special report

Av i at i o n

special report

Av i at i o n

Qatar Airways serves

12 points in India, but is
unable to add capacity
due to a restrictive
bilateral air services
agreement with New
Delhi. Al Baker is now
shopping around for
his own local partner

QATAR

Niche
strategy
Qatar Airways success
is founded on a unique
operating model involving
acquisitions, alliances and
astute network building
by Martin Rivers
thegulf@tradearabia.net

n terms of overarching strategy,

state-owned Qatar Airways has
adopted the exact same business
model as its neighbours in the
UAE. Just like Dubais Emirates
Airline and Abu Dhabis Etihad
Airways, the Doha-based carrier uses
a central hub as a bridging point to
connect passengers between overseas
destinations.
Qatars geography at the crossroads
of East and West unlocks a rising
tide of intercontinental demand for
the airline, while its governments
deep pockets ensure that funding
for infrastructure never runs dry. A
nationwide ban on trade unions also
helps to keep the workforce in check.
Dig a little deeper, however, and
longstanding chief executive Akbar al
Baker is clearly stamping his own mark
on the mega-hub model. A famously
hands-on executive with an eye for
detail, Al Baker has deviated from
the traditional go-it-alone mentality
of the Gulf carriers by signing Qatar
Airways up to the oneworld alliance,
a grouping of global airlines that share
traffic through codeshare agreements.
He has further modified the hub
concept at Hamad International

Airport by creating a subsidiary in

Saudi Arabia - the soon-to-be-launched
Al Maha Airways - as well as taking a
leaf out of Etihads book by dabbling
in foreign investments.
For Qatar Airways, the second largest
of the big three Gulf carriers, equity
stakes have appeal as a portfolio hedge
and a bargaining chip - rather than a
non-organic driver of growth.
But its investment strategy has not
always gone according to plan. The
airlines most high-profile acquisition to date - a 35 per cent stake in
Luxembourg-based Cargolux - came
unstuck in 2012 after just 18 months.
Unionised workers at the freight carrier

For Qatar Airways,

equity stakes have
appeal as a portfolio
hedge and a bargaining
chip, rather than
a non-organic
driver of growth
effectively sabotaged the deal, rattled
by Al Bakers well-versed distaste for
organised labour.
Undeterred, Qatar Airways went on to

IAGs Slasher Walsh and Al Baker share an uncompromising attitude to organised labour

acquire 9.99 per cent of International

Airlines Group (IAG), the parent
company of oneworld partner British
Airways. IAGs boss, Willie Walsh, is
a personal friend of Al Baker, and has
earned the nickname Slasher Walsh
for his uncompromising cost-cutting in
the face of industrial action.
Qatars sovereign wealth fund also
purchased 20 per cent of London
Heathrow Airports owner in 2012,
while the flag carrier separately
snapped up Heathrows Sheraton
Skyline Hotel in March. Echoing a
wider spending spree across the UK
capital, the investments have made

Doha a powerful voice in Britains

aviation sector. Little wonder that IAG
emerged as the only major European
entity to back the Gulf carriers in their
subsidy battle with three US rivals (see
also page 37).
Having built up exposure to the
European market - IAG also owns
Spanish airlines Iberia and Vueling,
plus Irelands Aer Lingus - Al Baker
is now turning his attention to India.
Qatar Airways serves 12 points in the
country, but is unable to add capacity
due to a restrictive bilateral air services
agreement with New Delhi.
India is a crucial market for the Gulf

carriers for two key reasons. First,

it has the fastest-growing domestic
aviation sector on the planet, propelled
by a middle class that is set to triple
in size over the next decade. Second,
Indians account for a sizable chunk
of the passengers travelling westward
over the Gulf - particularly ones bound
for high-yield markets like North
America.
About 36 per cent of the customers
flying with Emirates and Etihad to
the US begin their journey in India,
compared with 28 per cent for Qatar
Airways. Dohas apparent handicap
was exacerbated in 2013 when New
Delhi opted to expand UAE traffic
rights, while leaving the Qatari allocation unchanged.
No doubt aware that the UAE revisions
coincided with Etihads investment in
Indias Jet Airways, Al Baker is now
shopping around for his own local
partner. If we have the opportunity
to acquire a stake in IndiGo we shall
be very pleased to do so, he said in
March, singling out the biggest player
in the price-sensitive domestic market.
The prospects of an actual deal,
though, remain hazy. IndiGo poured
cold water on the proposal four
months later, describing media reports
of an equity investment as completely
baseless.
Notwithstanding setbacks in some
markets, the flag-carriers growth
trajectory speaks for itself. Passenger
numbers have nearly quadrupled over
the past decade, reaching 22 million
in 2014. Todays fleet of 165 mostly
widebody aircraft spawned from just
a dozen planes around the turn of

8
34

October 2015 | the gulf

the gulf | October 2015

35

special report

Av i at i o n

opinion

AVI ATION

A case of self interest

Re-negotiating Open Skies bilateral treaties and recognising
the Gulf carriers right to expand may put an end to ongoing
mudslinging between the US and GCC aviation industries

Qatar Airways fleet of 165 is set to grow further, with orders in place for around 213 widebody aircraft

the century will keep growing with

another 213 orders in place. Seven new
routes have been launched this year,
pushing the number of destinations in
the network above 150.
Qatar Airways is also one of just
seven airlines globally - and the only
one in the Middle East - that can boast
of a 5-Star rating from consultancy
Skytrax. Al Bakers obsessive attention
to product excellence undoubtedly
secured this accolade.
Yet the companys exacting standards
have a darker side. A public relations
emergency was triggered in 2013,
when leaked copies of the airlines
employment contracts exposed the
heavy-handed terms under which
cabin crew were hired. As well as
barring flight attendants from getting
married for five years, the contracts
identified pregnancy as a valid reason
for being made redundant.
Reports were already circulating
about the burdensome restrictions at
company-provided housing, prompting Al Baker to issue a public denial
36

Qatar Airways is one

of just seven airlines
globally - and the only
one in the Middle
East - that can boast
of a 5-Star rating from
consultancy Skytrax.
Al Bakers obsessive
attention to product
excellence undoubtedly
secured this accolade
that he employs spies to watch over
his workforce.
With unions banned in Qatar, the
International
Transport
Workers
Federation (ITF) took up the cause
and mounted a concerted campaign
to overhaul working practices at the

flag carrier. After two years of negative

press, Al Baker relented.
As the airline matures, the workforce
matures, Rossen Dimitrov, senior vice
president of customer experience, told
Bloomberg in August. You cant turn
to someone who is 35 years old and
say, No, you cant have a family.
Updated contracts now allow staff to
get married whenever they wish, as
well as guaranteeing that pregnant
flight attendants are offered temporary
ground jobs.
Other controversial practices remain
- female staff still cannot be dropped
off at work by unrelated males, for
example - though most of these rules
stem from cultural norms in Qatar.
Dimitrov said the airline will continue
to review its policies.
Having
become
a
household
name, Qatar Airways is struggling to
reconcile Dohas conservative values
with the cosmopolitan liberalism of a
truly global marketplace. Success on
that front could be Al Bakers greatest
achievement to date. <
October 2015 | the gulf

he chief executives of
American Airlines and
Delta Air Lines met
with US Secretary of State
John Kerry in September,
stepping up efforts to
convince Washington that
the fast-expanding Gulf
carriers pose an existential threat to the US airline
industry.
Banding together with
United Airlines and several
trade unions under the
so-called Partnership for
Open and Fair Skies, they
accuse Emirates, Etihad and
Qatar Airways of receiving
$42 billion in state subsidies
over the past decade.
The alleged handouts documented in a 55-page
dossier released by the US
lobbyists in March - may
contravene the terms of the
Open Skies agreements that
America has signed with the
UAE and Qatar. Those bilateral treaties allow the Gulf
carriers to launch unlimited
flights to the US mainland,
but only if they operate on a
commercial basis free from
government support.
Accusing Dubai, Abu
Dhabi and Doha of pouring
money into their flag-carriers
in pursuit of wider economic
development programmes,
the Partnership says the Gulf
carriers are not playing fair
and the Open Skies deals
should be re-negotiated.
We believe these Gulf
airlines are playing from the
higher side of an uneven
playing field, posing a
serious threat to American

the gulf | October 2015

by Martin Rivers
thegulf@tradearabia.net

jobs and the long-term

viability of our nations
carriers, said Keith Wilson,
president of the Allied
Pilots Association, one of
the labour unions in the
Partnership.
Dismissing the charges
against them, Emirates,
Etihad and Qatar Airways
have accused their US counterparts of seeking protectionism. The Gulf carriers
insist that their rapid expansion is fuelled by nothing
more than efficient business
models, pragmatic government policies, and a natural
geographical advantage for
intercontinental transfer
flows.
The US departments of
commerce, state and transportation responded to the
deepening war of words
by opening a public docket
to solicit comments from
all interested parties. It is
now sifting through 3,000
submissions.
First in line among the
respondents were the
Gulf carriers themselves.
Emirates submitted a
mammoth 388-page pointby-point rebuttal, claiming
to expose the Partnerships
dossier as nothing more
than a mess of legal distortions and factual errors.
Qatar Airways filed its own
84-page document, while
Etihad submitted 60 pages
in its defence.
Etihad Airways is owned

by the Abu Dhabi government. That has never been

in dispute, wrote James
Hogan, Etihads chief
executive. The Abu Dhabi
government has taken
equity in Etihad Airways
and made shareholder loans
- something that is fully
consistent with our [Open
Skies] air services agreement
and international law.
Hogan separately commissioned research purporting
to show that Etihad will
contribute $2.9 billion to the
US economy this year, while
supporting 23,400 American
jobs.
Several smaller US airlines
have also voiced support
for the Gulf carriers. They
include FedEx, which has
taken advantage of the
US-UAE Open Skies treaty to
open a freight hub in Dubai;
and JetBlue Airways, which
has signed codeshare agreements with Emirates and
Etihad to feed its domestic
US flights. International
Airlines Group, the parent
company of British Airways,
also backs the Gulf carriers.
Amid endless mudslinging
between the two sides - the
US lobbyists quickly issued
counter-rebuttals to the Gulf
filings - it is easy to lose
sight of two key facts.
First, the term subsidy is
open to interpretation. The
World Trade Organisations
(WTO) definition, used by
the Partnership, does indeed
seem to apply to the Gulf
carriers - but it is not legally
binding in aviation treaties.

Other, broader definitions

could be used to malign
American carriers, for example by citing the favourable
terms of US Chapter 11
Bankruptcy Protection.
Second, on the other side
of the argument, Open Skies
treaties are not an entitlement. They are a commercial privilege bestowed on
airlines by two governments
that have identified mutual
benefits in the arrangement.
If one side no longer considers the treaty advantageous,
it is of course within its
sovereign right to revoke it.
Focusing on these two
principles lends clarity to
the dispute and exposes the
self-interested arguments
emanating from both camps.
Etihad and Qatar Airways
have, indisputably, received
what are generally understood to be subsidies.
Their US counterparts, while
not subsidised today, have
meanwhile benefited from
decades of historic advantages in the global aviation
market.
With neither side truly
concerned about objective
fairness, Washington
should seek a compromise
that leaves both parties
dissatisfied.
That means acquiescing to
the Partnerships request for
re-negotiated bilateral treaties, while at the same time
enshrining the right of the
Gulf carriers to expand at a
commercially-rational pace
within a fully liberalised,
open marketplace. <
37