Qantas’ aggressive Asian push

Flying kangaroo looks to grow its Asian business

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Qantas Airways (ASX: QAN) is expected to ramp up its strategy to woo back customers, by flying more of its aircraft to key business hubs, re-time flights to Asia and increase capacity to cities such as Singapore and Hong Kong.

According to the Australian Financial Review, the updated strategy comes on the back of the airlines deal with Emirates, which should free up Qantas planes to fly into Asia, and the collapse of earlier plans to establish a premium airline based in Singapore or Kuala Lumpur.

Related: Shuffling the deckchairs at Qantas

Under the first phase of the plan, Hong Kong and Singapore will become point-to-point destinations, rather than the first leg of flights to Europe. Qantas will also start selling tickets on Emirates’ four flights daily to Asia, as long as the deal with Emirates is approved.

As part of the plan, Qantas will be able to retire its aging, fuel-guzzling 747 jumbos and replace them with more fuel-efficient Airbus A330 aircraft. The company also plans to improve its business class offerings to allow it to compete more effectively with rivals Singapore Airlines, Cathay and rapidly growing Chinese carriers.

This is all part of a strategy by Qantas to turnaround its loss-making international division, which has been bleeding money for years. The company’s profitable domestic division holds about a 65% market share in Australia, but is facing increasing competition from Virgin Australia Holdings (ASX: VAH). Virgin is ramping up its attack on Qantas domestically, by buying a stake in budget airline Tiger Airways and making a takeover offer for regional operator, Skywest Airlines (ASX: SXR).

Whether Qantas’ Asian strategy works or not is yet to be seen, but I wouldn’t be putting money on it. Airlines are notoriously competitive businesses with many state-owned or backed, and therefore normal business practice gets thrown out the window.

Foolish takeaway

As my colleague Scott Phillips outlined, the airline business is an endless circle. To grow profits, airlines need to take advantage of economies of scale, by increasing the number of seats, which in an industry characterised by excess capacity, means lower margins. The alternative is less capacity, higher costs and less profit. That’s why we here at the Motley Fool are unlikely to ever recommend an airline.

If you only invest in one company this year, make it our “Top Stock for 2012-13.” Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

More reading

Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »