Qantas' Asian flight partner weighed down
Andrew Cleary
March 02, 2012
The Australian Financial Review Edition: First
Copyright 2012. Fairfax Media Management Pty Limited.
Qantas Airways' entry into Asia via a new premium carrier could suffer further delays after potential partner Malaysia Airlines said it was "in crisis" following a fourth consecutive quarterly loss.
The Malaysian national carrier reported a net loss of 1.28 billion ringgit ($395 million) in the final three months of 2011, prompting the airline's new management team to step up cost-saving measures. Malaysia Airlines is retiring old aircraft, withdrawing from more long-haul routes and potentially delaying aircraft deliveries to save money.
Qantas has turned to the exact same cost-cutting measures as it looks to trim capital expenditure that has been running ahead of free cash flow. The Australian carrier has been in detailed talks with the airline regarding a joint venture for a premium airline in Kuala Lumpur.
The plan under discussion involves the new airline starting with a fleet of Airbus A330 aircraft coming from scheduled deliveries to Malaysia Airlines, with Qantas's initial investment to be kept to a minimum and the newly created entity to sit off balance sheet.
Malaysian chairman Tan Sri Md Nor Md Yusof said the company was confident it had the right business plan in place to "bring the necessary sacrifices to ensure a turnaround and recovery", while acknowledging the airline's precarious financial position.
"The results make for unpleasant reading. The company is in crisis," he said on Wednesday.
Analysts who have met with Qantas chief executive Alan Joyce since the company's first-half results last month said they were told any new airline could be between six to 18 months away depending on which option the company chooses.
Analysts said Mr Joyce again stressed that whatever form the airline joint venture took, it would be a "capital light" solution requiring minimal start-up investment from Qantas.
"Malaysian is in trouble. Qantas may want a capital-light option, but how is this new airline going to get any capital when the partner also doesn't have any to put in?" asked one of the analysts.
Commonwealth Bank of Australia analyst Matt Crowe said Qantas had to stay focused on a partnership with Malaysia because its options in the region were limited.
"Virgin [Australia] has nabbed the prettiest girl at the dance with Singapore [Airlines]," Mr Crowe said.
"An alliance is the right strategy for Asia, Qantas can't do it on their own. But of course you'd rather have a financially healthy partner."
Qantas is committed to establishing a new airline in Asia from which it can add routes into the booming markets of China, India, and elsewhere in Asia that it is unable to competitively service direct from Australia. While the pace of talks in Kuala Lumpur has slowed in recent months, a deal with Malaysia Airlines remains the company's focus.
How.... How do the words "premium airline" and "Kuala Lumpur" actually come together??!