Qantas's Asia bet will pay off: analysts

SYDNEY, Aug 18, 2011 (AFP) - Asia is seen as the world's fastest-growing aviation market and Australian carrier Qantas's decision to seek a bigger slice of it is a smart, and long overdue, decision, analysts say.

Qantas announced a controversial revamp of its ailing international arm this week in a bid to return it to profit with the focus directed on the region, where it plans to launch two Asia-based airlines and buy 110 new Airbus planes.

Unions, though, have accused the carrier of outsourcing jobs and tarnishing the iconic Australian image of the "Flying Kangaroo", while the government plans to examine the changes to ensure they meet federal law.

Analysts say the re-focus was inevitable.

"It's the growth market," Centre for Asia-Pacific Aviation (CAPA) executive chairman Peter Harbison said of Asia. "The domestic market is mature with increasing competition, so this is pretty much a no-brainer.

"It will create a lot of positives in the medium to long term."

The airline has said its international operations are expected to post a pre-tax loss of Aus$200 million ($210 million) in 2010/11, hit by high fuel costs, natural disasters and an expansion by Middle East and Asian carriers into Australia.

Robert Bruce, a Hong Kong-based analyst at investment bank CLSA, said Qantas's problems had been compounded by neglecting Asian routes.

"They've concentrated on flying to Europe over the top of Asia and now those routes are under increasing pressure from existing carriers plus the Middle Eastern carriers coming in," he told Dow Jones Newswires.

CAPA said the move to Asia should help stem the losses.

"The consolidation will immediately reduce losses and could in the long term see yield increase unless competitors pick up on the lost traffic," it said in a research note.

According to the International Air Transport Association, the Asia-Pacific region will account for 30 percent of global traffic by 2014, up from 26 percent currently, and Qantas plans to cash in.

To help achieve its goals, its budget offshoot Jetstar will partner with Japan Airlines and Mitsubishi to create a new subsidiary in Japan to capitalise on a market that is growing fast at the low-cost end.

But it also has plans for the corporate sector and will set up a premium joint-venture carrier most likely based in either Singapore or Kuala Lumpur.

As part of the shake-up, Qantas will no longer fly out of Bangkok and Hong Kong into London, with partner British Airways taking up the slack.

In explaining his rationale, chief executive Alan Joyce said within 20 years, 16 percent of the world's middle-class will be in East Asia.

"China may already have the world's fourth largest population of millionaires, and India the 12th. There are many, many millions of premium travellers in waiting," he said.

Qantas is also keenly aware of the opportunities presented by a Southeast Asian open skies initiative scheduled for 2015, under which national airlines of the 10 ASEAN nations will be free to fly between regional capital cities.

Unions are threatening strike action over the airline's far-reaching revamp. But Australia's dominant News Limited and Fairfax media groups are backing Qantas.

The Sydney Morning Herald said Thursday that with the declining power of Europe and the United States, Asia would drive future growth.

"Qantas's Asian strategy is a high-stakes gamble, but one that appears to offer the best odds of success," it said, with The Australian adding that decisions must be "based on hard business facts, not sentiment".

"The wonder is that it has taken the company so long to begin the transformation to a more productive, competitive operation offshore," it said.

The scaling back of some Qantas international routes will see 1,000 jobs slashed, and this could cause problems if Canberra considers the national carrier is taking Australian jobs offshore.

Under the Qantas Sale Act -- the legislation that governed the airline's privatisation in the 1990s -- it must maintain its operational base in Australia.

"The government is determined to ensure that the act is fully complied with," said Transport Minister Anthony Albanese.

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