Etihad and China Southern to increase flights to Queensland

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China Southern and Etihad plan to increase flights to Queensland, adding to the pressure on Qantas from foreign airlines targeting Australia because of the strong economy.

Just weeks after China Eastern unveiled new services to Cairns, China Southern announced it would boost services between Brisbane and its base in Guangzhou, China’s third-largest city, from four to seven a week. Three of the flights each week will be via Cairns between December 18 and February 28.

Etihad, which is building a cornerstone stake in Virgin Australia, will also announce today an increase in services between Brisbane and its base in Abu Dhabi in the United Arab Emirates.

In an effort to stem the losses on international routes, Qantas has been in talks with Emirates for months about forming a code-share agreement.

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Despite the prospect of a tie-up between its rivals, Etihad’s chief executive, James Hogan, insisted yesterday that any code-share alliance would not derail his airline’s expansion plans in Australia.

Mr Hogan also could not resist a not-so-subtle dig at Qantas’ search for a Middle Eastern partner. ”We had a partnership with Qantas. They took the view at that point in time that it didn’t work. I guess they’ve changed their minds,” he said.

Shares in Qantas have lifted slightly in recent weeks – closing unchanged at $1.165 yesterday – due to investor enthusiasm about the possibility of a tie-up with Emirates.

But Qantas boss Alan Joyce has made clear that he will not rush into a deal, telling a business gathering last week that ”we only enter relationships when we have the right arrangement for the long term”.

A Macquarie Equities analyst, Russell Shaw, said clarity about an Emirates tie-up was unlikely next week when Qantas releases its results, although Australia’s largest airline might announce further route cuts.

”We believe a strong argument could be made for trimming Honolulu [flights] … as well as Frankfurt, which could be served over London Heathrow through the British Airways partnership in the interim whilst a potential deal with Emirates is negotiated,” he said yesterday.

While the tourism industry applauded China Southern’s latest expansion, it highlights the threat posed by the Chinese and Middle Eastern airlines to Qantas, which will next week post its first annual loss since it was fully privatised in 1995.

Qantas has forecast that its premium international operations will swing to a $450 million pre-tax loss from $216 million in the red in 2010-11.

China Southern has been aggressively expanding its international network, and plans to double flights between China and Australia within the next three years to 55 return services a week.

Last month it increased flights to Sydney from 11 a week to 14, and to Melbourne from seven to 14.

Emirates, Qatar Airways and Singapore Airlines have also been boosting flights to Australia.

By early next year, Emirates will come close to hitting the cap of 84 flights a week permitted under the bilateral air-rights agreement between Australia and the UAE.