Qatar Airways’ courtship of American is one for the long haul
Middle Eastern carrier may be hoping for closer US ties to expand global reach
yesterday*by: *Tanya Powley* in London, *Simeon Kerr* in Dubai and *Patti Waldmeir* in Chicago*
Financial Times
Doug Parker may have been left puzzled, concerned and “not happy” after Qatar Airways revealed its plan to buy up to a 10 per cent stake in American Airlines last week. But the US carrier’s chief executive should have also added flattered to his list of emotions.
Akbar Al Baker, the outspoken chief executive of the Gulf’s fastest-growing supercarrier, has repeatedly stressed that his strategy is to invest in profitable airlines — “goldsmiths”, as he calls them, rather than “scrap dealers”.
The dig at rival Middle Eastern airline Etihad Airways is clear. The Abu Dhabi carrier’s strategy of taking minority stakes in troubled airlines to drive growth has come at a cost. Alitalia, the Italian carrier, is in administration. Air Berlin is on life support. Etihad is in the midst of reassessing its strategy.
In comparison, Qatar Airways has focused its attention on what it deems “successful” carriers to expand its global reach. It is already the biggest shareholder in IAG, which owns British Airways, after increasing its stake to 20 per cent in August last year. Over the past year it has also acquired a stake in Chile-based Latam Airlines and 49 per cent of Italian carrier Meridiana.
Mr Al Baker’s target of American Airlines for its next investment has clear “industrial logic”, according to Andrew Lobbenberg, aviation analyst at HSBC. IAG and Latam are fellow members of the OneWorld aviation alliance with Qatar and American Airlines, also a member, has joint ventures with both.
A joint venture involving revenue sharing is often the closest form of co-operating possible between airlines because of countries’ rules that limit foreign ownership of carriers.
“There is a very powerful strategic triangle [being] built between IAG, American and Latam,” says Mr Lobbenberg. “That triangle has enormous strategic relevance and we can see that Qatar has bought into two-thirds of them. Therefore, industrially there is a very straightforward logic to investing in the third corner of the triangle.”
Qatar’s investment in IAG, in which it built its stake from 10 per cent to 20 per cent over the space of a year, signalled its longer term strategic aim. In October, the Gulf carrier and BA formed a revenue-sharing partnership on services between their respective hubs in London and Doha.
Aviation analysts say Qatar Airways could be hoping for a similar end result with its move on American Airlines.
“Qatar Airways is preparing for a long-term courtship,” says Will Horton, analyst at Centre for Aviation. “Airlines don’t invest in others purely for financial reasons — not even airlines like American that are performing well.”
The timing of Mr Al Baker’s approach to American was notable. The first conversation between himself and Mr Parker took place in early June at an airline industry meeting in Cancún, Mexico. But within days, Qatar Airways was facing the most severe crisis in its two decade history after three Gulf neighbours and Egypt closed their airspace to the carrier as their governments accused Qatar of supporting terrorism, a charge denied by Doha.
The blockade has hit bookings and forced the airline to stop flights to the four blockading countries — Saudi Arabia, the UAE, Bahrain and Egypt — markets that analysts say account for about a fifth of its global seat capacity.
“Qatar Airways needs to increase its international connecting traffic feed and further diversify its route network, especially after the recent blockade,” says Corrine Png, chief executive of Crucial Perspective. “Qatar Airways could potentially gain better access to traffic feed from American Airlines’ extensive domestic network.”
North America accounts for about 6 per cent of Qatar Airways’ total seat capacity, providing scope for growth.
However, airlines often struggle to reap meaningful synergies from equity investments. “Such small minority stakes tend to be futile in practice,” says Ms Png. “Qatar Airways could well be throwing money into the drain as it is unlikely to gain much management control.”
Qatar Airways is preparing for a long-term courtship
Will Horton, Centre for Aviation
The three Gulf supercarriers — which include Qatar and regional rivals Emirates and Etihad — have faced turbulence over the past year as demand for their long-haul services weakened even as they expanded capacity. They have been hit by President Trump’s attempts to limit immigration and the ban on laptops on some flights, while the oil price crash also damaged regional sentiment.
Hunter Keay, an analyst at Wolfe Research, notes that a big investment in American Airlines could help solidify Qatar Airways’ alliance with the US. A minority stake in American Airlines “intertwines Qatar with US interests a bit more, making it theoretically more difficult for US regulators to impose trade restrictions,” he says.
But for now, the response has been icy. After the planned investment was revealed on Thursday, Mr Parker insisted the US carrier remained committed to its longstanding campaign against what it claims are unfair state subsidies that give the Gulf carriers an advantage over US airlines — a charge they deny.
“Mr Parker had no option but to decline any interest in Qatar Airways and say the stake isn’t needed. American has finally patched up employee discontent and was not going to let it unfurl by saying something remotely nice about Qatar,” adds Mr Horton.
https://www.ft.com/content/be8e29aa-5820-11e7-9fed-c19e2700005f
