Why a Qantas and British Airways merger is good (and why Qantas + Cathay Pacific will be even better!)

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There’s been ton of chatter that Qantas is looking for a bedmate even since the new CEO Alan Joyce took over. Finally, British Airways CEO announced that the airline is in talks with Qantas regarding a potential merger. On the surface, it may look like a good deal, since there are so many synergies to tap on the famed Kangaroo route. But dig a little deeper and you will realize that Qantas may just become a concubine for BA, rather than a trusted mate, and it might just make sense to keep the options open towards airlines like Cathay Pacific.

But before I get into that, let me share my thoughts on why a Qantas and British Airways is still good for both the airlines.

Why QF and BA make a good couple

The goal of mergers is to generally extract value by streamlining operations. But Qantas and British Airways (BA) can probably hope for much more than that, if the merger goes ahead. Both airlines are not only part of the OneWorld Alliance, but also already operate like a single airline on the Kangaroo route between London and Sydney. Their frequent flier programs are in sync and both have similar corporate structures.

The marriage may work with the blessings of the Australian government, which currently has a cap on foreign ownership of Qantas. Importantly for BA, it can tap on Qantas’ low-cost carrier, JetStar, to expand its reach in Asia Pacific as well as leisure destinations in Australia.

There are a number of downsides for this tie-up too, but they have been discussed elsewhere. So, I shall focus on other alternatives Qantas should explore, specifically, Cathay Pacific.

Cathay Pacific may make a better bed mate for Qantas

Reason 1: Complementary routes in growing markets. Just like BA, Cathay Pacific is also an integral part of the OneWorld alliance. But unlike BA, Cathay Pacific has  much better presence in China, one of the world’s fastest growing aviation markets. Also, tying up with Cathay Pacific will give Qantas a much better access to lucrative Asia Pacific – US routes as well – again a growing market. This, as opposed to British Airways’ better access to Africa and Europe, which are mature markets, but the growth rate is much lower than Asia. Also, Qantas’ interest in Africa is bound to be much lower than in China.

Simply put, a merger with Cathay Pacific will allow them to rule Asia-Pacific together. Just look at their existing route maps and you’ll understand what I mean.

Reason 2: More focused attention, resulting greater chances of success. BA is already trying to tie up with Iberia and American Airlines. Moreover, there will always be tough competition with AirFrance-KLM and Lufthansa (+Swiss, BMI, Austrian…) to keep BA’s hands full. Hence, Qantas may just become a concubine, rather than a bed-mate.

In Cathay Pacific’s case, it only has the subsidiary DragonAir, just like Qantas’ JetStar. Hence, there are much lesser distractions, which will allow both the airlines to focus on leveraging their merger. This focus may very well result in a successful, long-lasting marriage.

I hope Singapore Airlines and Emirates are watching these developments closely and coming up with their own strategies!

What do you think? Is BA good for Qantas or Cathay Pacific? Or someone else like AirFrance-KLM or even LAN Airlines? I’d love to hear your thoughts in the comments.

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