Qantas, Virgin take different paths in effort to dominate freight transportation
In a boost to the expansion of its air-cargo business, Qantas airline has agreed to a contract with transport giant Toll Holdings, which will allow Qantas to carry freight in the hold of its planes after previously being in business with Virgin Australia.
After signing the five –year deal, Qantas now has the three largest customers in the Australian cargo market as the airline also has been in business with Australia Post as well as TNT. Its deals with Australian Post and Toll, which is now owned by Japan Post, are believed to be worth over $100 million a year in revenue, while it also has increased its market share.
However, Virgin is still expected to compete in the domestic and short-haul international cargo market. Its agreement with Toll was set to expire on June 30, and high-level executives within the company didn’t believe the deal was bringing in the return many expected when initially signed.
Virgin is set to its own Australian cargo division on July 1, which is a move it expects to “dramatically change the competitive dynamics of the air cargo market in Australia.” It’s also in negotiations with multiple potential business partners for its domestic and short-haul Asia-Pacific freight work, while it plans to continue its deal with Virgin Atlantic on its long-haul routes to Abu Dhabi and Los Angeles.
Developing the airline’s freight operations was one of the final aspects of Virgin CEO John Borghetti’s vision to reshape the airline as a multi-layered rival to Qantas, even beginning speculation that Virgin may purchase or lease an aircraft specifically used for freight transportation.
Although it ended its business relationship with Toll, Virgin plans to continue its long-time agreement with owner Richard Branson’s British airline, Virgin Atlantic, for the sale and management of cargo on international flights. According to its strategy team in Sydney, Virgin’s goal is to bring in $150-200 million from its cargo business by 2017.
In what was described as a “rigorous selection process” to move its business t Qantas, Toll announced its express courier and freight business, Toll Priority, would use Qantas services to aid its existing Australian network of over 40 freight aircrafts.
Qantas’ freight division had an underlying pre-tax profit of $54 million in the first half of 2014-15, which was its best production since 2006. After demand for freight plummeted worse than passenger transportation during a lean economic time in 2008, Qantas has reaped the benefits of an improved international cargo market.
Following an asset-swap deal where Australia Post purchased Qantas’ half share of road-freight business Star Track Express, Qantas took full control over air-cargo business Australian Express in 2012. Although a large percentage of freight is carried on the airline’s passenger jets, Qantas also transports using a strong fleet of 13 cargo planes.
As Virgin begins to set its sights on new plans for the future and Qantas bolsters its freight contracts business, this appears to be a development that could work out for both sides in the end.