Qantas strikes joint venture deal with China Eastern
Qantas has taken its most significant step into what is tipped to become the world’s biggest aviation market within two decades, striking a landmark joint venture with powerhouse Chinese carrier China Eastern.
QANTAS has taken its most significant step into what is tipped to become the world’s biggest aviation market within two decades, striking a landmark joint venture with powerhouse Chinese carrier China Eastern.
The two carriers announced this afternoon that they would seek regulatory approval in Australia and China for the joint venture, which builds upon their existing six-year-old codeshare deal and is designed to grow the number of flights between Australia and the Chinese mainland.
“There is a huge opportunity in this market for Australian businesses to do business in China, especially post the free trade agreement,’’ said Qantas (QAN) chief executive Alan Joyce.
“The timing could not be more opportune.’’
The five-year agreement was signed today by Mr Joyce and China Eastern chairman Liu Shaoyong at Parliament House, in a ceremony attended by Tony Abbott and China’s President Xi Jinping.
The deal proposes that the two airlines be able to co-ordinate schedules and pricing on the key Sydney-Shanghai route.
Mr Joyce said it would allow flight times between the two carriers to complement each other. Currently they depart at almost the same time.
China Eastern also flies to Melbourne and Cairns from Shanghai.
Another key benefit would be the co-location of both carriers’ operations in Terminal 1 at Shanghai International Airport, which will cut transit times by about an hour, open up a better range of onward connections and provide more choice for customers.
‘’Our passengers will get also access to China Eastern’s lounges and there will be more co-ordination on product,’’ Mr Joyce added.
China is predicted to become the world’s biggest airline market in 20 years, as the number of passengers flying globally more than doubles from 3.3 billion this year to 7.3 billion by 2034.
The International Air Transport Association’s first 20-year passenger forecast, released last month, predicted that the number of Chinese air travellers would grow by 856 million to 1.3 billion over the next 20 years.
Qantas also has a codeshare agreement with Guangzhou-based Chinese carrier China Southern, and Mr Joyce said it still regarded working with the two Chinese carriers as being “complementary’’.
The China arrangements mirror the Qantas-Emirates partnership for Europe, the Middle East and North Africa, and the Qantas-American Airlines partnership for the US.
In July federal parliament passed changes to the Qantas Sale Act that allowed an expansion from the current ownership limits of 25 per cent for individual investors and 35 per cent for a foreign-owned airline.
But under a deal between the Coalition and Labor, foreign ownership limits for individuals and foreign airlines remained limited to 49 per cent.
Mr Joyce said there had been no discussion with China Eastern or any other foreign carrier about taking an equity stake in Qantas.
‘’We are not engaging with anyone on that,’’ he said, noting that Qantas management was firmly focused on a $2 billion cost-saving program that is expected to return the airline to profitability this year.
‘’There is no active work on it.’’
While the China Eastern joint venture will face regulatory scrutiny in both countries, Mr Joyce said there were strong consumer benefits in the transaction.
‘’There is an opportunity for new routes, including Shanghai to Brisbane, Adelaide and Perth,’’ Mr Joyce said.
He denied the focus of the deal was cost-cutting.
‘’This is a revenue opportunity. It is for revenue and consumer benefit and taking part in the growth opportunity of China,’’ he said, noting the two carriers were hoping to secure approval by mid next year..
‘’There is no intention to rationalise capacity.’’
China Eastern expanded its codeshare alliance with Qantas in April last year, providing passengers with links to 11 destinations in China via Shanghai. The China Southern deal provides passengers with a further four destinations in China.
Qantas and China Eastern are also shareholders in Jetstar Hong Kong, which has faced long delays in gaining regulatory approval to fly after opposition from rival Cathay Pacific.
The partners hope an administrative hearing in the new year will clear the way for the airline to begin flights.
China Eastern is scheduled to take delivery of about 60 new long-haul aircraft over the next five years.
In welcoming today’s agreement, China Eastern’s Mr Liu said: Australia was one of the most important tourist destinations and trade markets for China, and Qantas was the key partner for China Eastern in Australia.
“It’s important for us to strengthen the cooperation with Qantas to provide better, more convenient travel products for passengers between the two countries,” said Mr Liu.
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