Will Qatar Airways be Malaysia Airlines’ white knight?

Some three to four months after Malaysian prime minister Mahatir Mohamad said ailing Malaysia Airlines (MAS) may shut down or be sold, he revealed he had received four proposals to take over the national flag carrier.

The first known interest came from former AirAsia non-executive chairman Pahamin Ab Rajab and five partners, whose consortium is looking at scooping up a 49 per cent stake in MAS. Whether AirAsia is part of the consortium is not clear, but the budget carrier’s chief Tony Fernandes had said he was not interested as it would be a mistake for a low-cost operator to want to go full-service. (See Can AirAsia save Malaysia Airlines, 8 July 2019)

Qatar Airways now emerged as the second prospective white knight come to the rescue of MAS following a meeting between Dr Mahatir and Qatar Emir Sheikh Tamin Hamad al-Thani. Both Qatar and MAS belong to the OneWorld alliance. At least that’s common ground for a start, unless geopolitical problems Qatar faces with its neighbours that lead to its isolation in the region stand in the way.

But, of course, no doubt Qatar has the funds to shore up the loss-making MAS. There are good competitive reasons for doing so. The tie-up will certainly boost Qatar’s standing in Southeast Asia and the extended Asian region. Dr Mahatir has recognised that MAS suffers from fierce competition, and Qatar’s aggressive strategy in the international arena may well also push the Malaysian carrier in the same direction.

The acquisition will complement Qatar’s investment in Europe, where it is already a major shareholder of the International Airlines Group (IAG) which owns British Airways, Iberia, Vueling and Aer Lingus. With a share of 20.01 per cent, it s IAG’s largest single stakeholder.

It is interesting that of the four proposals received by MAS, Qatar is the only foreign company. It is not known if the other proposals are from industry players apart from the suggestion that Mr Pahamin had an aviation link in a non-executive capacity. That probably explains how many industry experts think MAS’ best bet is AirAsia, once a carrier heavily indebted and now Asia’s leading budget operator.

Qatar’s credentials as the world’s best airline voted by Skytrax respondents are impressive, but national pride to keep the flag carrier in local hands may present a hurdle. Yet one only has to look at Swiss International Air Lines now owned by the Lufthansa Group and the merger between Air France and KLM to appreciate how in business, the desire to survive will dictate the course. Already Dr Mahatir has assured his people MAS will retain its name.

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IAG levels up

Courtesy Level

International Airlines Group (IAG) which also owns British Airways, Iberia and Aer Lingus is expanding the scope of its new low-cost carrier Level. Originally intended to be a long-haul budget operator, it will now also offer short-haul services from Austria.

The Europeans may not be aware of how Scoot, set up as a budget carrier by Singapore Airlines (SIA) for the long-haul, soon took on the short-haul as well and ended up assimilating its short-haul budget sibling Tigerair. (See After the merger of Scoot and Tigerair, will it be Singaproe Airlines and SilkAir next? Aug 29, 2017)

While IAG’s move is motivated by the competition with rivals such as Ryanair and EasdyJet, we note that IAG already owns a short-haul bydget carrier namely Vueling which operates out of Barcelona, which is also the springboard for Level’s long-haul. Will this lead to intra-competition? But, of course, there is only so much one may suggest of the comparison between IAG and SIA since Europe is a much bigger arena than Singapore.

In the bigger picture, IAG’s new focus on budget travel yet again testifies to the thriving low-end market and the competition that it poses to legacy airlines. (See Ryanair affirms market for budget travel, May 22, 2018) Level, which commenced operations last year, was intended to check the aggression of other low-cost long-haul operators such as Norwegian Air Shuttle and WowAir. Interestingly, IAG tried but failed to acquire Norwegian, and expanding Level may be a strategy to boost its viability in a wider market, foster brand familiarity and promote intra-connectivity.

IAG chief executive Willie Walsh said: “We are launching this new short-haul subsidiary to provide Austrian consumers with more flight choices across Europe. These flights will be branded as Level to build upon the huge success of our new long-haul low-cost operation.”

Read between the lines.

Why would IAG be interested in acquiring Norwegian Air Shuttle?

Courtesy Norwegian Air Shuttle

The International Airlines Group (IAG)’s interest in acquiring a stake in Norwegian Air Shuttle reflects the rising threat of the budget long-haul. Norwegian is among the few budget carriers that have broken the barriers to take budget operations beyond the limits of the 4-hour convention.

The competition is felt especially on the trans-Atlantic routes, where Norwegian and WOW air have made waves and which in turn have spawned budget offshoots by European legacy airlines, among them Lufthansa’s Eurowings, Air France’s Joon and British Airways (BA)’s Level as well as caused some carriers on both sides of the pond to introduce basic economy fare on their flights.

In fact, IAG which owns BA, Iberia and Aer Lingus, already has a Spanish budget arm known as Vueling. Yet why would it be interested in acquiring Norwegian?

Let’s face it: A legacy airline’s budget offshoot is understandably never quite like an independent budget operator. Otherwise the like of Level should have no fear of the competition posed by the like of Norwegian. Unfortunately the influence of the parent airline, however unintended, may be hard to disguise, and this could be the hitch.

Apparently IAG had already acquired a minority 4.6% stake in Norwegian. And if IAG seeks to increase its interest in the budget long-haul carrier, it may be seen as an attempt to “normalize” the playing field by the rules of the big guys. It would be a dent in the competition, if not eliminating a threat, at least limiting its influence.

Rising budget tide: Alitalia unbundles, IAG launches budget long-haul

Courtesy Getty Images

YET another legacy airline is going budget. Italian flag carrier Alitalia will adopt the unbundling model of budget carriers by charging for what will now be considered perks – seat selection, luggage and in-flight meals and drinks. This will be implemented for flights of four hours or less.

Alitalia CEO Cramer Ball said the airline had “absolutely no alternative” but to follow suit, coming soon after British Airways started charging for meals. He said: “If we can’t compete throughout Italy and Europe against low-cost carriers, then we lose air travellers that connect into intercontinental flights.”

Ryanair, EasyJet, Norwegian Air Shuttle, WOW Air, Eurowings (owned by Lufthansa) and Vueling (owned by International Airlines Group – IAG – which also owns British Airways, Iberia and Aer Lingus) are among the budget carriers viewed as close competitors.

Unbundling is not new even among legacy airlines. US carriers such as Delta Air Lines and United Airlines are already offering “basic economy” whose low fare does not come with cabin baggage allowance and seat selection, and holders of such tickets will be boarded last.

Courtesy IAG

In the wake of the rising budget tide, IAG announces its decision to launch a long-haul budget carrier – Level – to complement Veuling’s short-haul. Level, which becomes the fifth brand within the group, will be based in Barcelona with flights to the Americas that include destinations such as Los Angeles, Oakland, Buenos Aires and Punta Cana.

IAG chief executive Willie Walsh said: “Barcelona is Vueling’s home base and this will allow customers to connect from Vueling’s extensive European network onto Level’s long-haul flights.”

Clearly, legacy airlines can no longer hide behind their pride of providing a service that is safe from the aggression of budget carriers. It is up to the consumers to decide, whether the extra dollars charged justify the perceived better standards. In today’s price-sensitive market, the bottom-line counts, and legacy airlines unbunding the fare package will make an easier comparison.

They will be faced with the challenge to convince the travellers of that something extra over and above price that they will continue to provide but which budget carriers may not have the capability or capacity to offer, such as mileage perks, compensation for flight delays and product shortcomings, ease of booking, schedule flexibility, and after-sale customer attention.

Many budget carriers, for example, do not have adequate Plan B when a flight is cancelled or delayed, and your chances of getting out of that situation soonest is better with legacy airlines in light of their frequency, connections and codeshare arrangements.

British Airways is becoming more “budget” than Ryanair

Courtesy Getty Images

NOT too long ago, British Airways (BA) did away with complimentary meals on short flights. (See No more free meals for BA short haul, Jan 16, 2017) Now, in yet another move to operate like a budget carrier, it is squeezing in more seats in its planes and that means less legroom.

According to some media reports, BA seat space will be the same as budget carrier Easyjet, even less than Ryanair.

A BA spokesman said the initiative would keep the fare low. But, of course, that’s to be expected. Air travellers will do better to recognise the new BA as belonging to the same category of low end operators when they are booking flights. And, sadly for BA, it can only mean it is facing tough competition.

BA’s partner airlines – Iberia, Vueling and Aer Lingus – under the International Airlines Group (IAG) are also offering the same seat space.

And, if you’re thinking of complaining about any aspect of BA’s service, think again. There is a £25 fee. If it makes you feel any better, that applies to Easyjet as well. Just don’t make the mistake of expecting more from a legacy-but-no-longer-full-service airline!

Budget and transatlantic competition heat up

Courtesy Vueling Airlines

Courtesy Vueling Airlines

International Airlines Group (IAG) announced plans to commence low-cost transatlantic flights from Barcelona to the United States by budget carrier Vueling. IAG also owns British Airways (BA), Iberia and Aer Lingus.

Legacy airlines (and airline groups) are increasingly recognizing the competition posed by budget carriers, and it is not new that some of them have set up budget operations such as Lufthansa’s Eurowings, Qantas’ Jetstar, and Singapore Airlines’ Scoot. In the US, the Big Three airlines of American, United and Delta are introducing no-frills fares on normal services to compete with low-cost counterparts such as Southwest, JetBlue and Frontier.

Where the competition is most felt is the transatlantic sector, which has seen a surge of cheap fares offered by operators such as Norwegian Air Shuttle and Iceland’s WOW Air, discomforting both US and European counterparts.

WOW Air is well-known for its $99 fare for travel between the US and Europe – destinations such as Copenhagen, Stockholm, Edinburgh and Bristol – with a free stopover in Reykjavik. It has begun enticing US Westcoasters with fares as low as $65.

Norwegian also offers $99 fares with promotional offers as low as $69.

Budget doyen Ryanair has long announced its ambition to also ply the transatlantic routes.

While home-based US airlines are protesting the entry of Norwegian, European airlines are taking a more active approach to compete head-on. IAG will be able to advantage Vueling with the network of partner airlines. Eurowings is already operating nonstop from Cologne and Bonn to the US, and it has plans to add more destinations.

In a price-sensitive market for as long as the current situation holds, budget carriers may be driving the trend. Legacy airlines will be challenged to make their advertised difference in product worth the additional dollars in fares, at the same time keeping their budget rivals at bay in a two-prong approach to the competition.

No more free meals for BA short haul

BA4 courtesy BA.jpg

Courtesy British Airways

British Airways (BA) will stop catering complimentary meals on domestic and short-haul flights. Passengers may avail themselves of food and drink supplied by supermarket chain Marks & Spencer at a cost, and we all know that such meals don’t come cheap.

BA said the decision was made to cut costs, and this naturally was not well received by its customers. It is coming at a time when BA is making record profits compared to its regional competitors, picking up a trend set by North American carriers although ironically some of them such as Delta Air Lines are considering re-introducing meals as the competition intensifies.

The question is: Will BA lower its airfare as a consequence? Increasingly airlines are adopting the no-frill model to boost their coffers with ancillary revenue which has been rising significantly in recent years. But that is at the risk of losing the differentiation that makes full-service airlines a conscious choice of travellers who are prepared to foot more for it. It is good news otherwise for low-cost operators such as Ryanair, Norwegian Air Shuttle and Wow Air.

BA is testing the ground. Its success will depend on how strong it is as a trendsetter, and its understanding of the compliance of the travelling public, however prone they are to complaining. Right now, BA has muscled itself into an extensive network of airlines under the International Airlines Group (IAG) that also owns Iberia, Vueling and Aer Lingus. Time will tell.