Qatar Airways will spend $600MN to secure a 9.6% stake in Cathay Pacific. What is Qatar Airways’ strategy in this latest acquisition?
Qatar expects the deal to close today, meaning it has been in the works for quite some time. CEO Akbar Al Baker heaped praises on Cathay, calling it “one of the strongest airlines in the world, respected throughout the industry and with massive potential for the future”.
Meanwhile, Cathay Pacific has not released a statement yet on the matter. The Hong Kong carrier has been bit hard with regional competition and reported a loss of nearly $300MN for the first half of 2017.
Although Qatar failed in its bid to acquire a 10% stake in American Airlines, it will own:
- 10% – Cathay Pacific
- 20% – British Airways
- 10% – LATAM
- 49% – Meridiana
Cathay Pacific, British Airways, and LATAM are all members of the oneworld alliance?
Cathay Pacific’s ownership also includes a 35% stake by Swire Pacific and a 30% stake by Star Alliance member Air China.
Does Qatar Pick Winners (and Etihad Losers)?
Etihad also invested heavily in other airlines, hoping to ease regulatory burdens and find synergies to drive profit.
They failed miserably.
Air Berlin is now defunct. Alitalia is operating in bankruptcy protection. Etihad Regional has been sold. Now even Jet Airways looks like it could end its year in the red.
But objectively, Qatar has invested in a very different bread basket of airlines. British Airways profits are strong. LATAM has a strong hold on the Latin America market. And Meridiana has great potential, especially if Alitalia falters.
Then there is Cathay Pacific…often heralded as a gold standard among carriers. There is no doubt Cathay Pacific’s quality cannot be questioned. But the carrier simply isn’t earning profits. It offers remarkable full-service, like Qatar Airways, but is that sustainable? Cathay Pacific now faces a difficult dilemma like Singapore and Thai: embrace the full-service model or start trimming. Neither seem like clear winners to me, through I no longer argue a carrier cannot cut its way to profit (thanks British Airways).
If Cathay just had a bad year due to poor fuel hedging, it should bounce right back. I tend to think Cathay’s problem are deeper than that. In any case, a closer working relationship between Qatar and Cathay should lead to benefits for consumers, at least on a short-term basis. The real question will be whether Qatar will see long-term benefits and how it may try to change Cathay Pacific.
image: Qatar Airways