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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Qantas-China Eastern partnership: Dressing up an old arrangement

qf logocea logoQantas and China Eastern Airlines announced a new agreement that the airlines said will enlarge their existing codeshare arrangement signed in 2008 for a deeper level of commercial cooperation on flights between Australia and China. A statement issued by Qantas referred to the new relationship as a “joint venture”. In the application to the Australian Competition & Consumer Commission (ACCC), it was referenced as a “Joint Coordination Agreement”. Whatever the terminology, one wonders if this agreement is any different from the usual run-of-the-mill alliances that are not much more than a formal handshake.

There is the standard co-ordination and sharing of facilities such as airport lounges. A key feature is the co-location of both carriers’ operations within the same terminal at Shanghai International Airport. This reduces transit times by about an hour to facilitate a wider range of onward connections. Qantas CEO Alan Joyce said: “Coordination means the opportunity to improve schedules and connection times, and to deliver improved products such as a joint lounge and streamlined check-in facilities in Shanghai.” The Australian flag carrier is banking on more of its customers opting to fly to not only Shanghai but also beyond from there, in a region where it is much weaker compared to Asian carriers such as Cathay Pacific and Singapore Airlines (SIA).

Many codeshare partners are already making similar arrangements. Star Alliance airlines, for example, operate out of a dedicated terminal at London Heathrow. So what’s the big deal about the Qantas-China Eastern agreement which, subject to regulatory approval, will commence in the middle of next year and be effective for five years?

According to Qantas, the agreement is designed to complement the Qantas-Emirates partnership for Europe, Middle East and North Africa, and the Qantas-American partnership for the United States. That covers almost the whole world and makes Qantas truly a global airline. But to what avail? Interestingly, Qantas itself has limited operations to some of the regions. It operates to only London in Europe, Dubai in the Middle East, Johannesburg in Africa and Santiago in South America. The airline’s presence in North America is limited to Dallas/Fort Worth, New York, Los Angeles and Honolulu.aa logo

The Qantas-American agreement signed in 2011 is a codeshare arrangement for transpacific flights between the US and Australia to also include New Zealand. It does little more than what the global alliances, in this case OneWorld of which Qantas and American are members, have been set up to achieve. American does not operate to Australia.

emiratesThe Qantas-Emirates alliance caused a stir when it was announced in 2013 because of changes made to the traditional kangaroo route when Qantas shifted its operations hub from Singapore to Dubai. While Qantas is leveraging on Emirates’ extensive networks in Europe, the Middle East and Africa, it looked like the move was aimed at checking the competition posed by SIA. However, the real winner is not Qantas but Emirates, which is aggressively making inroads into the Asia-Pacific market. More than a year after, Qantas continues to make losses. It posted the biggest loss in its history of A$2.84 billion (US$2.66 billion) for the last financial year ending June 30.

How different from these other agreements is the new partnership between Qantas and China Eastern, and how will it play out for Qantas?cathay2

The flying kangaroo has long eyed the growing China market as a way to improve its bottom line. A partnership with a Chinese carrier makes sense for a quick and easy penetration into the large market in addition to its current daily service between Sydney and Shanghai. The agreement is also supposed to complement Qantas’ existing services to mainland China via Hong Kong, competing with Cathay Pacific and Dragonair. In its application to the ACCC, Qantas says it “does not consider the Hong Kong and Shanghai gateways to be mutually exclusive” the way that Dubai has replaced Singapore as the hub for its European flights. Quite clearly, Cathay which has a stake in Air China Cargo is a veritable rival to reckon. The rivalry has heightened in the Jetstar Hong Kong saga. China Eastern’s participation as partner in the budget joint venture does not seem to be able to do much to facilitate its application for approval to fly. After two years of its launch, approval is still pending.

siaThen there is SIA, the other competitor with a strong presence in the region, mentioned in the Qantas-China Eastern application to ACCC. Qantas notes how SIA’s subsidiaries Tigerair and Scoot are flying from Australia to Singapore with onward connections to China. As if pre-emptory to the new agreement, the existing Qantas-China Eastern codeshare already covers flights out of Singapore.

While Qantas will gain wider access across China, so will China Eastern within Australia. Passenger air services between Australia and China have been growing at an average rate of 11% for the four years to April 2014. In the past 12 months to June 2014, passenger numbers grew by 8%. In the application to ACCC, Qantas expresses fear of being “marginalised”. On its own, it says it “will not be able to keep pace with the capacity growth being driven by carriers such as China Southern and Sichuan Airlines.” ACCC will have to decide whether the case is about Qantas or Australia, notwithstanding the former`s status as the country`s flag carrier. Yet Qantas has argued that the proposed agreement is far from being anti-competitive, though clearly that fear has been exacerbated by the growing importance of Chinese carriers if only the competition could be limited to a single but partner airline, other strong regional carriers, and rival Virgin Australia’s reciprocity with Delta, Air New Zealand, Etihad and SIA in the wider network.

As with the American and Emirates alliances, the agreement with China Eastern once again is a case of Qantas needing its partner more than the other way round. The partners continue to retain their distinct identity vis-à-vis brand, product and pricing differences. Qantas runs the risk of its customers switching loyalty to its partner by the lure of lower fare, better facilities and services. Emirates, for example, may offer more than just a convenient hop from Dubai to other destinations for Qantas customers when it also competes on the kangaroo route. Before Emirates, there was speculation that Qantas might form the alliance with Cathay instead. That would make a formidable force, but Qantas would have faced the same risk. Besides, a partnership between giants is apt to be paved with problems unless the advantages to one partner are worth its compliance, if not silence.

Will China Eastern similarly flip the game for Qantas? The China carrier has much to gain. Qantas desperately seeking to check competition and new growth may find its prowess neutralized, dressing up an old arrangement.

This article was first published in Aspire Aviation.

American and US Airways merge: Will fares go up?

Getty Images

Getty Images

FINALLY, American Airlines and US Airways have agreed to a marriage that will make it the world’s largest airline, surpassing United which hooked up with Continental, and Delta which merged with Northwest. The new airline will retain the American name but be headed by US Airways chief Doug Parker. The new airline will be headquartered in Dallas-Fort Worth

American which went into bankruptcy more than a year ago had initially resisted the merger while profitable US Airways was keen on the proposal, having been missed in the wave of mergers among compatriot carriers.

So what changes will the US$11bn merger bring?

The rationale for mergers must be more efficient operations, which can be translated into a tighter ship; hence some job redundancies are expected. It can also mean reduced capacity to some destinations, hence more crowded planes and fewer choices for the customer. American and US Airways will consolidate their operations in nine hubs: Dallas-Fort Worth, Miami, Chicago, Los Angeles, New York, Phoenix, Charlotte, Philadelphia and Washington.  The first five are American’s major hubs, and the other four US Airways’ dominant hubs.

Both airlines are expecting savings of more than $1bn a year. Mr Parker said: “The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to go.”

An interesting development pursuant to the merger will be US Airways’ exit from Star Alliance since American is a partner of OneWorld. As the alliance partnership goes, the transition is not likely to cause any major upsets one way or the other. But with reduced competition, the one question on most customers’ lips is apt to be: Will the fares go up?

No doubt American and US Airways together will be in a stronger position to raise fares, but as a general trend across the industry, fares are expected to head north this year, supported by increased demand for seats in the expected, albeit slow, economic recovery and against a background of reduced capacity, and of course there is always a ready trigger if fuel prices continue to rise.

Initially, the merger may be more about American’s revival and the partnership’s competitive edge against the other big three: United/Continental, Delta/Northwest and Southwest which bought rival discount operator AirTrans Holdings in 2011. There is no more surprise left in the bag.

Star airlines to be housed under one roof at Heathrow

starIT is good news for Star Alliance member airlines at London Heathrow Airport. By 2014, they will be housed under one roof at the renovated Terminal Two.

CEO Star Alliance Mark Schwab said he was delighted by the airport’s decision to designate the terminal as the new home for its member airlines. This would facilitate inter-airline transfers and reduce connecting times between flights by half to just 45 minutes, thereby increasing connecting possibilities by 31 per cent. Member airlines will also be able to better pool resources and share common facilities, and promote the Star brand and identity.

Currently, 23 Star airlines operate out of Heathrow. They include Singapore Airlines, United Airlines, Air Canada, Lufthansa, Air New Zealand, Thai Airways and TAM.

Housing Star airlines under one roof naturally means airlines of other major groupings – OneWorld and Sky Team – will likely also find themselves within the same terminal or in close proximity.

With extensive code-sharing arrangements these days, air travellers may well be booking with one airline but find themselves travelling on the plane of a partner airline. A long shot perhaps, but will the day come when you may well be flying familiarly under a grouping name rather than the individual member’s banner? What then the fuss about brand loyalty?

 

Bankrupt American Airlines remains optimistic

Photo courtesy Bloomberg

American Airlines CEO Tom Horton is an optimistic man. Facing a string of yet unresolved issues, he said at a press conference in New York that American would emerge stronger from bankruptcy reorganization. (See American Airlines flies into stormy weather, Oct 8, 2012).

Thousands of American customers had in the past weeks, which Mr Horton admitted to be rough times, been inconvenienced by flight delays and cancellations due to mechanical problems and the ongoing dispute between the airline and its pilots, all these added to its current bankruptcy woes. Consequent to the discovery of loose seats in the air, American 48 Boeing 757-200s for repair of the faulty seat lock plunger mechanisms.

Picture courtesy American Airlines

Mr Horton said American would emerge as a “brand new company with one of the youngest fleets in the industry.” He has plans to acquire more than 500 new aircraft, but only after the airline creeps out of bankruptcy. A takeover by USAir has been on the cards, but Mr Horton is not particularly enamoured by the prospect. Although both USAir and AMR Corp (which owns American) had earlier announced they had signed non-disclosure agreements, apparently they are still talking.

However, Mr Horton has friends in the industry. OneWorld partner British Airways CEO Willie Walsh said IAG (which owns BA and Iberia Airlines) would consider taking up a minority stake of not more than 10 per cent in American – if Mr Horton so much as asked. Speaking clearly in support, Mr Walsh said: “A stronger AA not only benefits its customers, employees and shareholders but it also benefits its partners.”

Meanwhile, the dispute with its pilots continues to affect American’s on-time performance. It is of course not good publicity for American when pilots are alleging that its fleet is facing mechanical issues as American outsources maintenance jobs. The union representing its workers have pointed a finger at third party work for the loose-seat problem.

But, as we pointed out, Mr Horton is an optimistic man. He said: “We’ll get past this just like other airlines before us have.”

Qatar Airways joins OneWorld alliance: It’s a promiscuous airline world

Courtesy lt.wikipedia.org

MIDDLE-EAST carrier Qatar Airways is joining the OneWorld alliance, sponsored by British Airways (BA). Besides BA, the alliance is anchored by airlines such as Qantas, American Airlines and Cathay Pacific Airways. Other airlines include Iberia, Japan Airlines and Chile’s LAN.

Qatar chief executive Akbar Al-Baker said: “Qatar Airways is delighted to have been invited to join OneWorld, which will provide extensive benefits to our passengers and to OneWorld passengers.”

As this followed close on the heels of the recent announcement of the Qantas/Emirates Airlines partnership and just hours after Air France-KLM revealed its partnership with Etihad Airways, Mr Baker all but hinted at how other airlines are beginning to see the importance of working with Middle-east carriers. He said: “It’s a recognition they are taking Gulf carriers seriously after writing them off,” said Akbar Al Baker, the chief executive of Qatar Airways. “When you cannot defeat someone, you’ve got to join them.”

Clearly Middle-east carriers are becoming not only more aggressive as the spread their wings across the globe but also more competitive, offering high standards of service. Qatar Airways for one was voted Skytrax’s best airline of the world 2012. Key Middle-east airports, in particular Dubai International, are also reclaiming their popularity as hub airports connecting the wider regions of Asia and Europe.

But it is a complicated, if not seemingly promiscuous, airline world as more airlines seek to tie-up with one another, with some of them in duo-arrangements that may cross the broader alliances. There are of course benefits to the airlines in terms of cost, shared facilities and network meshing amongst some of them, and to the passengers who may need only be concerned with one booking to fly connected flights.

Vice president for international affairs and alliances at Air France-KLM, Dominique Patry, said:  “The airline industry remains very fragmented. But, eventually, alliances may be a vehicle for the consolidation of the airline industry. There would be the logical thing.

It may change the air traveller’s perspective in his or her choice of airline brand, since he may well be flying a different airline from that booked originally. Yet for the airlines, it is still a game of survival of the fittest – self before alliance.

Qatar’s induction as a member of OneWorld is likely to raise the question of Emirates’ standing. The latter has yet to join an airline bloc. (Star and Sky Team are two other major alliances). As for Qantas, theoretically, it cannot be in a more enviable position for now.

Qantas-Emirates tie-up is no surprise

THERE are several reasons why a Qantas-Emirates tie-up should not come as a surprise.

 

Foremost is the Australian flag carrier’s desperation to revive its loss-making international operations, which, it is expecting will plunge its full-year profit by as much as 90 per cent from US$552 million the previous year. So the airline is looking for opportunities to boost its earnings as it rationalizes its network operations and connections. Qantas has said that alliance deals have always been on the agenda, particularly when such arrangements not only open up new traffic channels but also reduce operating costs.

The Dubai-based Emirates Airlines, its home situated roughly midway on the kangaroo route, makes a veritable partner. Significantly, the airline is profitable and expanding. Besides, Emirates is a keen competitor for the same market. A tie-up would mean a more amicable intra rather than inter-airline competition.

It has also been speculated that Qantas as a consequence would reduce its operations to Europe – retaining only London as a destination and giving up Frankfurt – while it then feeds traffic to other European ports through Emirates. Qantas hopes to also gain access to a wider Middle-East market as well as making inroads into Africa through Emirates.

Not to be ignored is the fact that other Middle-East airlines such as Qatar Airways and Etihad Airways (also an airline of the UAE but based in Abu Dhabi) have also intensified the competition. Etihad has acquired a 10-per-cent stake in Virgin Australia.

But what is likely to unsettle Qantas more is the alliance between key rivals Singapore Airlines (SIA) and Virgin Australia. In the end, a Qantas-Emirates tie-up would look like a counter-move when adversaries join hands to take on a common enemy. There is not much of a choice left really, so to speak, for the self-professed “alliance specialist”.

Analysts who were quick to deduce that Qantas would also shift its operations from Singapore to Dubai have been mistaken. For many years now, Singapore has been Qantas’ major hub outside Australia, and from where it is able to feed transfer traffic to other Asian ports.

While it is convinced that its fortunes lie in the lucrative Asian market, it does not make sense for the flying kangaroo to skip Singapore or make a sizeable reduction in its operations there. After all, Singapore (Changi Airport) is the darling of transit passengers worldwide. An exit would shut Qantas out of growth opportunities – not just in Singapore but in the region – even as Qantas raises the profile of its low-cost Jetstar subsidiary and continues to pursue the dream of staging a separate Asia-based premium carrier.

Qantas chief Alan Joyce has said that Qantas would continue to develop large hub airports or en-route gateways in its network since these hubs, pulling in travellers from all over the world and sending them on to their final destinations, mean “extending our reach while restraining our costs.” However, he admitted: “We have a gap (in Asia), because our current schedule is predicated mainly on travellers transitting through Asia en route to Europe.”

While that might see some shift of such pure transit traffic from Singapore to Dubai, the former remains a premium hub for its infrastructure and connectivity – unless Mr Joyce becomes convinced that its family of hubs in partnerships with Japan Airlines (Narita), China Eastern Airlines and Cathay Pacific Airways (Hong Kong) and possibly Malaysia Airlines in 2013 (Kuala Lumpur) are adequately positioned even with the exclusion of Singapore.

It looks like with the impending incorporation of the Malaysian flag carrier as a new member of the OneWorld alliance, the two airlines may yet again revisit the proposal of a joint-venture regional carrier to be based most likely in Kuala Lumpur. Even then, it would be difficult imagining Qantas skipping Singapore altogether.

However, there have been mixed signals from both Qantas and Emirates on the rumoured alliance.

While admitting that his airline has met with Emirates, Mr Joyce clarified: “We only enter partnerships when we have the right arrangement for the long term. In the current economic environment, taking our time with this part of our agenda will clearly not undermine our broader transformation plan.”

On the other hand, Emirates chairman Sheikh Ahmed bin Saeed al-Maktoum revealed that a code-sharing agreement would likely happen within six months but would not include any revenue-sharing arrangement.

Is that any indication of who is more likely to benefit from the tie-up? You can confidently make your wager, can’t you?