British Airways seeks to merge with Qantas

[JF Mezei]

This is in the news today. Some form of "merger" where companies remain
dual listed and would invest in each other to whatever limits
governments impose.

Since both are part of oneworld and have leveraged that partnership
(unlike AA-BA which didn't get the anti-trust immunity to fully leverage
oneworld), what would they gain ?


So, BA wants to merge with Iberia, get a special deal with AA and now
merge with Qantas.

The image I get is that BA doesn't really know what do to is is shooting
in all directions.

Would a merger of BA and QF lead to any efficiencies that could not be
obtained thorugh code-sharing ? They'd still need dual administration,
payroll etc. And it isn't as if there is a lot of route overlap that
could be streamlined.
.
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[Jeff Hacker]

Post by JF Mezei
This is in the news today. Some form of "merger" where companies remain
dual listed and would invest in each other to whatever limits
governments impose.
Since both are part of oneworld and have leveraged that partnership
(unlike AA-BA which didn't get the anti-trust immunity to fully leverage
oneworld), what would they gain ?
So, BA wants to merge with Iberia, get a special deal with AA and now
merge with Qantas.
The image I get is that BA doesn't really know what do to is is shooting
in all directions.
Would a merger of BA and QF lead to any efficiencies that could not be
obtained thorugh code-sharing ? They'd still need dual administration,
payroll etc. And it isn't as if there is a lot of route overlap that
could be streamlined.
.

The idea is more like AF/KL where they have two "brands" but can combine the
"back room" stuff. Over time, you'd see similar fleets, complimentary
routes, etc. Hopefully they end up with some synergies. And BA has had an
equity interest in Qantas for many years now.

Jeff

Post by JF Mezei
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[Roger Chung-Wee]

On Tue, 2 Dec 2008 15:24:36 -0600, "Jeff Hacker"

Post by Jeff Hacker

Post by JF Mezei
This is in the news today. Some form of "merger" where companies remain
dual listed and would invest in each other to whatever limits
governments impose.
Since both are part of oneworld and have leveraged that partnership
(unlike AA-BA which didn't get the anti-trust immunity to fully leverage
oneworld), what would they gain ?
So, BA wants to merge with Iberia, get a special deal with AA and now
merge with Qantas.
The image I get is that BA doesn't really know what do to is is shooting
in all directions.
Would a merger of BA and QF lead to any efficiencies that could not be
obtained thorugh code-sharing ? They'd still need dual administration,
payroll etc. And it isn't as if there is a lot of route overlap that
could be streamlined.
.

The idea is more like AF/KL where they have two "brands" but can combine the
"back room" stuff. Over time, you'd see similar fleets, complimentary
routes, etc. Hopefully they end up with some synergies. And BA has had an
equity interest in Qantas for many years now.
Jeff

BA sold its 18.25% shareholding in QANTAS in 2004 in order to pay off
some of its £5.6 billion debt.
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[Roland Perry]

Post by Jeff Hacker
The idea is more like AF/KL where they have two "brands" but can
combine the "back room" stuff.

It was a takeover of KLM by Air France, but it's interesting how the KLM
branding and ethic has remained almost unchanged. What I have seen is
some increased resilience such that when KLM cancels a flight they tend
to ship everyone off to CDG on an AF flight, and sort them out from
there (but obviously of less use if you were heading for Amsterdam).

Post by Jeff Hacker
Over time, you'd see similar fleets, complimentary routes, etc.

Free flights would be useful.

[Robin Johnson]

Lots of opposition here in Australia - from the Liberal opposition
(which is right-of-centre) and the unions (which are not), and the
Government does not seem too thrilled either.

It's hard to see how the requirement that Qantas be no less than 51%
Australian owned can fit in with the (presumably British) similar
requirement for BA: how does AF/KL manage this? Is it just that both
are considered EC flag carriers?

As far as equipment compatibility goes, Qantas flies A380s and A330s,
B744s, B767-300s (some on lease from BA), B737-800s and some
B737-400s. Its wholly-owned subsidiary Jetstar operates A320s and
A330s. Both plan to fly
B787s. BA's fleet is B744s, B772s, B763s, B752s, and a few B737NGs of
different marks, plus A318s to A321s. A380s, B773s, and B787s are
planned.

So there is some possibility, over time, of rationalisation there.
The idea I've seen floated here that maintenance could be outsourced
(more than it is already) would rely on lower labour costs presumably
and is already being fiercely resisted, aided by some recent
unfortunate events that may well turn out to be unrelated (the recent
Qantas 744 oxygen bottle mishap, and the A330 upset near Geraldton.

Another idea was for Qantas to stop flying to London and BA to Sydney.
Perhaps the thought was for BA crew to fly Qantas aircraft and vice
versa: not likely given the imminent A380 use on London services,
although it might be that BA plans to stop flying to Sydney, given
that over recent years it has stopped serving Perth, Adelaide,
Melbourne and Brisbane.

Now, if in the medium term traffic rights can be issued to carriers
regardless of nationality of ownership, and on a worldwide basis, a
full merger might be practical. To obtain domestic or cabotage rights
within Australia is already not a problem - when Virgin Blue started
it was a British-owned company, and Tiger is Singaporean. I don't see
the equivalent readily being agreed to in the UK, let alone the USA!

I quote the result of a Google news search:
Ministers reassure Qantas workers
The Australian, Australia - 52 minutes ago
GOVERNMENT ministers yesterday rushed to reassure Qantas customers and
its 37000 workers the airline would remain Australian-owned and
headquartered ...
Qantas a keen suitor Sydney Morning Herald
Qantas goes do-able rather than best Melbourne Herald Sun
Hurdles for $9b BA union with Qantas Sydney Morning Herald
The Australian - The Australian
all 1,328 news articles »

Robin Johnson in Australia
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[JF Mezei]

Post by Robin Johnson
It's hard to see how the requirement that Qantas be no less than 51%
Australian owned can fit in with the (presumably British) similar
requirement for BA: how does AF/KL manage this? Is it just that both
are considered EC flag carriers?

From what I read, Qantas would buy 49% of BA, and BA would buy 49% of
Qantas.

In terms of AF-KLM, KLM remains 51% owned in the Netherlands in order to
retain its flying rights. But I think that a big portion of that 51% is
owned by someone or some company which is friends with the AF-KLM
holding company. (aka: they vote in favour of whatever AF-KLM says).

However, there is a HUGE difference with BA-QF. In the case of AF-KLM,
as deals are signed with foreign countries to recognise the EU as a
single market for flight rights (as was done with the USA), AF-KLM will
be able to ignore their dual nationality and operate as one. This will
never happen with BA-QF.

Post by Robin Johnson
So there is some possibility, over time, of rationalisation there.

Fleet rationalisation is something that DL and NW will work on since
they operate in the same market. But for BA-QF, they really operate
vastly separate route networks with a couple of interconnect points, and
there is little rationalisation possible. An A320 that has a few spare
hours after having done LHR-CDG isn't going to be available to do
SYD-MEL and then be back in time to do CDG-LHR.

About the only area where rationalisation might happen is C and D check
facililties. However, you don't need to merge the two airlines to do this.

Post by Robin Johnson
Another idea was for Qantas to stop flying to London and BA to Sydney.

They could do that today if they wanted under the Oneworld alliance. It
is called code sharing and is nothing new. The only issue here is that
premiuum class amenities might not be standard between the 2 airlines,
so a BA customer buying a first class ticket would end up in Qantas
first class, not BA first class.

But again, the two airlines might standardise premium class amenities
under a marketing agreement, no need for a merger.

Perhaps BA's idea of "Oneworld" is morphing into "OneAirline". But that
just means that when "OneAirline" catches a cold, a whole lot of the
world is affected.


With liberisation of EU skies, BA could start Paris-Sinagpore flights
that connect to the QF services to australia and market flights to
australia from any city in the EU. So I still don't see what a half
merger (49%, 49%) would give BA-QF that they couldn't achieve without an
equity stake in each other.


.
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[Roland Perry]

In message

Post by Robin Johnson
It's hard to see how the requirement that Qantas be no less than 51%
Australian owned

There are rumours they are prepared to go to 49%

Post by Robin Johnson
how does AF/KL manage this? Is it just that both are considered EC
flag carriers?

I'm not aware that there are any such protectionist measures in place
for any of those three European airlines.

ps "Flag carrier" usually means a state-owned airline, which isn't
really appropriate to this discussion.

[Jeff Hacker]

Post by Roland Perry

Post by Jeff Hacker
The idea is more like AF/KL where they have two "brands" but can combine
the "back room" stuff.

It was a takeover of KLM by Air France, but it's interesting how the KLM
branding and ethic has remained almost unchanged.

True, but they had to keep the Dutch registration due to bi-lateral
treaties. And KLM dropped the "Royal Dutch Airlines" as they are no longer
a Dutch Crown Corporation.

Jeff

What I have seen is

Post by Roland Perry
some increased resilience such that when KLM cancels a flight they tend to
ship everyone off to CDG on an AF flight, and sort them out from there
(but obviously of less use if you were heading for Amsterdam).

Post by Jeff Hacker
Over time, you'd see similar fleets, complimentary routes, etc.

Free flights would be useful.
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Roland Perry
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[Robin Johnson]

One of the interesting aspects of a BA/QF deal relates to low-cost
subsidiary carriers,

Here is a quote from the Business section of The Australian newspaper
for Dec 4th:

Qantas sees its low-cost carrier Jetstar as the jewel in its crown.
Its very existence is testimony to its aggression.

Others argue that Qantas was lucky to avoid the anti-trust scrutiny
that seemingly prevented BA controlling its low-cost carrier GO, which
proved disastrous for the full-service carrier.

No matter what side of the fence you sit, Jetstar has proved a huge
success and an exportable model.
(end quote). Full story at http://www.theaustralian.news.com.au/story/0,25197,24747560-5013408,00.html

Meanwhile, Reuters is reporting from Hanoi that Vietnam hopes to sell
an increased stake in Jetstar Pacific to Qantas, which already owns
18% of the carrier.

The new CEO of Qantas, Alan Joyce, was promoted after his success in
getting Jetstar started: he is now being referred to with his ex-Aer
Lingus compatriot Willie Walsh as the Murphia. A look at their routes
shows a concentration on leisure routes, both domestic and
international. As such, Jetstar does not cannibalise mainline Qantas
(Citiflier) routes such as Tullamarine-Sydney, as can be shown by a
search for a flight (midweek, mid-day, a month ahead)
which shows Qantas flights from $110, Virgin Blue from $107, and
Jetstar from remote Avalon Airport for $79.

Jetstar is currently flying only six wide-bodies outside Australia,
but is expected to take 15 787s as soon as Boeing is able to deliver
them, so its plans ro fly to those parts of Europe that mainline
Qantas has found uneconomical are severely disrupted. Rome and
Athens have been mentioned: a midway stop in Southeast Asia was
expected, possibly not one of the points the carrier already serves.
Another European point that may be under consideration is Manchester.
In all probability service would not be daily, and meanwhile
competition from such as Air Asia X of Malaysia is growing.

The model is exportable to the UK leisure market, which BA tried,
ultimately unsuccessfully, with Go years ago.

Robin Johnson
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[matt weber]

On Tue, 2 Dec 2008 15:24:36 -0600, "Jeff Hacker"

Post by Jeff Hacker

Post by JF Mezei
This is in the news today. Some form of "merger" where companies remain
dual listed and would invest in each other to whatever limits
governments impose.
Since both are part of oneworld and have leveraged that partnership
(unlike AA-BA which didn't get the anti-trust immunity to fully leverage
oneworld), what would they gain ?
So, BA wants to merge with Iberia, get a special deal with AA and now
merge with Qantas.
The image I get is that BA doesn't really know what do to is is shooting
in all directions.
Would a merger of BA and QF lead to any efficiencies that could not be
obtained thorugh code-sharing ? They'd still need dual administration,
payroll etc. And it isn't as if there is a lot of route overlap that
could be streamlined.
.

The idea is more like AF/KL where they have two "brands" but can combine the
"back room" stuff. Over time, you'd see similar fleets, complimentary
routes, etc. Hopefully they end up with some synergies. And BA has had an
equity interest in Qantas for many years now.

You are a bit behind the time, and actually QF and BA have been
connected twice.
Most recently BA sold out their position in QF in 2004. So at the
present time BA has NO equity in QF.

In the 1930's, BA's ancestor (Empire) owned 50% of QANTAS's ancestor
(Qantas Empire Airways). However when the successor to Empire (BOAC)
was nationalized in 1947, the Australian Government bought out the
50% of QEA that was owned by BOAC.
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[Roland Perry]

Some form of "merger" where companies remain dual listed and would
invest in each other to whatever limits governments impose.

Now called off: "In a joint statement the airlines said that despite the
"potential longer term benefits" they had "not been able to come to an
agreement".

http://news.bbc.co.uk/1/hi/business/7789077.stm

[JF Mezei]

Post by Roland Perry
Now called off: "In a joint statement the airlines said that despite the
"potential longer term benefits" they had "not been able to come to an
agreement".
http://news.bbc.co.uk/1/hi/business/7789077.stm

Seems to me that there are serious mergers and there are PR mergers. BA
seems to have made many many PR merger announcements, with few ever
resulting in anything concrete happening. It has had a fling with Iberia
for how many years now ? How many times has it announced it wants to
merge with Iberia ? Never consumed this into a real merger.

And then BA announces glorified code sharing with AA as a BA-AA
*merger*. BA's use of the term "merger" doesn't have much credibility.

The image I am starting to get is that BA is desperate for any merger,
but is unable to find a suitor. It sees the AF-KLM wedding and now
Lufthansa succesfully buying airlines and wants a "me too" merger.

Why is BA never able to consume its marriage offers ? Is there something
wrong with BA that makes it un-attractive ? Is the restricted Heathrow
hub seen as a handicap or a real asset ?

Or would it be BA's management attitudes that turn off potential suitors
because BA wants 100% control ?


In the case of the BA-QF premature wedding announcement, perhaps this
was just a PR stunt by Qantas to test the new australian government's
willingness to raise foreign onwership limits in australia.

Isn't Singapore the natural buyer of Qantas ?


Or are large airlines like BA or Lufthansa just unable to merge with
another airlines and only able to acquire nearly dead corpses (like LH
buying Swiss) ?


.
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[JF Mezei]

BA's big cheese, Willie Walsh let it be known that the merger with
Iberia isnt working out. "The present valuation is unacceptable".


Turns out that due to the UK pound devaluation, Iberia is now worth more
than BA ! ! ! ! !

In the past, a merged entity would have been made up of 65% BA and 35%
Iberia based on respective market capitalisation.

Current ratio has moved to 49.6% for BA, 50.4% for Iberia.

Looks to me that as long as the UK pound will remain very low, British
Airways isn't going to be a buyer. Big question now is whether some
european airline might be buying BA.

It would be a good deal financially since the GBP is bound to regain
value in a few years. But I am not sure there are any rich european
airlines who would be allowed to buy BA.

I think that the devaluations may have also explained why talks with
Qantas never went very far.
.
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