JAL IPO on a flyer as Emirates leaves BA with a headache

Victoria
By Victoria September 6, 2012 10:42

JAL IPO on a flyer as Emirates leaves BA with a headache

2012 Aviation 100 Award Winner, Japan Airlines’ $8.5bn initial public offering has drawn orders for all the stock being sold. International investors, which will be allocated about 25% of shares, already put in orders for double that amount. The other 75% is set to be sold to Japanese institutional and retail investors and is also oversubscribed.

JAL is offering 175 million shares for as much as 3,790 yen each, which is about five times forecast earnings, compared with the 13 times industry average, as mentioned here last month. The stock is popular because it is priced to sell. Simple as.

Meanwhile Emirates Airline has taken the plunge with Qantas and moved for a strategic partnership as reported here in July. This of course means that the 16 year old JV between Qantas and British Airways is all but finished.

Australian regulatory approval is still required but this is expected to be passed with ease.

So what are the guys at Emirates after? Most likely it is those Heathrow landing slots that drives them in this deal and that compounds the negative impact on British Airways.

So, as the Emirates/Qantas tie-up has been reported extensively on this service since April when we broke the news of the talks; it is time now to concentrate on the impact to British Airways and the logical response from the airline. BA, with its tie to OneWorld, has very limited options when it comes to Australian access other than to route through China.

I would argue that BA being forced into this position is very good for the long term prospects of the company as they now have to act. But make no mistake IAG has been tucked up royally by Emirates. A quick scan of the three main alliance members will give you all the information that you require. Oneworld just does not have the breath of membership in the APAC region to allow BA easy access to Australia except through Qantas. Access through China would suit the British government and would also be the best method beyond doubt but this cannot be done via Oneworld and thus BA/IAG need to go it alone and strike a deal with China and its airlines. But even then you have to wonder as Australia via China is anything but direct.

The real answer to a powerful alliance is to form one of its own making and hit the competition directly – If BA wanted to do this then all roads would lead them to the door of SIA. You might argue that there is more chance of hell freezing over than an SIA/BA deal coming out of all this but the logic is sound. If BA chose the China option then it would play into the hands of Emirates by alienating the current travellers on its Australian routes (no European will go via China to Australia when there is a more direct and cheaper option). The impact of this Emirates/Qantas agreement will be detrimental to SIA also and there is no doubt that they will need to be formulating some sort of cunning plan for the future. BA/SIA to Australia or BA/MAS are the two very best options for Australia. I think it is clear though that IAG will want to use this as an excuse to gain more exposure to China through a JV and they would be wise to do so.

The options are many, either way Willie Walsh at IAG has his hands full with JAL, AA, TAP and now Qantas all forcing decisions to be made and cash spent. It is therefore wonderful that the Airline Economics Dublin 2013 conference has so much IAG exposure on stage and in the halls. Book your ticket for the event now at www.aedublin.com

Victoria
By Victoria September 6, 2012 10:42
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