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 elusive Asean Open Skies dream

Courtesy Asean

Courtesy Asean

STILL waiting. Asean Open Skies continues to be an elusive dream for the ten-nation bloc as members renewed their commitment at this year’s Asean meeting of their leaders in Kuala Lumpur. Asean, which stands for Association of Southeast Asian Nations, is made up of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

A new declaration to form an Asean Community all but reiterated the association’s original manifesto, the progression reinforced as building “economies that are vibrant, competitive and highly integrated, and an inclusive community that is embedded with a strong sense of togetherness and common identity.” The Community will be formally instituted on Dec 31, aiming to eliminate trade barriers to form a single market and production base.

Since the Open Skies policy has been part and parcel of that umbrella ambition, it marks another milestone as a positive thrust in the desired direction although the target was to have it fully implemented this year. But where does the Open Skies stand in the development?

Much was said in the past about hurdles posed by the region’s disparate geography, economic disparity, different political make-up and diverse cultural practices. Not in the least, the different levels of economic progress and welfare across the region continue to pose difficulties for member nations to move at the same pace towards the ideal commonality. A single market modelled on that of the European Union (EU) is still a long way off.

No one denies that liberalisation will benefit Asean and fuel aviation growth in the region. It may open up channels for collaboration among operators but lest it be misconstrued, it does not necessarily run on complementary operations as a single entity against the rest of the world. Open skies means freeing up the competition across the borders and breaking down barriers of entry which allows neighbouring carriers to compete with home carriers on a level playing field. Therefore, the fear of competition among Asean carriers – each at a different level of growth – is real. The major carriers operate very much the same routes, and there is competition to channel traffic away from home bases through hub and other airports. Asean has a myriad of carriers, many of them thriving on niche and closed markets. The question is: Are they ready?

The EU has seen increased competition in the single market, benefitting customers and driving carriers to be more cost-efficient. Low cost carriers such as Ryanair and easyJet have grown to be more than just low-end niche players but serious threats to legacy airlines which are already struggling to stave off competition from foreign carriers which are more efficient and service-friendly. The single market has also led to mergers for strength, such as the International Airlines Group which conglomerates British Airways, Iberia, budget carrier Vueling and Aer Lingus, and is 10-per-cent owned by Qatar Airways. (See International Airlines Group partnership works, Nov 26, 2015) It is hard to envisage at this stage such a development within Asean, no less for the reasons already mentioned.

To be fair, the region has seen some progress in the liberalising process, even as the goal post keeps moving away. Some major airlines are already preparing for the eventuality as the market shows signs of growing, particularly in the demand for budget travel. However, if the failure of Tigerair’s forays into the Philippines and Indonesia as a joint-venture partner is any indication of the climate for cross-border investment, it again points to the region’s readiness and propensity to sustain the efforts. The pace is not moving fast enough, and so long as the goal post keeps shifting forward, it is easy to lose that drive.

Priorities can change quickly. Asean nations are caught in the current of the global scramble for economic pacts across a wider region in a world that is increasingly being threatened by geopolitical rivalry down economic lines. They, not as a bloc but individually, risk isolation and being disadvantaged by non=participation. This could be a distraction away from the Asean agenda.

Four Asean members – Brunei, Malaysia, Singapore and Vietnam – signed the Trans-Pacific Partnership (TPP) agreement which took effect on October 5 along with Australia, Canada, Chile, Japan, Mexico, New Zealand, Peru and the United States. Indonesian president Joko Widodo at a subsequent meeting with US president Barack Obama expressed his country’s interest in joining the bloc. Asean itself has proposed a Regional Comprehensive Economic Partnership to engage non-members Australia, China, India, Japan, New Zealand and South Korea. However this does not prevent member nations from independently pursuing bi-lateral trade agreements which may see implementation of some measures such as faster immigration channels between these parties ahead of similar facilitation within a common Asean union.

Within the aviation industry too there are alliances and there are alliances, so to say. Global alliances represented by Star, OneWorld, SkyTeam do not preclude member airlines from forging other partnerships outside their ambit, some of which are cross-border agreements. It seems to complicate the relationships, but apparently it also opens up opportunities that may otherwise be thwarted by restrictions of exclusivity.

This year’s Asean Summit – its 27th – is focused on forging an Asean Community which will be formally instituted on Dec 31. The lack of an Asean identity is viewed as a major hurdle in the progress towards a no-barriers common marketplace. Singapore prime minister Lee Hsien Loong said: “One of the constraints on government – and one of the reasons Asean finds it difficult to make progress together – is (that) there is not a very strong sense of Asean identity:” (The Straits Times, Nov 23, 2015) He added: “I think there is some distance yet.”

There was mention of the Asean community engaging in projects such special lanes for citizens of member nations at airports and facilitation vide an Asean Business Travel Card.

But new issues that surfaced recently aren’t going to make the forward thrust any easier. Indonesia, the largest community in the bloc, has expressed its intention to rein in administration of part of its airspace presently under the purview of the Singapore authorities, but its aviation safety record is raising reservations. Following findings by the United Nations International Civil Aviation Organization (ICAO), the US Federal Aviation Administration (FAA) has downgraded its safety rating of Thailand’s aviation authority over concerns about safety standards.

Such issues are likely to shift the priorities of not only the affected nations but also the bloc as a common entity, particularly considering its small composition of member states. So it appears that Open Skies will be taking a backseat in the meantime

This article was first published in Aspire Aviation.

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.

Air India joins Star Alliance: How will it benefit?

Logo_Star_AllianceNO more pussy-footing. Air India becomes a member of Star Alliance from July 11, 2014, joining a global network of 26 airlines that include founders Air Canada, Lufthansa, Scandinavian Airlines, Thai Airways International and Untied Airlines. Other airlines that have since joined the alliance include Air China, Air New Zealand, All Nippon Airlines, Asiana Airlines, Singapore Airlines and South African Airways.

Welcoming the Indian flag carrier to the club, Star Alliance COO Jeffrey Goh said Air India would enjoy “Alliance’s benefits” while other member airlines would benefit from “improved access to a region which includes the world’s fifth largest domestic aviation market.”

Courtesy Star Alliance

Courtesy Star Alliance


At the same time, an elated Air India chairman and managing director Rohit Nandan said: “We eagerly look forward to extending the benefits and privileges of Star Alliance to (our) passengers.” The benefits are assumed, often touted from the perspective of the air traveller with “connectivity” and “seamless travel” listed at the top of the list. Air India’s admission to the club can only mean more flights and more destinations added to the alliance’s network, which will boosted by an additional 400 daily flights and 35 new destinations in India.

Yes, indeed, it is only to be expected that membership must come with benefits. What does Air India – as an airline – hope to gain from the induction?

If it works good for the passengers, it should work well for the airlines. That, after all, is the encapsulation of the alliance’s goal to grow the market share collectively in a way that individual members may not be able to do as effectively and as efficiently because of costs and the limitations of market access. Member airlines are increasingly moving towards more code share flights, shared facilities such as airport lounges and even pooled management at some ports. The launch of a dedicated Star Alliance terminal at London’s Heathrow Airport will strengthen the cooperation among member airlines and enhance the connectivity between them. Alliances (including OneWorld and SkyTeam) will have to introduce more of such initiatives to convert doubters like Virgin Atlantic chief Richard Branson; except for the scale, membership otherwise is not much difference as commercial tie-ups between individual airlines that may even benefit from the flexibility of cross-alliance arrangements. However, airlines such as resource-rich Emirates which are single-handedly successful thus far may not be as easily convinced. Suffice that it be suggested that Air India is not quite Emirates.

On the home front, India is currently being served by 13 Star Alliance members flying to 10 destinations, making up a total of 13% market share. It is expected that with Air India, the market share of the alliance will increase to 30%. However, is the alliance benefiting at Air India’s expense? The inducement for Air India must be the international market which will increase to 28% for Star Alliance. Through the alliance, Air India will be able to serve more than 10 destinations additionally in China, Africa and Europe over and above its own 33 international destinations. Since its main focus is the Middle East, through the alliance, Air India may be able to check the competition posed by the big three Middle east carriers of Emirates Airlines, Etihad Airways and Qatar Airways. Interestingly, Air India’s seat share is only 18% compared to Emirates’ 20% between India and the Middle East.

In the same way that Emirates (although not a OneWorld member) has increased Qantas’ access to more destinations in the Middle East besides Europe and Africa, Air India could latch on to Star Alliance partners such as Turkish Airlines for the same extension. In fact, some observers have primed Turkey’s TAV Istanbul Ataturk Airport as a veritable competitor that may one day usurp the hub status of Dubai. In that connection, Turkish Airlines will also grow in importance.

Yet another school opines that India has that same hub potential to connect Asia and Australiasia with Europe and Africa and beyond. Mumbai could be a convenient one-stop between Sydney and London with feeds to the region. Access by Star Alliance members to India’s domestic market and the improved standing of Air India in the global market will, as Indian Prime Minister Narendra Modi hoped, revive economic growth in India under his leadership.

So much has already been said about India’s potential with a population of 1.2 billion for both domestic and international traffic. That almost suggests an imbalance in the equation in favour of Star Alliance members outside India waiting to tap into that potential. But granted that the benefits are mutual as they are supposed to be, it cannot be denied that there remains still a lot of intra-competition. Yes, membership has its benefits, but Air India cannot be blind to the competition. If it is not about the greater good, it has to be about the lesser evil.

This article was first published in Aspire Aviation.

Gulf carriers compete for world dominance

WHILE Gulf carriers Emirates Airlines, Etihad Airways and Qatar Airways have become daunting competitors to other airlines across the globe, they are themselves competing with each other for world dominance.

All three airlines have been up there in the charts as world’s best in one category or another, garnering awards mainly for premium travel. A recent announcement by Etihad of its decision to no longer participate in Skytrax surveys – allegedly over disagreement on the rating system – has come as a surprise. Yet it may be a sign of there being one too many that points to a meaningless pursuit in a class deemed to be without real competition, and which can only lead to embittered rivalry. In the last Skytrax survey (2013), Etihad was the world’s “best first class”, “best first class seats” and “best first class catering”. But in the “best airline” category, it was placed seventh, far behind Emirates and Qatar which were ranked first and second respectively.

Is there even competition for Etihad’s new Residence suites? (see Extreme luxury: What price prestige? Jun 25, 2014) The race is on: Emirates has said it would introduce a similar product, and it is unlikely that Qatar will want to be left behind.

Interestingly, apart from spending big to acquire the best of equipment and pushing the limits on creature comforts, all three airlines seem to be pursuing different strategies for market dominance.

Courtesy Airbus

Courtesy Airbus


Emirates Airlines

Emirates is replicating the Singapore Airlines (SIA) story of the ‘70s and ‘80s, growing organically with giant strides as it expands its network. Last year it carried 44.5 million passengers to more than 133 cities in six continents. The number far exceeded Etihad’s 12 million passengers to more than 90 destinations and Qatar’s 18 million passengers to over 125 destinations. There are no indications of a likely change in course as Emirates continues to add new destinations in its expansion. Unlike Qatar, which has since joined OneWorld, and unlike Etihad, which has been on a binge to acquire equity in foreign carriers, Emirates remains very much a loner in the game, relying on its own strength and reputation for growth – again, quite reminiscent of the younger SIA.

But unlike SIA, which is a leading member of Star Alliance, Emirates does not believe in alliances. Echoing the sentiments of Virgin Atlantic chief Richard Branson, Emirates senior vice-president of commercial operations worldwide Richard Vaughan said in 2010: “We don’t believe in alliances. We intend to stay as an independent airline.” He believed that alliances reduce the airline’s ability to react swiftly changes in the market place and that they actually reduce competition and lead to higher fares. So true it is that when a passenger books a ticket with an alliance member airline, there is no guarantee that the passenger will be flying with the airline of choice. Under the circumstances, Emirates would have felt its product compromised.

Emirates’ stance has not changed. It has held out impressively during the economic crisis that saw many airlines scrambling to cut back services and subsequently entering into extensive commercial agreements with partner airlines. While Emirates maintains its independence, it has entered into code share agreements – a common industry practice – with a small number of airlines that include All Nippon Airways, Cathay Pacific and Air New Zealand. Its extensive non-equity partnership with Qantas made headline news in 2012, but it was a deal seen as impacting the Australian carrier more than Emirates. The Gulf carrier continues to steer clear of mergers and acquisitions although there was speculation of its interest in acquiring an ailing Indian carrier as India relaxes its rules on foreign ownership. The question remains as to whether Emirates can continue to buck the trend.

Courtesy Etihad Airways

Courtesy Etihad Airways


Etihad Airways

Etihad on the other hand has been acquiring stakes in foreign carriers besides a list of code-share partnerships that include Air France, American Airlines, All Nippon Airways and Cyprus Airways. The cash rich Gulf carrier partially owns Air Berlin (29.21%), Air Seychelles (40%), Aer Lingus (2.987%), Virgin Australia (10%), Jet Airways (24% – to be formalized), Jat Airways which has been renamed Air Serbia (49%), Darwin Airline which has been renamed Etihad Regional (33.3%) and Alitalia (49%). Some of those airlines have been shrouded in financial problems, such as Jet Airways of India and Italy’s flag carrier Alitalia which is already partially owned by Air France-KLM. In the case of Virgin Australia, Etihad also shared ownership with two other foreign carriers – SIA and Air New Zealand.

While code-share partners do little more than allowing airlines to sell seats on each other flights, equity alliances play a more forceful role for partner airlines to feed traffic into each other and provide seamless transfers in an extended network. For the ailing airline, Etihad is the white knight. For Etihad, it proffers the opportunity for growth via a third party. Alitalia, which is reeling in debts of about 800m euros (US$1.1bn), is looking to further injection of capital by Etihad to not only save it from the brinks of bankruptcy but also growth from then on. Italy’s transport minister Maurizio Lupi was elated by the deal. He said: “It’s increasingly clear that this marriage should happen because it’s obvious to all that we are dealing with a strong industrial investment that will offer our airline concrete growth prospects.” Someday Air France-KLM might wish it had enough gumption and money to raise its stake of 25% which has as a consequence dwindled to 7%. But Air France-KLM chief executive Alexandre de Juniac said Alitalia was not a priority at the moment. Still, Mr de Juniac viewed Etihad’s investment “with favor”, adding that the doors to KLM-Air France raising its stake were not closed.

Courtesy Qatar Airways

Courtesy Qatar Airways


Qatar Airways

Qatar is the only airline among the three Gulf carriers that has joined a global alliance, in its case OneWorld, whose members include Qantas, British Airways, American Airlines, Cathay Pacific and Japan Airlines. At its induction in 2013, Qatar chief executive Akbar Al Bakar said: “Alliances are playing an increasingly important role in the airline industry today – and that will continue long into the future. Becoming a member of OneWorld… will strengthen our competitive offering and give our customers what they fully deserve – more choice across a truly global network served together with airline partners.”

That is the ideal scenario, but in reality airline relationships are more complex than that. Without downplaying the benefits of global alliances such as wider network connections, shared facilities (Qantas/British Airways/Cathay Pacific premium lounge at Los Angeles Airport) and a dedicated terminal to enhance coordination (London Heathrow’s terminal 2 for Star Alliance members), member airlines have also entered into bilateral agreements across alliances. It is not uncommon to find rival airline connected in some way through a third party. Perhaps, in this context, lies the reason why Emirates and Etihad have so far not been convinced of the need to join any of the global alliances.

Whatever the strategy adopted by the Gulf carriers as they compete for world dominance, they have become daunting forces in the global market. Lufthansa’s new man at the helm Carsten Spohr has identified the competition posed by Gulf carriers as a major concern in Europe. In Asia, SIA is facing increased pressure from Gulf carriers tapping into its traditional market for traffic between Europe and Asia-Pacific and on the kangaroo route. While they have the means and resources to cut a product above the competition, it is their increased popularity that worry more their rivals, which will be relieved to see the Gulf carriers shifting their energies to outdoing each other instead, for the time being, in pushing the limits for the best Residential suites in the sky.

This article was first published in Aspire Aviation.

Qantas’ Chinese connections

EVERY airline looking east (or westwards or northwards depending on where they are based) wants a foothold in China, that huge market with a growing population of air travellers.

Three years or so ago when Australian flag carrier Qantas announced a transformation program, chief executive Alan Joyce identified Asia, in particular China, as the answer to the airline’s woes in the international arena. The rising wealth of Asia’s most populous country makes good reason for Qantas to consider an Asia-based premium carrier near enough to tap into that market, and to set up a budget carrier in Hong Kong, the gateway to China, jointly with China Eastern Airlines and a local conglomerate owned by casino magnate Stanley Ho. While the former proposal was aborted, the latter is awaiting regulatory approval – against the wishes of Cathay Pacific – with ordered planes parked at the Airbus factory awaiting delivery. That, Mr Joyce had said, was not unusual for start-up airlines.

Courtesy Qantas

Courtesy Qantas

All that did not stop Qantas from building up its Chinese connect ions through codeshare services. In a recent agreement with China Southern Airlines, Qantas customers can gain direct access to four destinations within China including Guangzhou from Sydney, Melbourne, Brisbane and Perth. China Southern customers will similarly gain access to domestic destinations across Australia as well as beign able to fly between Sydney and Auckland.

Qantas International CEO Simon Hickey said: “Partnerships are at the core of our strategy in Asia and together with our airline partners, we’re pleased to now offer customers access to 179 flights to 12 cities in Asia each week, with fares available to over 120 additional Asian cities.” He added: “The Qantas Group has never had a stronger presence in Asia. More than one sixth of our total revenue now comes from flights to and within the region, and we plan to keep opening up new travel opportunities.”

This can only mean high alert for rival airlines, particularly those which by fifth and six freedom rights have been routing travellers through their home bases.

Qantas already has a codeshare arrangement with China Eastern Airlines between Australia and China via Singapore.

None of the mainland China-based airlines are members of the OneWorld alliance to which Qantas belongs. That may be of little consequence, considering that codeshare partners Chna eastern and China Southern are both SkyTeam members. Air China and Shenzhen Airlines are members of the Star Alliance. Out of Hong Kong, Qantas` Jetstar may face stiff competition from Hong Kong Airlines and Hong Kong Express, both carriers owned by the Hainan Airlines Group, besides Cathay’s Dragonair. Note however that Hong Kong Airlines and Dragonair are by definition regional and not budget carriers.

If there is any indication of China’s growing demand for air travel, it is Shandong Airlines’ recent order of 50 Boeing 737 aircraft to the tune of US$4.6 billion. At the same time, however, Air China warned that its first quarter profits would be 65 per cent lower compared with that last year because of the falling yuan. A statement issued by the airline said: “The financial expenses of the company substantially increased as compared with the corresponding period of 2013 due to the exchange losses.” Fellow competitor China Southern issued a similar warning on falling profits. These are but minor blips that will not deter foreign airlines from connecting with the China market.

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.