Update: In early 2020, Qatar Airways increased their stake in IAG to 25.1%.
Qatar Airways is taking a page from Etihad’s playbook, as they’ve just announced a deal whereby they’ll take over a 9.99% stake in IAG, which is the parent company of British Airways and Iberia. The deal is worth $1.7 billion, and comes at a time when IAG’s stock is at an all time high.
Here’s the press release Qatar Airways has put out regarding the deal:
As part of efforts to enhance operations and strengthen existing commercial ties initiated through codeshare agreements with IAG as well as its membership of the oneworld alliance, Qatar Airways has acquired a 9.99% stake in IAG.
Non-EU shareholders of IAG including Qatar Airways are subject to an overall cap on non-EU ownership as a result of the requirement for EU airlines to be majority owned by EU shareholders. Qatar Airways may consider increasing its stake further over time although this is not currently intended to exceed 9.99%.
“IAG represents an excellent opportunity to further develop our Westwards strategy. Having joined the oneworld alliance it makes sense for us to work more closely together in the near term and we look forward to forging a long-term relationship,” said His Excellency Mr. Akbar Al Baker, Group Chief Executive of Qatar Airways.
We’ve seen Etihad Airways buy stakes in airberlin, Alitalia, etc. But this is the first time we’ve seen Qatar Airways buy a stake in such a major airline. What’s the logic?
Qatar Airways’ business model
I think it’s really important to understand how Qatar Airways views themselves. The same is largely true for Etihad Airways.
Qatar Airways isn’t a for profit airline. They’re entirely government owned, and I’d be willing to bet if you asked Akbar Al Baker to his face whether Qatar Airways makes money, he’d proudly say “no.”
Why? Because Qatar Airways views themselves as a vital part of building up the infrastructure in Doha. They know they can’t be a major international city without a real airline. I guarantee you they wouldn’t be hosting the 2022 World Cup if it weren’t for Qatar Airways. In the Middle East, you need a state of the art airport and airline if you want to see your economy grow outside of oil.
So for many Middle Eastern countries, airlines are an investment in the country’s infrastructure. And that’s why I think many of us are left shaking our heads at some of the decisions they make, because we’re used to seeing companies that simply want to maximize their bottom line.
In this case the difference is that the shareholders are the government and not private investors, and they have different goals.
The ME3 want more access to the west
The big three Middle Eastern airlines want more access to the west.
Etihad presently owns stakes in Aer Lingus, Air Serbia, Air Seychelles, Alitalia, Darwin Airlines, and Jet Airways.
The ultimate goal for them is to get cozy with EU regulators, so they can get more service to the west, and also more service within the west. The Middle Eastern airlines would love to be able to set up a hub in Europe and operate flights to the US from there. In other words, they want more flights like Emirates’ Dubai to New York flight, which goes via Milan, with pick-up rights on both sectors.
Here’s a press conference that Akbar Al Baker did last year which I think perfectly sums up their goals with flights to the west:
I guess it can all be summed up by him saying “it’s not correct for Western European airlines to dictate government policies.” And by buying a stake and getting cozier with British Airways, I think this is one of the things they’re hoping to work on. British Airways is much less likely to claim they’re at an unfair disadvantage against the Middle Eastern airlines when they’re partly owned by one.
Strategic alliance between British Airways and Qatar Airways?
It’s interesting how Akbar Al Baker seem to suggest that this means the two airlines will work more closely together. Qatar Airways is already the only of the three major Middle Eastern carriers which has joined an alliance, and it certainly could make sense for them to strengthen a relationship with another carrier beyond that.
That being said, you’d think that would be independent of any stake they have in the company. If a joint venture/strengthened partnership makes sense, it should make sense regardless of whether they have a stake in the airline or not..
I’m curious to see what they do. Emirates has been hugely successful with their Qantas joint venture, though I’m not sure what British Airways brings to the table for Qatar Airways. Qatar Airways already offers a lot of service to London, and also, serves a lot of other European destinations directly, so I don’t think they really need “help” in Europe.
The one thing I could see is British Airways increasing service to Doha for more connection opportunities through codeshares. Or maybe in theory Qatar Airways could allow more options for British Airways passengers to get to Australia, though Qatar Airways’ route network to Australia is quite weak.
Bottom line
At some point all of these stakes get a bit funny. So Qatar Airways will have a stake in British Airways, which is taking over Aer Lingus, which Etihad has a stake in. Fun stuff, eh? 🙂
What do you think of the 9.99% stake, and what do you think Qatar Airways’ play is here?
Once the service from BA was on a par with that of qatar today but now the BA service is so lousy I won't fly them any more. Time will tell if Qatar make them up their game or downgrades them to a low cost no frills long haul carrier
Ben,
Not sure where I should ask this but I did email your team to see if they could help.
QR canceled our flight on 2/11(didn't notify us- AA says our message is still in the queue) I discovered it myself while looking through travel docs.
Used AA miles for biz.
AA says they can't confirm us together in the same class of service until maybe Monday due to back channels...
Ben,
Not sure where I should ask this but I did email your team to see if they could help.
QR canceled our flight on 2/11(didn't notify us- AA says our message is still in the queue) I discovered it myself while looking through travel docs.
Used AA miles for biz.
AA says they can't confirm us together in the same class of service until maybe Monday due to back channels with QR. And maybe not at all.
We have to be in NBO for a safari on 2/12.
What are my options- does AA have to do anything?
Thanks so much!!!
@ Melissa -- They should be able to help, though indeed it may have to be on a weekday when they can manually open up space (which is Sunday in the Middle East).
As I know that you're a big fan of the DM, Ben...I wondered what do you think about their take on this issue:
http://www.dailymail.co.uk/news/article-2933824/Security-fears-Qatar-buys-BA-stake-Critics-slam-deal-Middle-Eastern-country-links-Hamas-Al-Qaeda.html
Sigh... No offence Lucky, but ocassionally you get so focused on the airlines you like (e.g. British Airways) that you totally forget that there are other airlines and other markets out there.
If you look at this article, you've totally missed out that IAG owns several airlines. Yes, your precious BA is one of them. But the other big one, which I believe is the main reason Qatar has an interest in IAG, is Iberia.
...Sigh... No offence Lucky, but ocassionally you get so focused on the airlines you like (e.g. British Airways) that you totally forget that there are other airlines and other markets out there.
If you look at this article, you've totally missed out that IAG owns several airlines. Yes, your precious BA is one of them. But the other big one, which I believe is the main reason Qatar has an interest in IAG, is Iberia.
Qatar has a long history of trying to get into the spanish market, they looked loosely at Air Madrid, and more intensely att Spanair, opting out at the literal very last minute before Spanair went belly up. Now they're finally there, since IAG has their main office, registry etc in Spain, and not in the Uk.
If Qatar is looking for a market where they can grow and even have a hugely profitable fifth freedom flights base, it's Spain, not Uk. Spain has very few direct flights to north america and instead they are used to feed the large hubs in London, Paris, etc. Unreal considering it's a country with 46 million inhabitants and an economy that largely depends on tourism.
I could be totally wrong of course but I wouldn't be surprised if all these potential direct routes from Spain to north and south america is what Qatar is really after.
@TEX277 - Agreed. Al Baker's the airlines equivalent of a used car salesman.
Kind of seeing this as part of existing grand plan of the Qatari sovereign funds/businesses in investing abroad as a means of securing medium term fixed income outside of monetisation of their depleting natural gas reserves. This is particularly true in the UK, where as you might know, Qataris already own large landmark property investments (think One Hyde Park, the Shard, Canary Wharf)...as well as other infrastructure investments, like retirement homes, even bid for Sainsburys...
Kind of seeing this as part of existing grand plan of the Qatari sovereign funds/businesses in investing abroad as a means of securing medium term fixed income outside of monetisation of their depleting natural gas reserves. This is particularly true in the UK, where as you might know, Qataris already own large landmark property investments (think One Hyde Park, the Shard, Canary Wharf)...as well as other infrastructure investments, like retirement homes, even bid for Sainsburys in the past etc etc
Here's to the hope.... Qatar's 5th freedom flights between US/Spain (no thanks to UK, due to silly taxes).
Incredibly bad news. The less influence QR and Ali Baker have in this industry, the better.
I think they bought stake purely to compete with Ethiad.