RPT-UPDATE 2-Qantas agrees Emirates alliance after ending BA deal

Thu Sep 6, 2012 6:10pm EDT

* Qantas shares close 6.7 pct up

* Deal aimed at helping revive Qantas' int'l business

* Would help Emirates compete vs Etihad, Qatar Airways

* Qanatas and IAG's British Airways sever ties

* Analysts see IAG-Qatar Airways agreeing partnership

By Jane Wardell and Rhys Jones

SYDNEY/LONDON, Sept 6 (Reuters) - Australia's struggling Qantas Airways has agreed a 10-year alliance with Dubai's Emirates, a key step in the carrier's efforts to shore up its loss-making international business, after it ended a similar deal with British Airways.

Qantas will replace Singapore with Dubai as its hub for European flights from March 2013 and coordinate pricing, sales and schedules with Emirates under the partnership unveiled on Thursday.

Under the deal, the Australian airline will end its 17-year alliance with British Airways, owned by IAG, which some analysts said could seek a new partner, like Qatar Airways.

"A key objective is to make Qantas International strong and viable, and bring it back to profitability," Qantas Chief Executive Officer Alan Joyce told reporters. "This partnership will help us do that."

Joyce said the airline remained committed to reaching break-even in its international business in the 2015 financial year.

He declined to comment on analysts' estimates that the alliance would save Qantas A$90-100 million before taxes annually, or help it deliver cost savings.

IAG Chief Executive Willie Walsh, said the two airlines would continue to work together as part of the oneworld alliance and through code-share agreements.

Australian routes have diminished in importance to BA in recent years, in part due to the dominance on these routes by Emirates and other Middle Eastern airlines.

"The world has changed since 1995 when the joint business started... this is a small part of our overall network and this move fits in with changes in our global strategy," said Walsh.

"Asia has become a key market focus for IAG and we're talking to a number of airlines about alternative options."

Espirito Santo analyst Gerald Khoo sees a deal between IAG and Qatar Airways as the British group's most likely move.

"This would offer one-stop connections to Asian destinations and Australia in a mirror image or the Qantas-Emirates arrangement," said Khoo.

The long-anticipated deal was received warmly by Qantas investors, with the Australian carrier's shares closing 6.7 percent up. IAG shares in London were 2 percent up by 1305 GMT.

The arrangement will enable Qantas to cut loss-making international routes and focus on its profitable domestic and budget operations.

The alliance is deeper than a straightforward code-share arrangement -- where airlines share some flights -- but stops short of a global revenue-sharing deal or equity injection from either side. For customers, benefits include the pair sharing airport lounges and frequent flyer programmes.

COST-CUTTING

It helps Qantas, nicknamed the Flying Kangaroo, confront its disadvantage in the region as a so-called "end-of-line" carrier. Qantas has to spend more on fuel than other airlines in Asia to carry passengers on intercontinental routes as its aircraft are based in Australia.

The hub carriers can service Europe to Australia routes better by picking up passengers from multiple European, Asian and Middle Eastern departure points.

Qantas has been stripping costs out of its business after a year troubled by a record fuel bill, rising competition and a labour union that has opposed the carrier's spending cuts.

Last month, it cancelled orders for 35 Boeing Dreamliner jets to further cut costs after posting a full-year net loss of A$244 million ($254.8 million), its first loss in 17 years, due to its bleeding international division.

Emirates, meanwhile, is looking to increase its business in Australia to counter moves by Etihad and Qatar.

Etihad doubled its stake in Qantas rival Virgin Australia to 10 percent last month and Qatar Airways launched its first service to Perth this month, saying that it also wanted to partner with Australian carriers.

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