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acquire 9.99 per cent of International Airlines Group (IAG), the parent company of oneworld partner British Airways. IAG’s 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.

Qatar’s sovereign wealth fund also purchased 20 per cent of London Heathrow Airport’s owner in 2012, while the flag carrier separately snapped up Heathrow’s Sheraton Skyline Hotel in March. Echoing a wider spending spree across the UK capital, the investments have made

In terms of overarching strategy, state-owned Qatar Airways has adopted the exact same business model as its neighbours in the UAE. Just like Dubai’s Emirates

Airline and Abu Dhabi’s Etihad Airways, the Doha-based carrier uses a central hub as a bridging point to connect passengers between overseas destinations.

Qatar’s geography at the crossroads of East and West unlocks a rising tide of intercontinental demand for the airline, while its government’s 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 Etihad’s 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 airline’s most high-profile acquisi-tion 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

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

For Qatar Airways, equity stakes have appeal as a portfolio hedge and a bargaining chip, rather than a non-organic driver of growth

Doha a powerful voice in Britain’s 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 Ireland’s 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

iAG’s ‘Slasher Walsh’ and Al Baker share an uncompromising attitude to organised labour

by Martin Riversthegulf@tradearabia.net

effectively sabotaged the deal, rattled by Al Baker’s well-versed distaste for organised labour.

Undeterred, Qatar Airways went on to

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. Doha’s apparent handicap was exacerbated in 2013 when new Delhi opted to expand UAE traffic rights, while leaving the Qatari alloca-tion unchanged.

no doubt aware that the UAE revisions coincided with Etihad’s investment in India’s 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-carrier’s growth trajectory speaks for itself. Passenger numbers have nearly quadrupled over the past decade, reaching 22 million in 2014. Today’s fleet of 165 mostly widebody aircraft spawned from just a dozen planes around the turn of

QATAR

Qatar Airways’ success is founded on a unique operating model involving acquisitions, alliances and astute network building

Niche strategy

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THE 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 existen-tial 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 bilat-eral 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

jobs and the long-term viability of our nation’s 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 coun-terparts of seeking protec-tionism. The Gulf carriers insist that their rapid expan-sion is fuelled by nothing more than efficient business models, pragmatic govern-ment policies, and a natural geographical advantage for intercontinental transfer flows.

The US departments of commerce, state and trans-portation 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 “point-by-point rebuttal”, claiming to expose the Partnership’s dossier as “nothing more than a mess of legal distor-tions and factual errors”. Qatar Airways filed its own 84-page document, while Etihad submitted 60 pages in its defence.

“Etihad Airways is owned

A case of self interestRe-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

by the Abu Dhabi govern-ment. That has never been in dispute,” wrote James Hogan, Etihad’s 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 commis-sioned 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 agree-ments 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 Organisation’s (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 exam-ple 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 entitle-ment. They are a commer-cial privilege bestowed on airlines by two governments that have identified mutual benefits in the arrangement. If one side no longer consid-ers 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 under-stood to be “subsidies”. Their US counterparts, while not subsidised today, have meanwhile benefited from decades of historic advan-tages 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 Partnership’s request for re-negotiated bilateral trea-ties, 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. <

by Martin Riversthegulf@tradearabia.net

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 Baker’s obsessive attention to product excellence undoubtedly secured this accolade.

Yet the company’s exacting standards have a darker side. A public relations emergency was triggered in 2013, when leaked copies of the airline’s 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, prompt-ing Al Baker to issue a public denial

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 can’t turn to someone who is 35 years old and say, ‘no, you can’t 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 Doha’s conservative values with the cosmopolitan liberalism of a truly global marketplace. Success on that front could be Al Baker’s greatest achievement to date. <

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 Baker’s obsessive attention to product excellence undoubtedly secured this accolade

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

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