November 27, 2011 / 10:42 PM / 9 years ago

Qantas set to drop Asian carrier plans-report

SYDNEY, Nov 28 (Reuters) - Australia’s Qantas Airways is set to shelve plans for a new premium airline in Asia as global economic turmoil shakes management confidence in the project, the Australian Financial review reported without citing any sources.

The paper said that after spending a year putting together the plans for an up to A$500 million ($488 million) investment in the Asian unit, Qantas now favours a code share alliance with Malaysian Airline Systems Bhd.

The Asian carrier plan was aimed at using the region’s low cost workforce to turnaround Qantas’ loss-making international operations but sparked an union backlash.

Qantas felt the investment in the Asian airline would not sit well with the ratings agencies and its investment grade rating, the paper said. Qantas is the only airline globally with the investment grade rating.

Qantas and Malaysian Airlines are working towards a letter of intent in coming weeks on a code-sharing that would allow joint pricing, marketing and scheduling to begin about six to nine months after the agreement, the paper said.

Qantas Chief Executive Alan Joyce flew to Singapore last week for talks with Tony Fernandes, chief executive of Air Asia , which owns 20 percent of Malaysian Airlines. He then flew to Kuala Lumpur to thrash out the details of the proposed alliance, the paper said citing sources.

Qantas officials could not immediately be reached for comment by telephone or email.

The Asian carrier plan was one of the reasons for strikes by parts of the workforce. Strikes led to Qantas grounding its entire fleet last month in a drastic move aimed at ending union action.

That sparked a government intervention and involvement of Australia’s industrial umpire, which gave the warring parties 21 days to resolve differences or submit to binding arbitration. The parties have since moved to arbitration. ($1 = 1.0253 Australian dollars) (Reporting by Narayanan Somasundaram; Editingm by Lincoln Feast)

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