Qantas Asia Plan in Jeopardy as Malaysian Air Talks Fail

Qantas Airways Ltd. (QAN)’s plans to set up a full-service carrier in Asia to reverse losses on international routes have been set back after talks with Malaysian Airline System Bhd (MAS) collapsed.

The companies couldn’t agree on commercial terms, the Sydney-based airline, Australia’s largest, said in a statement today. Qantas shares fell the most in a month and the company said it will examine other opportunities for a venture in Asia involving “minimal capital.”

Qantas unveiled plans for the new airline in August as part of its strategy to turn around A$200 million ($213 million) of international losses. Chief Executive Officer Alan Joyce wanted access to a hub in Malaysia or Singapore so he could hire workers at a lower cost and offer a greater choice of connecting flights in Asia, the fastest growing aviation market. His plans included a revamped network and new carrier in Japan through the Jetstar budget unit.

“They have to look at joint ventures for their existing business, but there’s very few partners in Asia that can bring much benefit to Qantas,” said Neil Hansford, chairman of Strategic Aviation Solutions, a Port Stephens, Australia-based adviser to airlines. “They will now accelerate their development of Jetstar Asia and its overseas operations in the Asian region.”

Malaysian Air didn’t provide an immediate comment on the talks in an e-mailed reply to Bloomberg News today.

Shares Drop

Qantas fell 2.6 percent to A$1.68 at the close of trading in Sydney, the biggest decline since Feb. 10. The stock has lost 28 percent in the past 12 months, compared with the 12 percent drop in the benchmark S&P/ASX 200 index.

“They have a number of options, and this takes out one of those options,” said Chris Weston, institutional dealer at IG Markets in Melbourne. “The market is responding to that.”

The airline last month announced A$700 million of spending cuts as Joyce slows fleet growth. Qantas will also eliminate 500 jobs as it contends with international competition.

“The transformation of Qantas’ international business remains vital, with plans to return the international business to profitability in the short term on track,” Joyce said in the statement.

While the company has about 65 percent of Australia’s domestic aviation market, less than 20 percent of international passengers choose to fly on Qantas planes as customers switched to rivals such as Emirates Airline and Singapore Airlines Ltd. (SIA)

To contact the reporters on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net; Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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