Qatar Airways acquires stake in Cathay Pacific: Is there a strategy in place?

IT is not surprising to see cash-rich Qatar Airways buying stakes in other carriers. It already has stakes in International Airlines Group (20%) which owns British Airways, Iberia, Vueling and Aer Lingus; South America’s LATAM Airlines Group (10%) and Italian airline Meridiana (49%). It was however rebuffed by American Airlines.

Courtesy Qatar Airways

The Middle East airline’s latest buy is a 9.6% stake in one Asia’s leading airlines, namely Cathay Pacific, for HK$6.5bn (US$662m). Now that might not have come as expected, although both airlines which are OneWorld partners have publicly acknowledged the outcome as a positive one. Qatar chief executive Akbar Al Baker was pleased with “massive potential for the future” and Cathay chief executive Rupert Hogg looked forward to “a continued constructive relationship.”

Unlike Gulf rival Emirates Airlines, Qatar has seen acquisitions in key partners as a way to access the wider market. Tying up with Cathay would open up opportunities to tap into the wide and growing China market. That depends on how much influence Qatar can assert on Cathay’s China channels, quite unlike the Qantas-Emirates’ relationship although the latter was merely a commercial arrangement. Yet too the way that the aviation business is shaped by the somewhat promiscuous relationships across the industry, it may well be a sitting investment for profit, albeit Cathay’s recent poorer performance.

Perhaps Qatar’s move may be telling more of Cathay, which in fact is a rival airline. Things may not be looking as good at the Hong Kong-based carrier as it embarked on stringent cost-cutting measures to turn its fortune around. Interestingly, news of Qatar’s interest was met with a 5% dip in the price of Cathay’s stock.

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The isolation of Qatar Airways

Courtesy Alamy

AT a time when its neighbours – Saudi Arabia, Egypt, Bahrain, the United Arab Emirates, Libya and Yemen – cut diplomatic ties with Qatar, winning the Skytrax world’s best airline award could not have tasted sweeter to the Qatari flag carrier. It displaced last year’s winner, Emirates Airlines, which fell to 4th ranking.(See Consistency defines Skytrax best airlines, Jun 21, 2017)

The Gulf countries are stopping flights between them and Qatar, and closing their airspace to Qatar Airways. According to Qatar’s chief executive Akbar Al Baker, this has resulted in the cancellation of 52 routes and adding flying routes to others. He was quoted as saying at the Paris Air Show where the award was announced: “At these difficult times of illegal bans on flights out of my country by big bullies, this is an award not to me, not to my airline, but to my country.”

Now Qatar Airways is setting eyes on getting a slice of OneWorld partner American Airlines. It is hoping to buy up to 10 per cent of the US carrier. Investing in foreign carriers is not something entirely new to Qatar Airways. In 2015, the Gulf carrier acquired 10 ten per cent of the International Airlines Group (IAG) which owns British Airways, Iberia, Vueling and Aer Lingus. This was subsequently increased to 20 per cent.

Qatar Airways also owns 10 per cent of South American carrier LATAM and is finalizing a deal to acquire 49 per cent stake of Italy’s Meridiana Fly. It has also expressed interest in Royal Air Maroc and setting up a joint venture in India.
Mr Al Baker has hinted at more acquisitions in the pipeline, but said the airline“is not going to collect crap.”

The timing of Qatar Airways’ interest in American Airlines smacks of more than just part of an expanding acquisition program although it is just as obvious being so. While other Gulf carriers may see the Trump’s restrictions on travel from the region and ban on in-flight carriage of electronic gadgets as a setback, Qatar Airways is keen to expand further into the United States. The isolation by the Gulf neighbours has made it all the more imperative for it to seek stronger relations elsewhere across the globe.

Qatar Airways nets a prized catch, expanding westwards

IT may seem somewhat crazy, but it is definitely not surprising in today’s aviation landscape of fast changing and crisscrossed relationships, some of them making most unlikely bedfellows. The ends justify the means.

Courtesy British Airways

Courtesy British Airways

Qatar Airways has acquired a 10% stake in International Airlines Group (IAG), better known as the owner of British Airways (BA) and Iberia. IAG also owns Spanish budget carrier Vueling. The act of acquisition itself by the cash-rich Middle East carrier does not surprise. Qatar lags behind rival Etihad Airways in this respect; Etihad already owns Alitalia (49%), Air Serbia (49%), Air Serbia (49%), Air Seychelles (40%), Etihad Regional (formerly Darwin Airlines) (33.3%), Air Berlin (29.21%), Jet Airways (24%), Virgin Australia (10%) and Aer Lingus (2.987%).

But coming lately, Qatar has bagged a prized acquisition, considering IAG’s bases at two major European hubs, in particular London Heathrow, and the strong transatlantic networks of BA and Iberia. Qatar chief executive Akbar Al Baker said: “IAG represents an excellent opportunity to further develop our westwards strategy.” It should be a strong partnership. Together, their networks cover Europe, North and South America, Africa, the Middle East, India and Southeast Asia.

In 2013 Qatar became a member of OneWorld, becoming the only one of the big three Gulf carriers to join a global airline alliance. More than an apparent Qatari interest in things British, this was a step forward to forge a closer relationship with BA. Qatar said it may increase its stake in IAG for which it paid £1.15 billion (US$1.73 billion). However, EU regulations have placed a cap on non-EU ownership at 49%.

Courtesy Qatar Airways

Courtesy Qatar Airways

Quite unlike Etihad, which has entered the arena as a white knight in many cases, Qatar is buying into one of Europe’s more profitable outfits. Clearly it is a strategic move. While European carriers are becoming wary of Gulf carriers making inroads in the EU market, the competition is at the same time a race among the big three Middle East carriers themselves- Qatar, Etihad and Emirates Airlines. This has become all the more prominent in recent years as they out-compete each other within their region and seek aggressively to push out their geographical boundaries, leveraging on the success of home bases such as Dubai, Abu Dhabi and Doha as hubs for international traffic connecting Asia Pacific, Europe, Africa and the Americas.

The rivalry for supremacy is clear in a jibe made by Mr Al Baker on the race to top the chart for extreme luxury in the air, something that carriers outside the Gulf are less disposed to think about at the same level. He said: “We always raise the bar for our dear friends around the area to try to copy us.” (The big deal about extreme luxury, Jan 19, 2015)

Courtesy PA

Courtesy PA


The timing could not have been better for Qatar as IAG looks likely to succeed in a new takeover bid of Irish carrier Aer Lingus after two failed attempts previously. This would gain IAG more take-off and landing slots at Heathrow. What is interesting is the composition of Aer Lingus partners, which include Ryanair (29.8%) and Etihad. Any opposition to the deal is likely to come from the Irish government which owns 25% of Aer Lingus, but it may be a price well worth paying for the crucial air links between cities in Ireland and Heathrow as the world’s largest hub (until topped by Dubai recently) and beyond. Ryanair has itself attempted unsuccessfully to take over Aer Lingus and objected vehemently to IAG’s proposal in the past for reasons that are not difficult to see. IAG’s chief executive officer Willie Walsh and Ryanair’s chief Michael O’Leary are not exactly the best of friends. But if money talks, the latest offer of €1.3billion (US$1.47 billion) by IAG may well carry the day.

Airline relationships in today’s industry are more complex, if not blatantly promiscuous. While global alliances offer the broad framework for cooperation, it is not uncommon to find rival airlines connected in some way through a third party. The numerous cross-border codeshare arrangements are testimony to the multi-faceted connections. Less than half the world’s airlines belong to any of the three global alliances: Star (27 members), SkyTeam (20 members), and OneWorld (15 members). Although many major carriers are already members, there are notable exclusions such Virgin Atlantic (although CEO Richard Branson who made an about turn in 2012 announcing Virgin might join one of the alliances soon) and the other two of the big three Gulf carriers Emirates and Etihad. While Aer Lingus itself is unaffiliated, and so are part owners Ryanair and Etihad, IAG’s influence cannot be precluded although it has said Aer Lingus would continue to operate independently.

It is best to adopt a detached view of the business. Alliance membership may but not necessarily suggest a like-mindedness that brings friends to the same table. There is no reason why friends and foes alike may not put their money in a common proposition that will help further their respective positions. OneWorld membership may have eased Qatar’s way into the IAG stable, making it easier for Mr Walsh to be “delighted to have Qatar Airways as a long term supportive shareholder.” Not sure if he would be any less delighted if it had been Emirates or Etihad. But for Qatar, as part owner of IAG which is set to take over Aer Lingus, it is stealing a march on rival Etihad.

This article was first published in Aspire Aviation.

Competing to be the best: How reliable are survey readings?

Courtesy Cathay Pacific

Courtesy Cathay Pacific


SKYTRAX has named Cathay Pacific as the world’s best airline in 2014, displacing last year’s winner, Emirates. In second and third place are Qatar Airways and Singapore Airlines (SIA) respectively. Asian and Middle East carriers dominated the ranks of the top ten: Emirates (4th), Turkish Airlines (5th), All Nippon Airways (6th), Garuda Indonesia (7th), Asiana Airlines (8th), Etihad Airways (9th) and Lufthansa (10th). No American carrier was placed.

Are those really the world’s best airlines?

The winning airlines are unlikely to question the validity of any survey, as you can see how many of them are listing awards from all and sundry like a laundry list as endorsement of their good reputation. The corollary must be that if you accept the accolade willy nilly, so must you recognize one and all sideswipes.

Which leads to the next question: Is Skytrax the standard?

Skytrax claims its World Airline Awards to be “the global benchmarks of airline excellence”. The winners are decided by 18.85 million travellers from over 160 countries, and that should take care of any misgiving about the survey having an inadequate population and most importantly, the bias factor or its susceptibility to political influence.

Cathay CEO Ivan Chiu said: “The World’s Best Airline award is particularly important to us because it was decided by the votes of close to 19 million travellers from around the world.” Cathay was placed sixth last year and has won the award four times, previously in 2003, 2005 and 2009.

Emirates president Tim Clark said: “These awards are widely regarded as the industry’s benchmark for excellence. To be voted ‘World’s Best Airline’ by millions of discerning travellers is something… to be proud of.”

Qatar CEO Akbar Al Baker said: “These awards are highly rewarding as they are judiciously voted by passengers a true account of the overall experience felt by customers who have travelled with the airline.” Qatar won in 2011 and 2012.

Courtesy Etihad Airways

Courtesy Etihad Airways


However, Etihad’s withdrawal from participation apparently over differences in the methodology may tell a different story. Although it had never won, Etihad was consistently placed in the top ten in the past five years, ahead of Emirates in some years. Despite its withdrawal, Etihad was still ranked in this year’s survey because according to Skytrax, “an airline cannot be withdrawn from the World Airline Awards since these results are directly decided by customers.” That statement should add to the survey’s credibility, yet without taking sides and arguing the toss about fairness, one can only suspect and understand that the subjective nature of the survey (and of any survey) is naturally exposed to dissatisfaction, whether baseless or with reasons which may well be valid, the way that the Oscars results do not sit as squarely with a lot of people. Now and then you get an outstanding actor declaring his or her disinterest in the awards.

The issue is usually one of weightage and relevance of selection. However designed, the respondents may to some degree be steered by what is being asked. Take, as matter of curiosity, the 2014 Skytrax survey readings for the top ten. SIA is ranked ahead of Cathay for inflight entertainment, cabin cleanliness, First Class amenities, First Class cabin overall, seats in First, Business and Economy, and First Class meals; but close behind Cathay in other areas except for its noted absence for airport services, Business Class amenities and Business Class meals. Yet Cathay takes the cake.

It is encouraging to see breakthroughs by airlines such as Turkish and Garuda in a game dominated by the familiar big names. Interestingly, Turkish ranks above everyone else except Emirates and SIA for inflight entertainment. It is no surprise that Garuda tops for cabin crew, the epitome of Asian service culture, in a category swept by Qatar (6th) and nine other Asian carriers: Cathay (2nd), SIA (3rd), Asiana (4th), Malaysia Airlines (5th), EVA Air (7th), ANA (8th), Thai Airways (9th) and Hainan Airlines (10th). In like fashion, with the exception of KLM (8th) and Qantas (9th), the airport services category belonged to Asian carriers: ANA (1st), EVA (2nd), Thai (3rd), Asiana (4th), Cathay (5th), Korean Air (6th), Garuda (7th) and Dragonair (10th).

Yet, giving credit where it is due, one may question the appropriateness of comparing a carrier having limited global presence with others that are more exposed in the global arena, and how a population of largely local respondents compares with the wider global population. Hence it may be more meaningful to look at niche rankings, but we all love the sweeping titles of the best overall, don’t we? Even regionalized readings must be viewed in their proper context. The Qantas Group went ga-ga over Jetstar Airways’ win as best low-cost airlines in Australia/Pacific over AirAsia X (2nd), Scoot (3rd) and Tiger Airways (4th), but the world’s best is AirAsia followed by AirAsia X in second place ahead of Jetstar Airways (4th). Note how the preferences change when the population mix changes.

Who then really is the best overall? It may be difficult to say for sure one definite airline, and under the circumstances a wider reading of the top three or five or up to ten may be a more sensible assessment. The contest is to get into that magic circle of the elite.

Courtesy TODAY

Courtesy TODAY


Equally significant is the consistency over time. Airlines such as Cathay, Emirates, Qatar and SIA may pat themselves on the back for being there long enough to deserve their stripes. Narrow that down further, and you will see that only two airlines – Qatar and SIA – have been consistently placed in the top three in the past five years. Asiana had a good run from 2010 to 2012. Cathay was just outside in 4th place until it tumbled to 6th last year and bounced back to be this year’s winner. The wider reading should lead some airlines such as Qantas to ask why it has dropped out of the respectable club.

One survey alone cannot be definitive, hence winning across notable surveys may strengthen the reading. Compare the Skytrax results with Conde Nast Traveler’s assessment by its readers – based on the same principle of uninfluenced feedback – and you will begin to understand why. In its ranking for foreign carriers (outside America), Etihad is placed 4th behind Emirates (2nd) and ahead of Qatar (7th). Cathay is 7th, and the winner is SIA. Korean Air (8th) did better than rival Asiana (18th), and so did Japan Airlines (16th) over ANA (21st). The Conde Nast top ten includes Virgin Atlantic (3rd), Air New Zealand (5th) and Swiss International (10th).

Then there is the annual Airline of the Year award given by the Air Transport World (ATW) magazine. The criteria take into consideration financial performance (which debunks the myth that the world’s favourite airline is not necessarily the most profitable or even profitable) and visible leaps forward in services. However, naming only one winner can often lead to suspicions of political influence (the way that some beauty pageants are said to be when a winner is crowned) and the tendency to pass the honour around although airlines such as ANA (2007 and 2013) and Air New Zealand (2010 and 2012) had been named twice. Cathay (2006), SIA (2008) and Asiana (2009) had all had their turns. Delta Air Lines is ATW’s Airline of the Year 2014.

Several other magazines also dish out their own annual awards, which may be based on their readers’ feedback, or assessed by a panel of judges or arrived at combining the two methods. Some of them target niche markets such as awards that recognize the best airline for business travel. That in a way avoids spillover or halo effects and sectarian prejudices as, for example, an airline that impresses in First and Business Class may pay scant attention to what happens in Economy.

Nevertheless, surveys are useful tools in maintaining competition. Everyone loves to win, unless you do not give a hoot about how the world sees it and how that may affect your bottom line. So too, everybody loves a winner; but that is no guarantee that the traveller will necessarily fly with the named best airline. Without downplaying their influence on the market, such awards probably mean more to the airlines than the travellers.

This article was first published in Aspire Aviation.

Qatar Airways takes on Singapore Airlines

Photo courtesy AisaOne

Photo courtesy AisaOne

IN an interview with the Straits Times at the Singapore Air Show, Qatar Airways chief Akbar al-Baker said: “I don’t think that there is any airline operating into Singapore, including Singapore Airlines (SIA), that offers this (Qatar’s) high standard of product.” (The Straits Times, Feb 13, 2014)

If anyone were to refute Mr al-Baker’s claim, he would probably point you to the 2013 Skytrax survey, which placed Qatar second after Emirates Airlines in the best airlines category. SIA was third.

Indeed, SIA should be flattered that many airlines have over the years used it as the benchmark for excellence. But it should be concerned that a number of them are now moving ahead, the competition coming strong from Middle East carriers that besides Qatar, include Emirates and Etihad Airways. In fact, Emirates which modelled itself on SIA could claim it has beaten the master at its game.

It is now up to SIA to show it is still the leader in the field when it looks like the Middle East carriers have brought the battle to its home ground. Of the three rivals, SIA may have found a friend in Etihad. Both airlines have stakes in Virgin Australia. Etihad chief James Hogan has said there is room for the two airlines to cooperate. Emirates has entered into a non-equity mega alliance with Qantas, and its impact on the kangaroo route competition cannot be underestimated.

Mr al-Baker however does not believe in the “smaller” alliances and chose to be a part of OneWorld instead. Referring to the Etihad strategy of picking up stakes in several airlines that include Virgin Australia, airberlin, Aer Lingus and Air Seychelles, Mr al-baker said: “We feel that joining a larger alliance serves the same purpose without those huge investments.” (See Etihad Airways on a roll picking up stakes in other airlines, Feb 4, 2014) Whatever the strategy, SIA is up against not one but three equally aggressive rivals from the same region.

Boeing blues

Three months after the grounding of the B787-Dreamliner and while Boeing struggles to resolve the issue to get the plane back up in the sky, a new problem has landed on its lap – this time, concerning the B737 jets. The US Federal Aviation Administration has issued an airworthiness directive for more than 1,000 B737 planes operating in its airspace (which also applies in Canada) to be inspected for faulty tail pins that may have prematurely corroded, causing pilots to lose control of the plane.

The FAA said: “We are issuing this AD to prevent premature failure of the attach pins, which could cause reduced structural integrity of the horizontal stabilizer to fuselage attachment, resulting in loss of control of the airplane.”

It is a precautionary move, but likely a costly one for the airlines that have a large number of the B737 jets in their fleet, such as WestJet Airlines of Canada. Since the B737 is a short to medium-range aircraft, it is likely that regional airlines including cargo operators are likely to be the most affected. But safety is not something that you can or want to downplay in the business of flying.

This could not have come at a worse time upon the heel of a Lion Air crash into the waters, short landing at Bali’s Ngurah Rai International Airport in Indonesia just this week. Fortunately all passengers survived. There was no connection between the incident and FAA’s directive – the way that the grounding of the B787-Dreamliner was consequent upon sparks aboard a Japan Airlines plane initially suspected to be caused by the lithium-ion battery pack – and investigators have yet to establish the cause. It might even be extraneous to Boeing. Lion Air, which is Indonesia’s second largest airline and one of the fastest growing in the region, is banned from operating within the US and European Union over safety concerns.

Photo: Reuters/Stringer Indonesia

Photo: Reuters/Stringer Indonesia

But what came across as frightfully familiar was how the fuselage of the Lion Air plane broke apart, recalling similar mishaps experienced by four other airlines that include Continental Airlines in 2008, American Airlines in 2009, Aires Airlines (Colombia) in 2010 and Caribbean Airlines in 2011. Mind you, the B737 has been around since the 1960s and is a favourite plane for regional flights. It is in fact the best selling jet in the history of aviation.

Boeing will have much to do to repair its image. The aircraft business is dominated by two players – Boeing itself and Airbus, and the competition is such that for the bigger jets, the decision to buy which make and model usually comes down to either one of them. Aircraft orders can span several years, and timing is important.

Then, of course, as things settle, there is the looming question of compensation for downtime if Boeing is found to be contributory to its customer airlines losing out on opportunities. At least one airline – Qatar Airways – affected by the grounding of the B787-Dreamliner has publicly announced it will seek compensation from Boeing. Qatar chairman Akbar Al Baker said: “Definitely we will demand compensation. We are not buying airplanes from them to put in a museum.”

Dreamliner: Not quite a dream start

Courtesy AFP/Kazuhiro Nogi

Courtesy AFP/Kazuhiro Nogi

ON September 26, 2011, All Nippon Airways (ANA) became the first commercial airline to receive the Boeing 787 Dreamliner after a 3-year delay in the planned delivery.

Some 15 months later, on Jan 9 this year, an erroneous computer report of a brake problem resulted in a flight being cancelled. Two days later, an oil leak in an engine was reported. On that same day, a cockpit window on one of the aircraft cracked during a domestic flight. This same aircraft experienced a fuel leak while undergoing tests in Tokyo. Then on Jan 15, another Dreamliner operated by the Japanese carrier made an emergency landing at Takamatsu after a smoke alert went off.

On Jan 16, ANA grounded its fleet of 17 Dreamliners and its management made a public apology to its customers for the inconvenience. Rival Japan Airlines (JAL) also grounded its 7 Dreamliners, following an incident in Boston on Jan 7 when a fire started in a lithium ion battery pack and the aborted take-off a day later because of a fuel spillage.

Together, the two Japanese carriers operate almost half the number of the world’s 50 Boeing 787 in operation. The other owner airlines that have also taken steps to ground their fleet are Air India (6 aircraft), United Airlines (UA) (6), Qatar Airways (5), Ethiopian Airlines (4), Chile’s LAN Airlines (3) and LOT Polish Airlines (2).

It is not just ANA and JAL that are facing Dreamliner issues. On Dec 4 last year, UA made an emergency landing in New Orleans after electrical problems were detected. Again on Dec 12, another Dreamliner aircraft experienced an electrical problem. Then on Jan 8 this year, faulty wiring to the battery was detected.

Electrical power distribution problems also caused a Dreamliner aircraft of Qatar Airways to be grounded on Dec 12 last year.

It is therefore not a surprise that the Federal Aviation Administration (FAA) of the United States has deemed it necessary to issue a directive to ground Dreamliner operations pending safety investigations. The move is supported by its European counterpart. The agencies are concerned that failures of the lithium ion batteries in use could result in the release of flammable electrolytes, heat damage and smoke. According to the FAA, “These conditions, if not corrected, could result in damage to critical systems and structures, and the potential for fire in the electrical compartment.”

When problems were first reported, many observers had dismissed them as the expected “teething problems” of any new equipment. After all, Airbus 380 has had its fair share of start-up issues. But the FAA directive and expressed concern of the respective national agencies may have given the matter new urgency even as Boeing declared its confidence in its product. Boeing Chief executive Jim McNerney said: “We will be taking every necessary step in the coming days to assure our customers and the travelling public of the 787’s safety and to return the airplanes to service.”

It is in Boeing’s interest to resolve the issue ASAP, considering how this could affect Dreamliner orders, although understandably the limited choice in the market may well cushion any impact. Boeing has more than 500 Dreamliners on order, with significant numbers from Air Canada (37 aircraft), UA (36), Qatar (30), Air India (27), JAL (25), Aeroflot (22), LAN (22), Delta Air Lines (18) and Gulf Air (16). Boeing needs to sell 1,100 Dreamliners over the next decade to break even.

While the company faces the prospect of compensatory payments, its relationships with customer airlines have been dealt a severe blow. Qatar Airways chief executive Akbar Al Baker told the BBC: “I don’t think there’s any excuse for these problems anymore.” He might not agree with Scoot (a budget offshoot of Singapore Airlines which had recently decided to place an order for 20 Dreamliners) chief executive Campbell Wilson that the problems were “a flash in the pan”. Mr Al Baker said he would expect Boeing to pay compensation for its failure to deliver usable planes.

More than just disruptions of scheduled flights, some airlines may now find their plans to expand into new routes and set up new operations being set back for the lack of aircraft. In light of the keen competition among the airlines, it can be expected that the opportunity cost will be high.