What happens when the Asian carriers retaliate with Australia based international entities?
August 29, 2011 – 9:48 am, by Ben Sandilands
There is a ‘problem’ with the Qantas pursuit of an Asia based premium carrier to provide new connections between Australia and Asia, within Asia, and between Asia and Europe, namely the expectation of far reaching reciprocal benefits in Australia.
It could cost Qantas, and for that matter Virgin Australia, their investment in Australia-America flights.
Qantas is asking Singapore, Malaysia and China to host a Qantas financed and directed carrier that would require recognition as a Singaporean, Malaysian or Chinese flag carrier in order to fly beyond their borders to other states.
But what if those states make participation in their international markets by an Australian airline enterprise claiming to be a Singaporean, Malaysian or Chinese flag carrier conditional on reciprocal participation in the US-Australia, or South America-Australia or even future Australia-Europe non-stop markets by similar entities operating as Australian flag carriers?
Basically, it means that the cost of the Qantas Asia project could be to totally destroy Qantas, and Virgin Australia as a collateral casualty, because such reciprocity would set up unlimited access by Asia or China directed Australia based carriers to the non-stop Australia-Europe market once the technology to make such ultra long range flights viable is perfected, which is an inevitability in the medium term.
In fact Singapore Airlines could tomorrow finance and direct a Singapore-Pacific Airline notionally owned 51% by an Australian entity, and apply for an allocation of flights on the Australia-US routes under the term of the open skies agreement between Canberra and DC, because that agreement sets no limits on national flag carriers or capacity at either end.
However not all of the routes a Qantas directed entity based in Singapore, or Malaysia or China are as wide open in terms of air traffic agreements as Australia-America.
And this is where it is important to note that air traffic access is not negotiated by carriers but governments, meaning that it is the governments of Singapore, China and Malaysia who have to consider their national interest in allowing an Australian financed and directed operation to assume the rights, privileges and obligations of carrying their flags, and their trading partners, who have to decide whether they would accept such an entity as truly Singaporean, Chinese or Malaysian.
They will neither give away, nor recognize, those rights for nothing.
The fact that Australia allows 100% foreign ownership of domestic operations, and is notably liberal in allowing international access to its gateways, is not going to cut any slack if, for example, Qantas were to fantasise about its China based carrier kicking open the door to vastly more traffic rights into Europe as a China flag carrier compared to the more limited opportunities Qantas has an Australian flag carrier under the Australia-EU treaty.
This is about Australia to the world, but wrapped in the flag of Singapore, China or Malaysia, and not about Australia domestic or Singapore Airlines or Hainan Airlines operating flights from Australia as Singapore or China flagged carriers.
It is about, for example, a reciprocally Australia based China directed carrier using the precedent set when Qantas sets up (hypothetically) a China based enterprise once the technology delivers versions of the Airbus A380 or Boeing 777, or whatever, that can fly right over China going non-stop from Sydney or Melbourne to London, because, after all, the Qantas-China operation will also be able to fly non-stop to Rio de Janeiro or the post 2030 mining boom towns established in Antarctica if it survives that long, which is implausible.
It is a fair bet, given the superb and visionary achievements of Qantas managements this century, that Qantas hasn’t considered exactly what its target Asia states for the new venture would seek in return for it being free to set up shop and get done over in its attempts to carve itself a slice of their international air travel markets.
The six year record of Jetstar’s adventures in Asia are irrelevant to anything that smacks of an Australian directed airline claiming a place in their long haul links to Europe or North America. Yet this is what Qantas is after, because Joyce said in multiple interviews, that the new Asia based carrier would give Australia new links to Europe.
These issues are a reminder that doing business in Asia is a long game, not a short game, and that the Qantas approach to these matters is so shortsighted and lacking in rigor that it would end in its destruction, a fate not unknown to ill-conceived short term Australian business forays into Asia and China.
It should also be a reminder that the qualities needed to successfully deliver an Asia strategy as recently outlined by Qantas Group CEO Alan Joyce are not evident in his company, which has dismally failed to manage staff engagement, fleet strategy, product and networks, and left its shareholders without dividends for three years.
There is something deeply unsettling about the direction of Qantas in seeking Asianisation when it cannot get the fundamentals of being competitive in long haul operations right, and persists in blaming others for its failure to stop customers fleeing en mass to competitors with better and more relevant single airline links to Europe and the UK.
If the Asia based premium carrier fails to get off the ground, where will that leave a company that has justified hacking into its long haul full service operation to focus more on the Asian markets, deliberately driving even more customers over to the likes of Singapore Airlines and Emirates?
It will be a lot of pain for no gain. And among the obvious consequences of such a failure would be its coming under siege from an opportunistic buy and split up bid, or totally renewing its management.