Rumor: Emirates Airline To Buy A Controlling Stake In Qatar Airways

Wow, now here’s a fascinating rumor I hadn’t heard before. Finance blog Zero Hedge suggests that Emirates Airline is planning on buying a controlling stake in Qatar Airways:

Sources close to the Emirates have said, in confidential meetings, that Emirates Airlines has been in talks to take a controlling stake in Qatar Airways to better compete against Etihad as the industry seeks to improve scale in the midst of a restrictive M&A policy within the region.

Qatar Airways has been increasing the company’s stakes in various names (agreed to acquire 49% stake in Italy’s Meridiana, has 10% stake in LATAM, and recently upped the IAG stake to 20%) and Emirates Airlines will soon announce their move to acquire a controlling stake in Qatar Airways.

Let me once again emphasize that this is a rumor, and that I haven’t heard this anywhere else yet. I’m sharing it because I think it’s an interesting topic to discuss, regardless of whether or not this comes to fruition.

Before I say anything else, let me say that the below are just my opinions of things based on the information I have access to and the people I’ve spoken to who are “in the know” at the Gulf carriers; you’re of course free to dismiss this as you’d like.

Keep in mind there’s not much transparency when it comes to the finances of the Gulf carriers, given that they’re government owned. It’s very easy for the airline as such to turn “profits” when the government is taking losses on every other aspect of their operations, like the airport, for example, where the airlines are being charged way below market costs.

Qatar-Airways-A380-First-Class-113

How are the Gulf carriers performing financially?

Based on my understanding of the performance of these airlines:

  • Emirates might just be a legitimately profitable and sustainable airline, given that they’ve scaled their operations enough to the point that they’re operating efficiently with a global route network and streamlined fleet
  • Etihad, on the other hand, has spent hundreds of millions of dollars investing in their equity partners, many of which haven’t worked out as well as they’ve hoped financially (they might be looking to sell their stake in airberlin, for example), and is losing quite a bit of money
  • Qatar is bleeding money, and while their load factors are decent, their yields are horrible

Furthermore, as far as the dynamics between leaders at the Gulf carriers go, I’ve heard that Tim Clark of Emirates and James Hogan of Etihad despise one another. That’s probably the first time in history that Qatar’s Al Baker isn’t in the middle of an argument. 😉

Etihad-Arrivals-Lounge-Abu-Dhabi - 1

Why would Emirates buy a stake in Qatar?

This I really can’t rationalize for a variety of reasons, probably the most significant of which are:

  • Emirates is doing so well because of how efficient and streamlined their fleet is (they have just A330s, A380s, and 777s), which isn’t the case at Qatar Airways. Qatar has A319s, A320s, A321s, A330s, A340s, A350s, A380s, 777s, and 787s, despite having a smaller fleet.
  • I’m not sure how Emirates is trying to “better compete with Etihad?” Emirates has a brilliant joint venture with Qantas which has been doing well for both airlines, while Etihad has largely unprofitable and unsustainable investments in money losing airlines, as stylish as some of those airlines may be.
  • If Emirates wanted to compete with Etihad in terms of their partners they could easily establish more joint ventures, which doesn’t require buying an ownership stake in an airline that loses money.

Emirates-A380

Bottom line

I’m very skeptical of this rumor. Emirates has been successful because they’ve stuck to the core of their business and have a fairly efficient business model. Meanwhile Etihad and Qatar are largely focused on investing in other carriers. In Qatar’s case it’s both to diversify assets and also to gain soft political power, while in Etihad’s case it seems to be more of the latter (since I can’t imagine they’ll be getting a return on many of their investments anytime soon).

Could you see any merit to a tie-up between Emirates and Qatar? Do you think these discussions are actually happening?

(Tip of the hat to @Airline_Alex)

Comments

  1. Zero Hedge… not exactly a paragon of good reporting. Emirates would have to be batshit insane to do this.

  2. The A380 is not an efficient plane to fly when it is 50% full. Don’t see how you think Emirates is doing so well financially. Sure they may be turning a profit but you’re making it sound like they’re rolling in margin. No way they are with the amount of A380s they fly and how empty many of the routes are.

  3. This sounds ridiculous. As much as EK and EY are rivals, the Abu Dhabi and Dubai governments are still part of the UAE (indeed Dubai is subordinate to the powers in Abu Dhabi). And the UAE and Qatar governments have some pretty healthy rivalries of their own. EK is profitable, and is more or less run as a typical business. QR is not run like a business entity at all. It is exists as part of a broader Qatari government strategy to develop commercial opportunities in Qatar, largely at the expense of the UAE, and Dubai in particular.

  4. Gonna call BS on this one. Can’t see the upside. Second hub close by would be crazy especially with second Dubai airport coming. Can see the Qatari royal family being into this I’m sure they’d find Saudi money before Emirati.

    That said I’m no expert and crazier things have happened.

  5. Just for the record, the Abu Dhabi Government which owns Etihad also has a considerable stake in Emirates which they got for bailing Dubai out during the recession.

  6. Yeah I dont see this happening. EK and QR are fierce rivals and compete connecting pax between many of the same destination pairs. Why would them working together benefit either? Any market share QR can gain by being streamlined/run more efficiently by a successful stakeholder will be taking market share away from rivals, namely EY and EK!

  7. A “controlling stake” by a foreign entity would violate the “substantial ownership and effective control” clause in most Bilateral Air Services Agreements that Qatar has signed, which would then eliminate Qatar Airways’ ability to service those destinations. Qatar Airways has actually been one of the major proponents of maintaining this clause in most BASAs they negotiate (as well as other more restrictive clauses such as tariff approvals, multiple designation, etc…), mainly as a protectionist measure.

  8. I can imagine that AA could benefit with such a an acquisition being both QA and AA part of One World but I agree with Alex and take his skepticism to the next level: this simply isn’t going to happen. Maybe some exec in EK has advanced some ideas and this developed into rumor, but Emirates is a huge organization with over 62,000 employees, so with hundreds of executives. Such an operation would require the consent of Dubai’s ruling family and also Qatar’s rulers and politically I have strong doubt of such a decision, mainly for geopolitical reasons.

  9. I think I heard his excellency one time in a video saying he would like to work or merge with emirates.

    It may not be as silly as it seems then.

  10. At first I was skeptical of it but then when I recall Virgin starting with Virgin Atlantic and branching into Virgin American, Virgin Australia and then you have Air Asia X also doing the same and now having Air Asia Indonesia, Thailand, Philippines, India.

    It made me wonder if Emirates wants to go for an “Emirates Qatar”?
    Or, I kind of like the sound of “Emirates Q”.

    Quite plausible.

  11. For anyone not into finance, Zerohedge is great for daily conspiracy theories and accurately predicting 10 of the last three recessions. They do get legitimate “scoops” now and then, but so does the national enquirer. I wouldn’t hold my breath.

  12. Why do you keep posting rumors?
    This doesn’t seem particularly professional. I can’t imagine trusting you with actual business.

  13. I’m all for less consolidation in the industry. We’ve seen how mergers have screwed up the system in the US. We don’t need that to be duplicated anywhere else.

  14. Dubai is a debt based economy, even government cannot print money, they have to borrow. UAE and Qatar governments have lot more funding sources. So the downward risk is higher for EK than EY (or) QR.

    Most likely consolidation scenario, EK merges with EY. James Hogan will be CEO and Tim Clark will go home.

  15. Bullshit. Will never ever happen. EK and QR are strategic national assets and sources of soft power and There is absolutly no way one government will let the other control its own airline and dictate how it is run.

    Strategic partnership though? Yeah could be the case but unlikely.

  16. What utter tosh, who on earth in their right minds would swallow this bullshit?

    Never going to happen.

    Qatar would buy Emirates before it happened the other way round.

  17. I fly both of them all the time and I wish they would. Emirates is ten times the airline QR ever is or will be. Sooner it happens the better. Watch the oil prices. If they keep dropping Qatar won’t be able to afford continuing to fight a losing battle.

Leave a Reply

Your email address will not be published. Required fields are marked *