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Emirates and Qantas Partnership Announced – Is it a Game Changer?

Qantas, the Australian flag carrier, has seen its international flights raking in more costs rather than revenue, pushing its profit margin to the red limit, posting a loss of US$254.8 million. Its revenue has taken a hit from the emergence of Gulf carriers, such as Emirates, Etihad, and Qatar Airways, especially in the Australia – Europe route, which is shown to be highly profitable. These Gulf airlines have their home airports right smack in the middle of the route, making flight transits and its related bureaucracies simpler and cheaper. The cost of jet fuel has also been increasing, forcing Qantas to cancel its order for 35 Boeing 787 Dreamliner.

Taken from Qantas website

The Qantas/Emirates partnership brings about many impacts on competing airlines and also to some countries. Singapore’s Changi Airport will suffer the departure of Qantas’ European bound flights from its list tenants, as Qantas shifts its European operations hub to Dubai. This problem is analogous of the phenomenon in which a gatekeeper loses its position and its competitive advantage on others. In the past, Changi Airport has comfortably been Qantas’ and other airlines’ choice of airports, but now, Changi has to continually innovate to ensure that other airlines do not follow suit, as this will bring about a plummet in revenue for the airport. The partnership has allowed Qantas an easier access to Dubai International Airport, making the link a new local bridge between Australia and the Middle East. It still needs to be known whether Qantas will use Dubai International as its European hub in Dubai after its partnership with Emirates ends, but for the next ten years, this local bridge is here to stay.

The Kuala Lumpur International Airport (KLIA) also suffered tremendous setback. The Malaysian government has been blamed for taking too much time in arranging a joint venture airline involving Malaysia Airlines and Qantas. If this new airline really took off before Emirates had a chance to make the partnership deal with Qantas, KLIA would be able to rival Changi as the hub of choice for airlines with routes passing through Southeast Asia. This will decrease the importance of Changi as the region’s gatekeeper, allowing KLIA to rival it.

Image Courtesy of Seth Jarowski

The importance of game theory-based strategy is also of utmost importance in this case. Rival airlines, such as Singapore Airlines and Virgin Australia, are in the process of exploring further possibilities to maintain and increase their competitive pressure on Emirates/Qantas. Using potential cost/benefit strategies for both short-term and long-term, Virgin Australia is considering furthering its alliance with Singapore Airlines, possibly by extending their codeshare agreements and purchasing new 787 Dreamliner airplanes with better fuel efficiencies. This means that their alliance is a form of response to the Emirates/Qantas partnership.

The game theory concept can also be extended to the implementation of added services by competing airlines to reduce the cross-elasticity of demand for the competing airlines. This may result in a relatively higher payoff to each airline in the game theory decision matrix the next time they have to make decisions that affect each other.

Sources:

http://www.aspireaviation.com/2012/09/22/qantas-emirates-partnership-how-other-players-are-affected/

http://www.aspireaviation.com/2012/09/10/qantas-emirates-partnership-to-reshape-competitive-landscape/

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