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

  1. Gary Leff says:

    “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 says:

      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.

    • CF says:

      Gary – As mentioned in another comment, the joint venture was in place long before Etihad arrived. It’s a lot harder to unwind a joint venture than a codeshare. I don’t blame Delta for that one bit. But entering into new agreements would be a very different story.

  2. James Burke says:

    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…

  3. Tim Dunn says:

    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 the European industry is too many poorly run airlines and not brand or product.
    Both strategies are attempts to gain a position in the core intra-European markets after having spent years siphoning off traffic from European airports, all justified by buying the A380 which is likely going to get pulled anyway.
    Add in that countries like Italy have such poor airline economics because of a lack of economically and not politically driven aviation planning and Europe will see a more difficult process of airline industry consolidation than took place in the US with the ME3 increasing its efforts to try to meet political/national interests at the expense of a robust continent-wide aviation policy.

  4. Seth says:

    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?

  5. renatos says:

    Very Interesting!!! Cool reporting: Thks J

    RSR

  6. hwong says:

    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?

    • CF says:

      Emirates flies to many cities in the US but they all go straight to Dubai.
      The only fifth freedom routes that go from the US to somewhere that’s not the UAE are the JFK to Milan and Newark to Athens routes.

  7. chrisr_999 says:

    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

  8. Stewart says:

    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 Emirates cutting back their usage of fifth freedom trans-Tasman rights to/from NZ-Aust. is because this is part of a “DEAL” with their code-share partner, Qantas. In that deal, Qantas will stop competing with Emirates on flights to/from Dubai from Australia, and will stop flying from Dubai to London. Also, even before that, Emirates had started flying some of its flights between Dubai and NZ as long-range non-stop flights because the point-to-point traffic could justify this in 777’s rather than having to fly via Australian ports and augment loads with Aussies (especially when using A380’s). So, the “deal” for each airline to cut back its use of fifth freedom rights usage only cuts unnecessary short-haul Aust-NZ “tag-on’s” to existing long-haul traffic from Europe or Dubai to Australia, whereas Qantas has given up long-haul traffic to/from Dubai and will no longer compete with Emirates to fly to London via Dubai, instead returning to use Singapore for that traffic. Qantas is also commencing a premium non-stop 787 service between Perth and London.

    The “partnership” arrangements between Emirates and Qantas (before and after this latest deal) have been good for both carriers but have benefited Emirates more than Qantas, not the least of which has been the elevation of prestige of “EK” in our local market here. Non-frequent flyers are not confident of flying with foreign carriers in general, and with middle-eastern carriers even more… BUT being a formal Qantas route partner and having code-sharing, points sharing, etc. has given Emirates a credibility level that they would not have otherwise achieved in this market.

  9. Kilroy says:

    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, with a 2-4-2 configuration instead of most airlines’ 2-3-2 configuration. That makes for some incredibly uncomfortable seats that crush your hips and eat them for dinner, and is the first time I’ve ever had a serious complaint about hip room (distance between the armrests) on an airline.

    That said, I paid ~$600 RT from JFK to Naples, Italy during the shoulder season (late Sept 2017 – early Oct 2017). Meridiana offers the only nonstop flight to Naples from the US, and the legroom and onboard service in economy, while not superlative by any means, were adequate for a ULCC, so I can’t complain about that. For my particular situation, the alternatives were $1100+ for itineraries with long (8+ hour), usually redeye layovers in mainland Europe, or flying into Rome (would have cost more than the $600 RT I paid to get to Naples) and taking a train down to Naples, which would have been a pain. Given similar alternatives and savings, would I choose Meridiana again? Absolutely, though I would probably budget for (and schedule) a visit to a chiropractor upon my return to the states (not kidding).

    I do think that there is a reasonable niche market for ULCCs like Meridiana to fly really skinny long haul routes, e.g. from international gateway on continent A to secondary city on continent B, and Meridiana does offer numerous upgrades for the right price (one segment had a nearly full plane, so I paid $50 to secure a window seat), including mediocre business class.

  10. stogieguy7 says:

    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 am amazed how large corporations often reward people with poor decision making skills and lousy judgment with so much authority and such ginormous salaries. Shaking my head here…..

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