Australia in no hurry to throw Qantas to free-market wolves

 - November 30, 2006, 10:49 AM

Pressure from a growing chorus of free market proponents has Qantas scrambling to prepare for a likely “phased” introduction of open skies with Singapore. But Australian prime minister John Howard’s apparent sensitivity to the flagcarrier’s concerns about government subsidies has no doubt buoyed spirits as it engages in a war of words with Emirates Airline over that Dubai-based carrier’s designs on more access to Australia.

“There are very strong arguments put by Qantas that the current policy, at least in the near term, should be kept,” Howard told the Australian Broadcasting Company’s radio network in reference to Singapore. “You have got to be absolutely certain that each participant in the market is coming from the same launching pad as far as government support and so forth was concerned.”

Judging by her public comments, Qantas chairman Margaret Jackson seems certain of just the opposite when it comes to Emirates. “To suggest that Emirates is competing on similar terms as commercially run airlines like Qantas is, quite frankly, fiction,” said Jackson in a statement issued by the airline.

Qantas argues that because the government of Dubai owns 100 percent of Emirates, its sovereign risk rating allows it to carry debt levels far higher than publicly listed carriers could ever sustain. Emirates pays no corporate tax in Dubai and its chairman, Sheikh Ahmed Bin Saeed Al Maktoum, belongs to the ruling family and heads the Dubai Department of Civil Aviation, which also runs Dubai Airport.

“As Qantas has observed before, life must be wonderfully simple when the airline, government and airport interests are all controlled and run by the same people,” remarked Jackson.

Aside from its structural advantages, Emirates has managed to gain greater access to international markets where the Australian government has failed to make inroads for Qantas. For example, Qantas can operate only 28 passenger flights per week between Australia and the UK. Emirates, conversely, now operates more than 90 flights per week between Dubai and the UK, giving it far greater opportunity to link the Australian and UK markets over its Dubai hub.

“Viewed in this light, Emirates’ request to secure rights for 84 [flights] per week between Australia and Dubai–double the number currently operated–is not only extravagant, but flies in the face of fair competition,” concluded Jackson.

Sour Grapes?

At last November’s Dubai airshow, Sheikh Ahmed said that Jackson’s accusations smack of sour grapes over Emirates’ success and its potential for becoming a major player in the Far East. “Our accounts are audited by an international company; they can come any time to look at our books,” said Sheikh Ahmed. “But they have to let us look at theirs…I think it is just a matter of jealousy.”

Personal feelings aside, Qantas and indeed many of Europe’s airlines have good reason to fear Emirates’ increasing worldwide influence. Aside from its beneficial labor and tax regimes, Dubai places Emirates in an ideal geographic position to serve much of Asia, not to mention Europe and Africa, without the need for an expensive short-haul network.

Now flying to 10 Far Eastern and six Australasian destinations, those regions accounted for 28 percent of Emirates’ revenue during its last fiscal year. Last October alone saw Emirates boost service between Dubai and Hong Kong by 17 percent and between Dubai and Singapore by 33 percent. An open skies partner with the UAE, Singapore also serves as Emirates’ gateway to Melbourne, Brisbane and Auckland, weaving a web of connections throughout the Asia/Pacific region.

At the end of October, Emirates started flying from Dubai direct to Jakarta three times a week, returning to Dubai via Singapore, and another five weekly direct round trips to Kuala Lumpur along with three via Singapore. Further penetration into the Far East saw another flight to Bangkok, giving it 19 flights a week to the Thai capital.

Starting June 1 Emirates plans to open new direct service between Dubai and Nagoya four times a week, escalating to once daily starting July 1 on a Boeing 777-200. From September 1 it plans to switch to a larger Airbus A340-500.

This month Emirates launches daily flights to Beijing, the airline’s second destination in China. Coincidentally, in January Qantas began serving Beijing from Sydney with three flights a week. Qantas also serves Emirates’ other China destination, Shanghai.

According to a report scheduled for release this month by Sydney-based Center for Asia-Pacific Aviation (CAPA), 2006 “will be the make or break year” for those with big plans to expand their Asia/Pacific presence from 2007. If economic conditions deteriorate and negative influences such as slow progress toward airline restructuring and market liberalization thwart efforts to build a strong foundation for expansion, said the report, those airlines could see their plans jeopardized.

No one, of course, wants to see market constraints threaten their investments. With unprecedented commitments to fleet growth in China, India, Japan, Korea, Malaysia, Thailand, Singapore and throughout the Pacific Rim, pressure on protectionists to open their skies will only grow, leaving more and more opportunities for those airlines lean and nimble enough to compete in perhaps the last real growth market in the world. So whether or not Emirates succeeds in getting the extra slots it wants into Australia, the rest of Asia beckons–and Qantas can do little but heed the call by staking a claim of its own.