Transport Airlines

How British Airways wooed Qatar into joining Oneworld alliance

Oct 10, 2012 12:20 am

Skift Take

Could this be a precursor to Qatar taking a stake in IAG, British Airways’ parent company? That is surely a next logical step, analysts say.

— Rafat Ali

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Qatar Airways Ltd.’s move to become the first Gulf member of a global airline alliance represents a coup for British Airways chief Willie Walsh, who had pursued the accord, and may lead to deeper ties between the companies.

The deal secures the second-biggest unattached carrier for Oneworld and gives British Airways and allies including American Airlines access to destinations in high-growth markets in Asia, Africa and the Middle East, where the U.K. operator has lagged behind rivals Air France-KLM Group and Deutsche Lufthansa AG.

Qatar Air will become a Oneworld member within 18 months, with British Airways as its mentor, the companies said yesterday in New York. The accord was secured after Walsh, chief executive officer of BA parent IAG, courted counterpart Akbar Al Baker and comes after Qantas Airways Ltd. ended a 17-year tie-up in favor of a deal with Emirates, the top Gulf carrier, and Air France agreed to start code-sharing with regional No. 3 Etihad Airways.

“I would think Willie Walsh was instrumental in the deal,” said James Hollins, an analyst at Investec in London with a “buy” rating on IAG, as International Consolidated Airlines Group SA is known. “He has been seeking further inroads into the Middle and Far East, having pulled off the tight alliance with American Airlines to the west. Great work.”

Bankia Stake

Walsh said in April that a Gulf carrier would probably join an alliance in 2012 and that Oneworld members were “debating” the issue, with Doha-based Qatar the top candidate. “I admire what Qatar has achieved,” he said then, adding: “The combination of what Al Baker has done with the airline and what Qatar has done with the new airport at Doha makes it very interesting.”

John Strickland, director of JLS Consulting in London, said Al Baker had spoken “very positively” about the Irishman in the past, citing his success in tackling issues such as new BA pay grades for cabin crew, which he pushed through despite a strike.

“You can talk about return on equity and profitability and any number of measures, but at the end of the day the question of how people get on is of fundamental importance,” he said.

Collaboration might not stop with Oneworld, according to Credit Suisse AG analyst Neil Glynn, who said Qatar may be a candidate to take over a 12 percent stake in IAG currently held by Bankia group. The nationalized Spanish lender no longer has strategic value as a shareholder, Walsh, 50, said on Aug. 3.

“We expect Oneworld entry to prompt further investor questions as to whether a Qatar investment in IAG is likely,” Gynn said today in a note to clients.

Hub Squeeze

IAG rose as much as 1.2 percent to 165.50 pence before trading little changed as of 3:03 p.m. in London. American Airlines parent AMR Corp., with which BA dominates trans- Atlantic routes from London Heathrow after winning approval for a revenue-sharing deal in 2010, was priced 2 percent lower.

Qatar Air is joining Oneworld after a decade in which inter-continental transfer hubs built up by the three big Gulf operators have stripped lucrative long-haul traffic away from older network carriers, pressuring earnings at companies already struggling with lackluster growth and high labor costs.

Only two years ago Walsh was among European executives who met in London to discuss ways of slowing the encroachment, including the extension of export credit guarantees to carriers from Britain, France, Germany, Spain and the U.S., which as the home nations of planemakers Airbus SAS and Boeing Co. had been denied the aid. Middle Eastern carriers have been the biggest buyers of jets in recent years, with Qatar Air having 111 planes in the fleet and 250 on order worth $50 billion at list prices.

Etihad Accord

Relations have thawed as Gulf operators move away from a strategy of isolationism and breakneck growth to focus on filling seats. The switch isn’t altruistic, according to Donal O’Neill, an analyst at Goodbody Stockbrokers in Dublin, who said Oneworld membership will allow Qatar to focus on adding routes to emerging economies while sustaining feed from mature markets.

Etihad’s Air France deal, announced hours before the Qatar Air decision, should lead to a “larger strategic partnership” with Europe’s biggest carrier, the Abu Dhabi-based company said. It didn’t say if the plan is to eventually join the Paris-based carrier’s SkyTeam group, which includes Delta Air Lines Inc.

Etihad had already been most active in engaging with other operators, taking stakes in Air Berlin Plc, Aer Lingus Group Plc, Virgin Australia Holdings Ltd. and Air Seychelles Ltd. and signing 40 code-share deals, including that with Air France-KLM.

Emirates Approach

Emirates, the world’s biggest airline by international traffic, remains comparatively aloof even after the tie-up with Australia’s Qantas a month ago, code-sharing with 10 other carriers, according to its website. President Tim Clark has said the Dubai-based company has no need of conventional global alliances, contending that they add little value.

Of the 120 destinations served by Qatar Air, 15 will be new to Oneworld, which will also gain access to three new countries — Iran, Rwanda and the Seychelles — extending the alliance’s coverage to 856 cities in 159 nations.

“Qatar is the best overall fit for Oneworld and can deliver the biggest benefits to the alliance, our airlines and our customers,” Oneworld CEO Bruce Ashby said in New York.

With assistance from Victoria Stilwell in New York. Editors: Heather Harris, Andrew Noel.

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