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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Air New Zealand tops again

Courtesy Air New Zealand

AirlineRatings.com has named Air New Zealand as the world’s best airline for 2018. Other airlines that make the top ten in descending order are Qantas, Singapore Airlines (SIA), Virgin Australia, Virgin Atlantic, Etihad Airways, All Nippon Airways (ANA), Korean Air, Cathay Pacific and Japan Airlines.

According to the editorial team, airlines must achieve a seven-star safety rating (developed in consultation with the International Civil Aviation Organization) and demonstrate leadership in innovation for passenger comfort to be named in the top ten.

The evaluation team also looks at customer feedback on sites that include CN Traveller.com which perhaps explain little surprise in both AirlineRatings and Conde Nast Travel naming Air New Zealand as their favourite. (See What defines a best airline? Oct 19, 2017) Four airlines, namely SIA, Virgin Australia, Virgin Atlantic and Cathay Pacific are ranked in the top ten of both lists. These look like consistently global favourites.

Notable absences from the AirlineRatings list are Middle east carriers Qatar Airways and Emirates Airlines. While these airlines scored for service in other surveys, they may have lost the lead in product innovation for which most of the airlines ranked by AirlineRatings are commended. Virgin Australia’s new business class is said to be “turning heads” and Etihad is said to provide a “magnificent product throughout the cabins.” Looking ahead, Air New Zealand will feel the pressure from Qantas and SIA for the top spot. (See Singapore Airlines steps up to reclaim past glory, Nov 3, 2017) In the same survey, Qantas is selected for best lounges and best catering services, and SIA for best first class and best cabin crew.

For those who think best airline surveys are often skewed by the halo effect of service provided in the upper classes, AirlineRatings has named Korean Air as best economy airline.

What defines a best airline?

What defines a best airline, considering the different surveys that rank them? Conde Nast Travel has just released its readers’ choice of the best in 2017, and it is no surprise the list is made up of Asian, Middle East, European and SW Pacific carriers.

Courtesy Air New Zealand

Of course, it depends on the readership, but recognizing that, it also points to what really makes these airlines stand out. It is clear that the premium class service weighs heavily – the seat comfort and the fine food.

Etihad Airways (ranked #16) offers “the future of first-class comfort: a three-room “residence” with a bedroom, private bath with shower, and lounge.” Emirates (#4) offers “posh perks for premium fliers – cocktail lounges, in-flight showers… part of the reason it scores so high among travellers.” And the suites on Singapore Airlines (#3) offer “a pair of fully flat recliners that can be combined into a double bed.”

Mention is made of the premium economy class in almost all the ranked airlines” KLM (#20), Lufthansa (#19), Japan Airlines (#17), All Nippon Airways (#13), Qantas (#12), Cathay Pacific (#10), Virgin Atlantic (#7), Virgin Australia (#6), Singapore Airlines (#3) and Air New Zealand (#1).

So it may appear to be the voice of the premium travellers that is being heard. Maybe coach travellers aren’t too concerned about the ranking, more driven by price and less frilly factors, although to be fair, the Conde Nast report did mention of at least one airline, i.e. Etihad Airways (#16), not ignoring “those sitting in the back.” While many travellers may resign to the belief that the economy class is about the same across the industry, it is reasonable to assume that an airline that strives to please its customers in the front cabins will most probably carry that culture or at least part of it to the rear.

Although you may draw consensus across many of the surveys, it is best best to treat each one of them in isolation. It is more meaningful to try and draw intra conclusions within the findings of the particular survey.

You will note in the Conde Nast findings, there is an absence of American (including Canadian) carriers, never mind that of African and South American carriers.

Asiana Airlines (#8) is ranked ahead of Korean Air (#11).

All Nippon Airways (#13) is ranked ahead of Japan Airlines (#17). V

Virgin Australia (#6) is ranked ahead of Qantas (#12).

The order of the “Big 3” Gulf carriers is as follows: Qatar Airways (#2), Emirates (#4) and Etihad Airways (#16).

Of European carriers, there is the conspicuous absence of the big names of British Airways (compare Virgin Atlantic #7) and Air France, and the pleasant surprise of Aegean Airlines (#9) while SWISS seems to be regaining its erstwhile status years ago as being the industry standard.

The best belongs to Air New Zealand as the quiet achiever.

Ultimately, the results also depend on the group of respondents whose experiences may be limited to certain airlines.

Other airlines ranked in the top 20 of the Conde Nast survey: Finnair (#14), Turkish Airlines (#15), EVA Air (#18).

What Qantas’ strategy shift means for Changi, SIA

http://www.todayonline.com/commentary/what-qantas-strategy-shift-means-changi-sia

EasyJet to shake up market

Courtesy EasyJet

EasyJet “will shake up the market,” said the low-cost carrier’s chief commercial officer Peter Duffy. The airline operating out of London Gatwick has entered into an arrangement with Norwegian Air Shuttle and WestJet to allow booking of connecting flights to Singapore and destinations in North America that include New York, Los Angeles, Orlando and Toronto on its website.

This is another indication of how LCCs are no longer content with just the so-called niche market as they enter into the arena of the big boys. Such connections are usually forged among legacy airlines competing with each other, an advantage compared to stand-alone LCCs confined to point-to-point traffic. So EasyJet’s initiative – said to be the first global airline connections service by a European low fares carrier – is set to change the rules of the game.

Already Norwegian, encouraged by the prospect of an increased number of passengers through the partnership that will help it expand its wings, is talking about the possibility of linking up with Ryanair. EasyJet also said the tripartite arrangement will expand to include more airlines.

The agreement is not completely an LCC club as it includes WestJet, Canada’s second largest airline after Air Canada. This is breaking new ground, challenging the advantage enjoyed by legacy airlines which are supported by subsidiary or joint-venture LCCs, among them Lufthansa/Eurowings, British Airways/Level/Vueling, Qantas/JetStar, and Singapore Airlines/Scoot.

It is interesting how the modus operandi of the LCC keeps evolving, and consumers stand to benefit from the increased competition. For now, EasyJet customers connecting partner flights will have to collect their bags in transit, to be handled via the Gatwick Connects desk in the baggage reclaim area. No reason why this will not improve in time.

Qantas continues to fly high

Courtesy Getty Images

Qantas reported another good year ending June 30, 2017. The Australian flag carrier posted a profit of A$852 million (US$67.4 million) – its second highest in the airline’s 97-year history – although it declined by 17.2 per cent compared to last year’s A$1.03 billion.

The question to ask is how Qantas manages to turn in stellar performances when rivals such as Cathay Pacific and Singapore Airlines (SIA) are dipping into losses? Cathay lost HK$585 million (US$103 million) in 2016, and SIA incurred a loss of S$41 million (US$29 million) in Q4 of FY2016/17. (See Cathay Pacific axes 800 jobs: Is this the answer? May 27, 2017)

Qantas chief executive Alan Joyce points to the success of the Transformation Program introduced three years ago. The program is now complete with all targets met on time, having achieved asignificant improvement in financial performance, record customer advocacy and record employee engagement. Consequently the airline has incorporated a culture of transformation and continuous improvement goin forward.

“We operate in a very competitive environment, so continuous improvement is crucial,” said Mr Joyce.

The star performer is Qantas Domestic, advantaged by the booming domestic market. It earns an operating margin of 11.5 per cent on revenue of A$5.63 billion. With 90 per cent of the market, it is far ahead of its rival Virgin Australia.

Record earnings were also reported by the Jetstar Group with an operating margin of 11.6 per cent on revenue of A$3.60 billion. Outside Australia, these include Jetstar operations based in Singapore, Japan and Vietnam. The failure to set up base in Hong Kong as a consequence of protest from Cathay and Hong Kong Airlines has not stopped the budget carrier from growing.

Qantas International which used to be the bane of the airline’s financial performance has plowed back into the black in spite of the stiff competition it faces. It posted an operating margin of 5.7 per cent on revenue of A$5.70 billion.

Qantas’ Asian strategy that saw increased capacity to key Asian destinations has proven to be well-timed and placed. The airline will be increasing international capacity by 5 per cent in the first half of FY2017/18, mainly to desinations in the the growing Asian market.

Farther down the road, the airline plans to fly non-stop from Sydney to London and New York by 2022 subject to the availability of aircraft that can travel those long distances. In the near term, Qantas will be flying direct from Perth to London next year. This, said Mr Joyce,“is a huge leap forward” for the flying kangaroo.

Indeed, and it is likely to change the game somewhat, affecting not only would-be erstwhile transit points and competing off-shore airlines which must perforce make those stops. All the more so will airlines now find the need to be creative in influencing the traveller’s preference and enhancing brand loyalty in their marketing effort.

Star power in British Airways’ new safety video

Ever since Air New Zealand (Air NZ) made the bold move to ditch the traditional safety video format for something more entertaining, some airlines have followed suit to be different. It started with the objective to arrest the attention of passengers who would otherwise be disinterested. It has certainly become a talking point that raises the profile of the airline – for as long as the script remains topical and appealing.

The pertinent question is at what point the new video ceases to be a safety demo and becomes pure entertainment with a life of its own. That depends on how well the safety message still comes through taken out of the normal environment of the aircraft. And when the production tries to do more than just educate and entertain but advertise or sell a third product, things can get pretty muddled up as in the case of a joint promotion by Qantas and Australian Tourism.

Courtesy British Airways

What appeals to the passengers? A good story or a favorite movie recall such as Air NZ’s adoption of the Lord of the Rings’ Middle Earth. Or, popular personalities, particularly movie idols, as British Airways (BA) has done with a new star-powered video to be launched in September. It features Chiwetel Ejiofor, Gordon Ramsay, Thandie Newton, Ian McKellen, Jim Broadbent and Gillian Anderson among others, not forgetting, of course, Rowan Atkinson aka Mr Bean! It is clearly British humor, and to the production’s credit, executed without shadowing the safety message.

BA chairman and CEO Alex Cruz said: “It’s extremely important to us that customers engage with our safety video, and involving some of the nation’s most well-know personalities has given us the chance to create something fun that we hope people will watch from start to finish – and remember.”

However, the old format, dull as it is, never gets out of date whereas the new format needs to keep up with the times to sustain the excitement. While many would just do something else instead of watching the old video, equally many others may sigh “not again” if the newly formatted version becomes an over-shown re-run. Passengers will therefore expect seasonal changes. Well, at least that’s something to look forward to.