Qatar Copies Etihad, Not Emirates In Its Quest to Fly Between Europe and the US

Just recently I wrote about how the real threat posed by the Middle East airlines to those in the US was fifth-freedom flying — flights that operate from an airline’s home country to a second country and then carry local traffic beyond to a third country — and not the stuff flowing over their own hubs. With a ton of aircraft on order, the Middle East carriers are all looking at how to best place this capacity. All three of the big airlines, Etihad, Emirates, and Qatar, see opportunities outside of their home countries. They’re just going about them differently. From the US, Emirates has chosen to fly its own airplanes to Europe. Etihad and Qatar, however, have gone a different route. They prefer to buy into a European airline and then transfer airplanes to those airlines instead. Etihad has done this for awhile (with poor results, I might add), but it’s fairly new for Qatar. In fact, last year’s uncharacteristic purchase of a chunk of Italy’s Meridiana is its first big test.

Emirates has operated fifth-freedom services around the world with mixed results. For example, it has long flown many flights between Australia and New Zealand, but it has pulled back recently in favor of letting its joint venture partner Qantas do that. But that kind of short-hop market is a different dynamic than what happens on longer legs. It has flown from Australia to Southeast Asia for years, and it has tepidly entered the US-Europe market as well.

So far, the only fifth-freedom flying Emirates does to the US is from Milan to New York/JFK and from Athens to Newark. The latter is a highly seasonal market that previously hasn’t been able to support service in the winter months. I doubt things are any different now, but Emirates uses its cost structure and subsidy to serve it anyway. The former is a bigger market with a lot of service, and it’s about to get even more crowded with this new Qatar deal.

Just recently, Qatar picked up 49 percent of Meridiana, the second airline of Italy. (You know things are bad when you’re the second airline behind Alitalia.) Previously, Qatar had made wise investments in companies like IAG, successful airlines that didn’t have a survival problem. Qatar may have had some minor, lower level influence on strategy, but really, they were more interested in solidifying partnerships. They were along for the ride. With Meridiana, things are different.

In Meridiana, Qatar picked up a struggling airline and is apparently going to Etihad-ize it. Etihad, of course, has picked up struggling airlines for years. In Europe, its most recent (mis)adventures involved buying hefty stakes in airberlin, Alitalia, and the regional Darwin. It was able to dump a lot of airplanes into those airlines, and it helped reshape their route maps. Etihad’s airlines poured money into new liveries and service standards. Etihad tried to turn these airlines into an Etihad feeder with service levels that were worthy of Etihad itself. Two of these three airlines are now gone, and Alitalia is, as always, circling the drain. Etihad has brought in a new CEO and has walked back its acquisition strategy. It’s hard to consider this strategy a success, yet somehow, Qatar wants to emulate it.

Meridiana flies old airplanes on less popular routes. To the US, for example, it flies only to JFK from both Palermo and Naples. The onboard product is substandard, but tickets are cheap. And since no other airline flies those routes nonstop, it’s a nice little niche. Qatar, however, has grand plans.

Apparently Qatar thinks Alitalia is vulnerable enough that it can make a run at remaking Meridiana as Italy’s national airline. First, it wants Meridiana to revert to an old name and become Air Italy. Then, Meridiana will take on some of Qatar’s A330s in a much-needed fleet refresh. It appears to be ending the niche Naples and Palermo routes, and instead will enter the already-crowded Milan to JFK route (as well as Milan to Miami).

But wait, there’s more. Meridiana is going to build up Milan into a mini-hub of sorts. Service will start next summer from Malpensa Airport to Catania, Lamezia Terme, Naples, Palermo, and Rome. This sounds like a bad plan all around.

If Alitalia survives (likely with a Lufthansa tie-up), then Meridiana will already have to deal with that steaming mess. But on top of that, Italy is a market with huge low-cost-carrier penetration. Both Ryanair and easyJet are crawling all over that country, and it’s unlikely that Meridiana is going to win on short-haul.

For long-haul, well, I suppose it depends on how American reacts. Qatar is a member of oneworld, but relations with American are frosty these days. If American were to overlook that and codeshare with Meridiana, then it could feed the airline in both New York and Miami. But this would also require American to reverse course from this summer when it ended codesharing with Qatar over this Middle East fight. If American is truly trying to fight Middle East carriers flying from the US to Europe (or anywhere not via their home hubs), then they should want nothing to do with this Meridiana scheme.

If there’s anything that can help make this a success, it’s the participation of IAG. Since Qatar bought a piece of IAG, that airline is likely to be much more welcoming of this new deal. In fact, if Lufthansa buys up Alitalia, this could be IAG’s way to get a big Italian presence. But so far, it has little to offer. Malpensa has a small Vueling operation which would undoubtedly be somewhat helpful, but that’s really about it. IAG’s assistance would help, but there are no naturally-large traffic flows that will come out of this.

Frankly, I have no idea why Qatar wants to involve itself in this, but it’s known for doing impulsive things. If Alitalia can’t make things work with its substantial partners, then there’s no reason to think Meridiana has a better chance.

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Gary Leff
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“If American is truly trying to fight Middle East carriers flying from the US to Europe (or anywhere not via their home hubs), then they should want nothing to do with this Meridiana scheme.”

Delta was willingly a part of a revenue-sharing joint venture across the Atlantic with an Etihad-controlled Alitalia. But then Delta does whatever is in its self-interest, and American does stupid things. So who knows.

Nick
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Nick

Delta, Alitalia, KLM, and Air France had a 4 way JV many years before Etihad bought AZ. The European JV between AFKL and AZ already expired and wasn’t renewed, and I think the Trans-Atlantic JV expires 2020ish but I cannot recall exactly. And I’m willing to be that DL didn’t come out ahead having AZ on the agreement with them hemorrhaging cash all the time.

James Burke
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James Burke

Vueling has a pretty big presence in Rome now though with a few planes based there. I think between their ops in Milan and Rome IAG has a pretty decent foothold in the Italian market (fwiw VY serves more markets from FCO then EasyJet does). They have domestic routes from FCO to Catania & Palermo from there, and hit most of the big Western European markets already.
Italy seems like a low cost meat-grinder…

Roland Cule
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Roland Cule

Quite normal, easyJet debased FCO a while ago citing too much competition there.

Tim Dunn
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Tim Dunn

Both the Emirates and Qatar/Etihad strategies are risky. Emirates is operating its 5th freedom transatlantic routes largely on a point to point basis which means they have to discount aggressively to fill seats which also emboldens the US3 to argue and be able to prove that the ME3 are using Open Skies to dump capacity into the market which they cannot fill. Any success the US3 get will likely be on 5th freedom rights and not US to Middle East routes. The QR/EY strategy of pouring money into money losing European airlines is also risky because the fundamental problem in… Read more »

Seth
Guest

I usually find that your graphics detract from your posts. But I have to say “Kudos” on this one. While it is still amateurish (which I know you know), props for actually using a still from the scene in Annie Get Your Gun where the song is actually sung.

Were you watching on TCM last week?

renatos
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renatos

Very Interesting!!! Cool reporting: Thks J

RSR

hwong
Member
hwong

Hi:

You say that “So far, the only fifth-freedom flying Emirates does to the US is from Milan to New York/JFK and from Athens to Newark.” I show that they fly from SFO also and I assume LAX. Correct?

chrisr_999
Member
chrisr_999

The Emirates Trans Tasman strategy was to avoid layover fees at BNE, SYD and MEL.
Now they have decided that the better idea is an immediate turnaround without the layover.
It helps, of course, that they have the AKL-DXB daily A380 nonstop which drew a lot of passengers away from the via Australia flights. That nonstop has, allegedly, become so successful that EK have dangled the carrot of a second frequency later this year.
Regards Chris Randal

Stewart
Member
Stewart

Hello, I want to clarify things in respect of your statement: “Emirates has operated fifth-freedom services around the world with mixed results. For example, it has long flown many flights between Australia and New Zealand, but it has pulled back recently in favor of letting its joint venture partner Qantas do that. But that kind of short-hop market is a different dynamic than what happens on longer legs. It has flown from Australia to Southeast Asia for years, I think that you may be ascribing unfounded strategic attributes to these actions. The dominant reason for the changes in respect of… Read more »

Kilroy
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Kilroy

I flew Meridiana, and used Cranky Concierge to book and monitor the trip, as I had separate itineraries from DTW to JFK and from JFK to NAP (Naples, Italy) that were unconnected, with ~4 hour layovers in JFK both ways. Cranky’s description of Meridiana is spot on. The 767s I flew on with them were a bit worse for wear, and (IIRC) had CRTs hanging over the aisles, but that wasn’t the biggest thing. The biggest issue, and I’m surprised Cranky didn’t mention it, is that Meridiana squeezes EIGHT (8) seats per row into the economy section of its 767s,… Read more »

stogieguy7
Guest

This deal makes no sense. For one thing (and Cranky already stated this but it bears repeating): why emulate a strategy that has already been proven to be a road to failure? It’s very clear that Qatar isn’t going to get anything out of this, except for a big well to sink money into. Secondly, Meridiana brings few pluses to the table – but the niche routes to JFK are one of them. So, what does Qatar plan to do? Chop those? In the case of this deal, there’s literally no upside as far as I can tell. Honestly, I… Read more »