By Ray Jaworowski, Senior Aerospace Analyst, Forecast International.
Qatar Airways has acquired a 9.6 percent stake in Hong Kong-based Cathay Pacific Airways for $661 million. Both carriers are members of the oneworld global airline alliance. Qatar Airways acquired the stake from Kingboard Chemical Holdings, a Hong Kong investment firm.
Qatar Airways thus becomes the third largest shareholder in Cathay Pacific. The largest shareholder is Swire Pacific Ltd, the Hong Kong-based subsidiary of the British company Swire Group, with a 45 percent stake in the carrier. Air China holds a 29.99 percent stake in Cathay Pacific. Kingboard no longer holds a position in Cathay Pacific.
The deal is the latest step in an aggressive investment strategy by Qatar Airways. Since 2015, the carrier has acquired a 20 percent stake in International Airlines Group (IAG), the parent firm of British Airways and Iberia; a 10 percent share in South America’s LATAM Airlines Group; and a 49 percent stake in the Italian airline Meridiana.
Qatar Airways, IAG, LATAM, and Cathay Pacific are all members of oneworld. This past August, Qatar Airways dropped plans to purchase a 10 percent stake in another oneworld member, American Airlines, after the U.S. carrier issued a second-quarter earnings report indicating lower profits for the quarter. Qatar Airways’ plans had also received a chilly reception from American’s management.
Qatar Airways’ recent spate of acquisitions appears designed to boost transit traffic through its hub in Doha, Qatar, as well as further expand its reach beyond its core market in the Middle East. Since June 2017, the country of Qatar has faced an economic blockade by the neighboring nations of Saudi Arabia, Bahrain, Egypt, and the United Arab Emirates. As a result, Qatar Airways has lost nearly 11 percent of its network and 20 percent of its revenue. Some of the carrier’s routes have been scrapped. Others have been diverted, resulting in longer flight times and a need to use more fuel. The airline expects to post a loss for the current fiscal year (FY18), after posting a $525 million profit in the previous year (FY17). It insists that the introduction of viable new routes will help it return to profitability soon.
The acquisition of the 9.6 percent stake in Cathay Pacific is Qatar Airways’ first investment in an airline in East Asia. It provides Qatar Airways with a foothold in the Asia/Pacific market, a region widely viewed as having tremendous long-term potential for air traffic growth. Business and tourist travel to and from Hong Kong and mainland China is expected to grow rapidly in the years ahead. Cathay Pacific is in a good position to benefit from these trends. And, potentially, some of its traffic could be fed into Qatar Airways’ own network.
Qatar Airways management has indicated that the carrier could increase the size of its stake in Cathay Pacific should more shares become available in the future.
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