Qantas has finally ditched ambitious plans to set up a new ultra-premium airline in Asia – the centrepiece of efforts by the chief executive, Alan Joyce, to revive its international operations – after talks with Malaysia Airlines on a joint venture broke down.
In a setback to its bold gamble to expand aggressively into Asia, Qantas said the talks with Malaysia Airlines, which had warned last week that it is ”in crisis”, had faltered because they could not agree on the commercial terms for a new premium airline.
Qantas will not revisit earlier plans to set up an ultra-premium airline in Singapore because that would require a significantly larger investment of up to $500 million.
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Aviation insiders have been sceptical of Qantas’s plans since they were first revealed because the regulatory, political and economic hurdles to launching an airline in Asia were seen as extremely high.
The plans for a new airline – which was to be based in Kuala Lumpur – targeting Asia’s fast-growing corporate market, were part of Qantas management’s aim of turning around its international operations, which suffered more than $200 million in losses last financial year.
”It is a significant blow to their international strategy,” said CBA Equities’ transport analyst Matt Crowe. ”It sets back the timing of turning around their international business.”
The collapse of talks leaves Qantas desperate to find another partner in Asia to help it meet the ambitious target of turning a profit on its international operations within three years and making them meet their cost of capital within five.
Malaysia Airlines was one of the few available bedfellows in Asia for Qantas, after Virgin Australia snared Singapore Airlines as an alliance partner last year. Cathay Pacific is seen as an ideal alliance partner but the chances of securing it are seen as slim.
”This deal with an Asian carrier has already taken longer than we thought it would, and now it’s almost back to square one,” Mr Crowe said.
But Qantas insists that it can still meet its targets because a new airline would have required it to inject tens of millions of dollars, even under its so-called ”capital light” option.
Despite the setback, Mr Joyce said Asia remained a priority for the airline and it ”continued to explore opportunities in the region, including joint ventures and alliances”. But he again emphasised that any investment in Asia would be on the basis that Qantas will allocate ”minimal capital to such ventures”.
The failure of the talks was not a complete surprise because Mr Joyce emphasised as recently as last month that his plans for a premium airline were ”hugely complex”, and the hurdles high.
Shares in Qantas slumped as much as 4 per cent yesterday before closing down 4.5¢ at $1.68.