British Airways cuts Qantas ties

British Airways (BA) has moved to cut ties with Qantas Airways Limited (ASX: QAN), by ending** a code-share agreement for connecting flights from Asia to London, when the partnership ends on March 31.

According to the Australian Financial Review (AFR), British Airways was ‘furious’ about the way Qantas handled the announcement of its deal with Emirates. Qantas announced plans to fly its passengers around Europe via Emirates, and will fly through Dubai to London, rather than via Singapore or Hong Kong as it has done for many years.

As part of the deal with Emirates, Qantas also cut its joint venture with British Airways for flights to London, although Qantas said that passengers who wanted to go through Singapore and Hong Kong could still take the final leg with BA. Now that appears unlikely.

The AFR reports that while commercial discussions are still continuing, both British Airways and Qantas are part of the oneworld alliance, so passengers will still reap some benefits flying either airline.

Consumers will be unable to book tickets to London via Singapore or Hong Kong through Qantas’ website if the deal ends. For Qantas, this looms as a risk as the Australian Consumer and Competition Commission (ACCC) has yet to approve its deal with Emirates. Should it fall through, Qantas may be forced to go cap in hand back to British Airways to renegotiate a deal.

The code share agreement with Emirates was designed to cut the losses pouring out of Qantas’ unprofitable routes into Europe, and allow Qantas to focus more on direct flights into Asia.

Emirates’ competitor Etihad, has a 9% stake in Virgin Australia Holdings (ASX: VAH), and the two airlines could seek a similar code-share agreement, if the ACCC approves Qantas’ plan.

Foolish takeaway

Qantas has already taken steps to re-jig its flights into Asia, taking advantage of the Emirates tie-up, adding more flights to Asia from east coast cities while cutting back on direct flights from Adelaide and Perth. For Qantas, the Emirates deal appears to be a significant step forward in fixing its international business, although at the loss of its partnership with BA.

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** A spokesman for British Airways has recently advised us that “We are currently transitioning our relationship with Qantas and its nonsense to suggest that we are cancelling all our codeshares. We have always supported Qantas and we will continue to support them as we make this transition in our relationship.”

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