Australia's loss-making carrier Qantas Airways has confirmed it is in talks with Emirates Airline about a potential alliance.
Such a partnership would mean the Australian airline routing European flights through Dubai instead of Singapore.
The news comes after mounting speculation over the two airlines. Last month, Tim Clark, the chief executive at Emirates, said he was not interested in buying an equity stake in Qantas and would rather consider other forms of commercial arrangements, such as code sharing.
"At one time, Qantas may be in contact with a wide range of companies about potential commercial cooperation," Qantas said in a statement to the Australian Securities Exchange.
"These airlines include Emirates, among others."
Mr Clark confirmed Emirates was in talks with Qantas.
Typically, a code-sharing arrangement would allow an airline to sell tickets on a partner's flight and split the revenue but Mr Clark said the current discussions did not include revenue sharing.
Qantas shares jumped 10 per cent yesterday to A$1.09. They were previously trading at record lows as higher costs for jet fuel and heightened competition ate into profits.
Last month, Qantas worried investors after it said it expected losses for its international routes in the year that ended last month to more than double to A$450 million (Dh1.71 billion).
Moody's Investors Service, a ratings agency, said a profitable international business was key to maintaining the airline's investment grade.
"A scenario involving a major tie-up with a Middle East or South East Asian-based hub carrier could alleviate some of the strategic disadvantages that Qantas faces as an end-of-line carrier," Moody's said.
Emirates is the largest long-haul airline by passenger miles.
For Qantas, such an alliance would reduce costs by allowing it to place passengers en route to Europe on Emirates aircraft rather than its own.
For Emirates, the tie-up would extend its services around Australia and offer its customers far-reaching access on Qantas' domestic routes.
The recent partnership between Abu Dhabi's Etihad Airways and Virgin Australia Holdings has meant increased competition for Qantas.
Together, Etihad and Virgin Australia now operate 24 flights per week between Australia and Abu Dhabi, offering travellers a combined network of more than 285 global destinations.
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 Australian carrier's main European partner.
"If this is a reality, it's brilliant for Qantas," said Tony Webber, the managing director of Webber Quantitative Consulting 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."
The airline could also save as much as A$600m of capital spending over the next five to six years by dropping its Frankfurt route and tying up with Emirates, said Russell Shaw, an analyst at Macquarie Groupin Sydney.
The main saving would be avoiding the need to replace three Boeing 747 aircraft, he added.
* with Bloomberg News
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