Emirates' Qantas Deal Rattles Alliance Chains

   By Doug Cameron 
 

The Oneworld global airline alliance on Thursday shrugged off the effect of plans by Qantas Airways Ltd. (QAN.AU) to loosen links with fellow member British Airways in favor of a wide-ranging pact with Dubai's Emirates Airline.

Emirates rapid expansion has attracted fierce criticism from some members of Star and SkyTeam, the two other global groupings that look to coordinate members' schedules and services in an effort to woo highly prized business travelers.

The decision by Qantas to outsource much of European flying to Emirates-a long-time critic of the big alliances-appears to be a blow to Oneworld's network in Asia, which has already been hit by the delayed entry to its ranks of Malaysia Airlines and India's Kingfisher Airlines Ltd. (532747.BY).

Oneworld played down the move, noting Qantas will continue to code share-an arrangement to cross-sell seats-with British Airways, part of International Consolidated Airlines Group S.A. (IAG.LN).

"We have a pretty flexible attitude towards our members having relationships outside our alliance," said Michael Blunt, a Oneworld spokesman.

That has long been evident in the relationship between Oneworld member Cathay Pacific Airways Ltd. (0293.HK) and Air China Ltd. (0753.HK), which is part of the rival Star grouping led by United Continental Holdings Inc. (UAL) and Deutsche Lufthansa AG (LHA.XE). Cathay and the Chinese flag carrier have cross-shareholdings, a cargo joint venture and other links that both view as consistent with their wider alliance roles.

Alan Joyce, Qantas' chief executive, was at pains on Thursday to stress that the airline plans to enhance its ties with other Oneworld members, singling out Chile's Lan Airlines, American Airlines and the rejuvenated Japan Airlines Co.

Qantas is also sponsoring the planned entry of loss-making Malaysia Airlines to Oneworld-expected around the turn of the year-while Kingfisher's entry remains "on hold," according to Mr. Blunt.

SriLankan Airlines recently announced plans to join, probably next year, and the arrival of Air Berlin PLC (AB1.XE) both strengthened Oneworld's position in continental Europe and highlighted its relative flexibility compared to Star and SkyTeam. Abu Dhabi's Etihad Airways has a minority stake in the German carrier, as well as a 10% holding in Virgin Australia Holdings Ltd. (VAH.AU).

Qatar Airways, the second largest of the three fast-growing Gulf carriers, has also been linked with potential membership of Oneworld, though the alliance and the airline have declined comment.

Mr. Blunt said Brazil remains a focus, with the key being whether Tam-a member of Star-will follow Lan into the grouping after the two carriers merged during the summer to form Latam Airlines Group S.A. (LAN.SN). A decision is expected within six months.

The other big uncertainty is whether American parent AMR Corp. will consummate a merger with US Airways Group Inc. (LCC), a member of Star, a move that would expand Oneworld's U.S. foothold. US Airways' CEO Doug Parker has said a merged carrier would be in Oneworld.

An enlarged American would overtake United as the world's largest airline by traffic, but lag the broad Asian presence of its Chicago-based rival and Delta Air Lines Inc. (DAL). Executives at AMR and US Airways have said Oneworld partners would help close that gap.

Tom Horton, AMR's chief executive, said in an interview earlier this year that the alliances were changing toward deeper joint ventures between individual members, rather than the looser marketing ties that expand global networks.

It is a view widely shared in the industry as airlines secure antitrust immunity to coordinate schedules, fares and marketing with partners inside and outside their formal alliances.

Tim Clark, Emirates president, has long argued that the big alliances distract management.

"They are an anachronism of the 1990s," he said in an interview Thursday from Sydney.

"We would not go into an alliance to do this," he said of the planned Qantas link, which will see the airlines coordinate flights between Europe and Australasia and mesh their frequent flyer programs. It involves no equity stakes.

"[This deal] will have a fairly seismic shift on the alliances," he said.

The 10-year pact with the Australian flag carrier is by far the most comprehensive undertaken by Emirates. Mr. Clark said Emirates hadn't yet examined similar arrangements with airlines in other regions, but didn't rule them out.

Emirates held a minority stake in SriLankan Airlines, selling out in 2008 after effectively running the airline for a decade. It was a link that Mr. Clark has in the past said was enormously time-consuming.

With the Dubai airline entering a new growth phase, analysts wonder how disruptive the planned Qantas deal will be both to Emirates and the wider industry.

"It's of a different order of magnitude," said Craig Jenks, president of Airline/Aircraft Projects, an aviation consulting firm in New York. "It really opens a question about the future of monogamous alliances [and will] likely will stimulate more such deals."

-Dan Michaels contributed to this article.

Write to Doug Cameron at [e-mail]

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