July 26 (Bloomberg) -- Qantas Airways Ltd., working to end losses on overseas routes, rose the most in six weeks in Sydney trading after the Australian Financial Review said the carrier was close to forming a long-haul alliance with Emirates Airline.
Australia’s biggest carrier climbed 9.6 percent to A$1.085 at the close of trade in Sydney, the largest gain since June 12. The stock was the best performer on the benchmark S&P/ASX 200 index, which rose 0.6 percent. Qantas’s bond risk fell the most in more than three years.
Under the plan, Sydney-based Qantas would route European traffic through Emirates’ hub in Dubai, giving passengers a greater range of connections, the Financial Review reported today, without giving a source for the information. The Australian carrier has lost market share on Europe routes to Middle East airlines because it only offers one-stop services to five cities on the continent.
“If this is a reality, it’s brilliant for Qantas,” said Tony Webber, managing director of Webber Quantitative Consulting Pty. and a former Qantas chief economist. “There’s lots of Aussies who want to go to other parts of Europe than the ones that are served by Qantas, and people from all over Europe want to come to Australia.”
Qantas and Emirates are in late-stage talks about the plan, according to the report. As part of the arrangement, Qantas would shift some long-haul flights to Dubai from Singapore and halt services to Frankfurt. That would leave London as the only European city served by planes in Qantas livery.
Qantas is in talks with Emirates among other airlines on possible alliances, it said in a statement to the Australian stock exchange. “Strengthening alliance partnerships is one of the four pillars of the Qantas Group’s five-year strategy.”
Emirates is studying a codeshare agreement with Qantas and “that’s all there is”, President Tim Clark said in a phone interview today. The carrier isn’t considering a global revenue sharing deal, he said.
“Emirates remains interested in bilateral commercial agreements that add value to both sides,” Clark said. “It would give us better access to the Australian market, which is huge.”
Clark declined to give a timeframe for when the pact could be concluded as talks were still continuing. Qantas Chief Executive Officer Alan Joyce had also said in May that talks were under way.
Credit-default swaps that insure Qantas debt fell 34 basis points to 410 basis points as of 4:51 p.m. in Sydney, according to Deutsche Bank AG. That’s the biggest daily decline since December 2008, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
“A major tie-up with a Middle East or Southeast Asian based hub carrier” could be positive for Qantas’s debt profile, Ian Lewis, senior credit officer at Moody’s Investors Service in Sydney, wrote in a report today. Separately, Malaysian Airline System Bhd. is also interested in reviving talks with Qantas on international cooperation, the Edge Financial Daily said today, citing Germal Singh, its senior vice president for international affairs. Malaysian Air Chairman Md Nor Yusof said he couldn’t immediately comment when called by Bloomberg News. Malaysian Air and Qantas broke off talks on a partnership in March.
Qantas has forecast that losses on international routes probably doubled to A$450 million ($464 million) in the 12 months ended June because of higher fuel costs and market share losses. The airline also predicted its first net loss since listing.
Virgin Australia Holdings Ltd. has increased competition for Qantas on Europe routes through a tie-up with part-owner Etihad Airways PJSC. The deal lets Virgin sell tickets to about 30 European destinations, with only one stop in Abu Dhabi, Dubai’s neighboring emirate.
Qantas could potentially add more than 40 one-stop destinations through an Emirates deal, based on route maps on the airlines’ websites. British Airways is the carrier’s main European partner at present.
The airline could also save as much as A$600 million of capital spending over the next five to six years by dropping the Frankfurt route and tying up with Emirates, Russell Shaw, an analyst at Macquarie Group Ltd. in Sydney, said by phone. The main saving would be avoiding the need to replace three Boeing Co. 747 aircraft, he said.
“There’s also an opportunity for Qantas to win a little bit of market share back,” he said.
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