ACCC gave its assent, its Chairman, Rod Sims, stated that he did not believe this alliance is crucial for the success of QANTAS into the future, as it provides material, but not substantial, public benefits; he also expressed concerns over the implications for the Trans Tasman (Australia to New Zealand) route, and has required that both airlines maintain their pre-alliance capacity on the Trans Tasman routes to avoid price increases in that market.

Features of the Commercial agreement signed 6/9/2012 by Alan Joyce (QANTAS) and Tim Clarke (Emirates) to create this alliance include:

10 year partnership (five years only approved by the ACCC) Aim to provide the worlds best airline service, including integrated network with coordinated sales, pricing, scheduling and benefit sharing, increased flight frequency and access to airport lounges, loyalty programs and excellent customer service QANTAS European flight hub moved from Singapore to Dubai Match key customer benefits across airlines; where there is a difference in customer benefit, the higher benefit will becomes the standard across both airlines Airbus 380 daily service to London will travel via Dubai Terminal 3 worlds only purpose built A380 terminal; QANTAS and Emirates will be the only airlines in this terminal this will enhance the QANTAS brand in the minds of customers and potential customers and give QANTAS customers access to Emirates lounge facilities no other airline will have this; QANTAS club members gain access to Emirates lounges Increased choice of flights to Europe via the QANTAS Emirates code share agreement, so a passenger might book through QANTAS, and fly Sydney or Melbourne to Dubai with QANTAS, and Dubai to London or other European destinations with Emirates Will create the worlds largest combined A380 fleet QANTAS Frequent Flyer members will be able to earn and redeem frequent flyer points/skywards miles across the airlines, thus expanding frequent flyer benefit Shared baggage policy will see the baggage allowance raised from 20kg to 30kg for QANTAS passengers (except to the Americas) QANTAS to introduce Dubai connect, giving customers hotel accommodation, meals, transfers for flights with stopovers of between six and 24 hours for First and Business class, and between eight and 24 hours for Economy and Premium Economy class. Chauffeur hire car service for First and Business class 14 daily QANTAS operated or coded flights to Dubai from Adelaide, Brisbane, Melbourne, Perth, Sydney; only two stops for regional travelers to Europe (e.g. from Port Macquarie to Madrid).

Why Emirates?
There are a number of reasons for QANTAS to choose Emirates as an alliance partner: One of the best airlines in the world with a reputation as a quality aviation service provider All wide-body fleet Broad international network coverage which complements QANTAS presence in the Americas, South Africa, Asia and domestic/regional areas Dubai to replace Singapore as QANTAS hub for Europe, allowing a restructuring of the Asia network Asia no longer just part of the Kangaroo Route, but a source and destination, e.g. increase dedicated capacity to Singapore, change times of flights to Singapore and Hong Kong to facilitate an increase in same day connections throughout Asia; Emirates have an extensive Asian network already Will complement relationships with other airlines such as American Airlines, and the Oneworld Alliance American Airlines, LAN, South African Airways and China Eastern Withdrawal of QANTAS from Frankfurt services, which have been underperforming, will be helped by this alliance which will help QANTAS to continue to service this area via Emirates.

STUDENT ACTIVITIES
13. Go to the Australian Competition and Consumer Commissions website (www.accc.gov.au) and investigate its role. 14. Type in QANTASinto the search field on the ACCC website and identify the recent dealings between QANTAS and the ACCC. 15. Account for the difference between QANTAS domestic and international arms. 16. What is code-sharing? Investigate which airlines QANTAS currently has a code sharing arrangement with (http://www.oneworld.com/ member-airlines/qantas/). What impact does this have on passengers, QANTAS staff and profits?

References
White, Colin 2004, Strategic Management, Palgrave MacMillan. QANTAS Airways Limited 2011 Strategy Day Presentation, 12 December 2011, www.qantas.com.au QANTAS and Emirates unveil frequent flyer benefits, Sydney & Dubai, 12 February 2013, media release accessed 17/2/2013, www.qantas.com.au The world's leading airline partnership, Alan Joyce, 6 September 2012, media release accessed 17/2/2013, www.qantas.com.au QANTAS Annual Report 2012, accessed 17/2/2013, www.qantas.com.au Flynn, David, London via anywhere: the changing shape of the Kangaroo Route, Australian Business Traveller, accessed 17/2/2013, www.austbt.com.au ACCC grants conditional authorisation for an alliance between QANTAS and Emirates, ACCC, 27 March 2013 www.accc.gov.au Upe, Robert, Everything you need to know about the new alliance, Sydney Morning Herald, 30/3/2013 Sydney flyover launches QANTAS, Emirates aviation deal, The Australian, 31/3/2013 Emirates Airways alliance boosts QANTAS sales, accessed 3/5/2013, www.businessspectator.com.au One World Alliance, accessed 6/5/2013, www.qantas.com.au QANTAS expands codeshare deal with China Eastern, accessed 10/5/2013, www.australianaviation.com.

STUDENT ACTIVITIES

10. What is the competitive advantage QANTAS gains with this new alliance? 11. How will the alliance enhance QANTAScompetitive position and global brand? 12. If you were the CEO of QANTAS, which aspects of the Commercial Agreement would you have wanted strengthened. Which aspects would you have been prepared to forfeit to make the alliance?

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