American Reverses Course With Qatar Strategic Partnership, Should Take It Further

American, Qatar Airways

American continues to make its way around the globe looking for ways to fill its geographical needs. After Gol helped fill in some blank spots in Brazil, the improved Alaska partnership shored up the West Coast. Now, American is looking toward Africa, India, and Southeast Asia by renewing ties with Qatar Airways. I like this move, but I wish the airline went further than it did. American missed a real opportunity to make a definitive statement.

You’ll recall that the American/Qatar partnership was on the rocks thanks to the aggressive fight that American joined against Middle East carrier subsidies. In the summer of 2017, American said it would walk away from its codeshare with oneworld-partner Qatar. At the same time, Qatar said it would buy 10 percent of American, but that all blew up and the airline was forced to backtrack almost immediately.

Relations have been frosty since that time, but in early 2018, the state of Qatar agreed to some restrictions on what Qatar Airways would do. There were three main points. First, it said that it would provide audited, western-style financial reports. Second, it said it would make public any new state money that gets pumped into the airline (and that money should be lent on commercial terms, hahahaha, yeah). Third, it said there were no plans to fly fifth-freedom routes connecting the US with any place outside Qatar nonstop. This sounds good and all, but it wasn’t really enforceable or all that meaningful. Regardless of Qatar’s compliance, it hasn’t changed the fact that Qatar Airways is massively subsidized. I mean, come on… how can an airline that’s banned from flying to its neighbor states continue to grow without finding non-airline sources of cash?

Despite those subsidies, I’ve long believed that the only part of this fight that mattered was keeping the Middle East carriers off of fifth-freedom routes. The rest of it is just noise. But Delta, under former CEO Richard Anderson, really led the charge to apply maximum pressure. Both United and American went along with it.

Now, here we are with American doing an about-face. Here’s what’s happening, all explained with direct quotes from the press release:

  • American will place its code on select Qatar Airways nonstop and connecting services to and from the U.S. and Qatar Airways’ hub in Doha
  • Qatar Airways will place its code on select flights beyond American’s hubs in Dallas-Fort Worth (DFW), Chicago (ORD), New York (JFK), Philadelphia (PHL), Miami (MIA) and Los Angeles (LAX), as well as on American’s international flights to and from Europe, the Caribbean, Central America and South America.
  • …both airlines will discuss new ways to further their partnership through expanded commercial cooperation that will enable long-haul growth for both airlines.
  • American will begin exploring the addition of service from the U.S. to Doha.

So really, at face value, it’s just a resumption of the codeshare between Qatar and American, but the ultimate plan is to have it be more than that. Good. This makes sense for both airlines.

For American, this is a way to reach into Africa, the Middle East, India, and Southeast Asia (from the eastern US) more easily. Note that with the Seattle to Bangalore flight going one way, and a Qatar codeshare going the other, American will be covering India quite nicely. And Southeast Asia really opens up from the East Coast via Doha. If American puts its own airplane into Doha eventually, that will help strenghten opportunities even more.

For Qatar Airways, this is the closeness it has craved for a long time. Qatar has already bought into British Airways parent IAG, and it wanted to buy into American. Having all these airlines on the same page will help Qatar get more feed and more connecting traffic to help support its ambitions. That’s hugely important in an era where its neighbors won’t even talk to the country.

The biggest problem for Qatar at this point is simply what to do with its LATAM stake. That is problematic for everyone, but it would seem that a time may come where it has to sell that off and really commit to building an alliance with partners that all want to work with each other.

As much as I like this move, I find myself still feeling like it should be more. In the press release, American CEO Doug Parker was quoted as saying:

The issues that led to the suspension of our partnership two years ago have been addressed, and we believe resuming our codeshare agreement will allow us to provide service to markets that our customers, team members and shareholders value, including new growth opportunities for American Airlines.

The issues have been addressed? Come on. This is the statement I want to see.

I know we’ve spent the last several years fighting every move these Middle East carriers have made, and you know what? That was dumb. If these governments are going to fund these carriers into powerhouses, then we should be participating in this, not fighting against it. IAG CEO Willie Walsh was right. There’s more to gain by joining in. Delta can go fight those battles all it wants. In the meantime, we’ll be growing our network and taking passengers where they want to go with a partner that provides a fantastic product. That’s what our customers want from us.

American trying to thread the needle by saying that the issues have been addressed rings hollow. It’s a missed opportunity for American to take a completely different viewpoint than Delta and United. And it’s a viewpoint that plays as being on the side of the customer. This could have been a bigger win for American, but maybe the airline wants to wait until the bigger partnership comes together.

A codeshare is a fine start, but for it to be valuable, it needs to grow beyond that. The US and Qatar have open skies, so a joint venture is possible. Imagine a world where Qatar, British Airways (and friends), and American all work closely together. That’s some powerful stuff right there.

Of course, nothing here suggests that they aren’t looking at this path in the future. It’s just that the messaging for now fails to match the boldness of the actions the airline is taking. There is an emerging story here for American, and for the first time in a long time, it’s a good one.

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17 comments on “American Reverses Course With Qatar Strategic Partnership, Should Take It Further

  1. American should be applauded for taking things in a different direction in an effort to stay relevant and compete effectively and these moves seem to do just that and don’t quite emulate Delta, choosing a path vastly different than United. What American does need to fight is the enduring perception that it is customer unfriendly. The industry is facing its worst crisis since 9/11 and then SARS at the moment, as the Coronavirus circulates the globe. Time will tell if AA will stop short of fixing its service issues or start cutting costs there to save money.

    1. Evil Bob – Probably not. I mean, I assume they will mostly touch Doha, but there are some flights that Qatar tags that would possibly still be useful. For example, Qatar flies Doha-Ho Chi Minh City-Phnom Penh and back. I would imagine that American might like to have its code on that flight. But I would be truly surprised if we saw anything beyond those one-offs.

  2. I love your “statement.” It sums up the situation in a nutshell. But I seriously doubt you’ll ever see something quite that candid in today’s “corporate-speak” world.

  3. Brett –what’s the benefit of AA adding their own metal to DOH? As people have said on other sites, Qatar’s product is better than AA’s so if more capacity is needed to/from USA, could Qatar simply add more of their own metal?

    1. W Scott Moyer – Good question. There are several benefits here. First, there’s a better product for elite members. If someone is elite on American and needs to fly to Doha, they’re still sitting in coach on Qatar. On American, they can at least get Main Cabin Extra with the potential for upgrades. Further, American has a premium economy cabin which Qatar does not offer, so it gives more of a range of products.
      Lastly, there’s the Fly America Act which requires government travel to be done on US airlines. Since no US airline flies to Doha today, I believe they are forced to route via Europe on an American carrier and then connect to Doha on another airline. (Someone can correct me.) But if American began flying to Doha, that would change. There’s also the benefit of being able to have more control over corporate agreements when you are flying your own airplane. Lastly, if they do want to have a joint venture, American will need to fly there on its own.

      1. Thanks Brett –good points. I thought with the Fly America Act, that if AA had it code on a Qatar flight, that qualifies as an ‘American’ flight. I may be wrong. Thanks.

        1. W Scott – So there are exceptions to this rule, and I find it somewhat fuzzy. I do know that JetBlue was able to sell its code on Emirates and be Fly America compliant, but I think that required getting some kind of exemption. Where I think it could be even fuzzier is for connections. If there’s something beyond Doha, then I doubt that American could do it as a pure codeshare from the US to that third country. But with AA to Doha that could open it up. I think.

        2. That’s correct, codeshares count as flying a US carrier for Fly America Act purposes. Even today, the whole route could be on a foreign carrier as long as the codeshare is used to book it as a US carrier flight.

          1. @DavidM

            Correct, I remember when Delta had the contract at IAD, flying to Paris was on Air France aircraft with Delta codeshare

            1. Although that’s a bad example because European airlines count as American for Fly America Act purposes as part of the open skies treaty. (A little-known exception, one that I got pushback against by administrators, but it is how it’s supposed to work.)

            2. Another example would be SAN-TYO. American has the contract but lists it as having nonstop service, which means they’re offering the JAL flight. The last time I looked at the details, airlines had the option of whether they wanted to include codeshare flights on their GSA contract fares, either a blanket offer saying all codeshare flights operated by specific airlines are covered, or only specific codeshare flights.

  4. American has had very little success on its own international network outside of Tokyo and London and the international aviation community knows it. So now AA is simply being played by every airline that can simply use American’s massive size to pursue the other airline’s strategic purposes.

    Qatar is probably the one of the three Middle East airlines that is still heavily subsidized; the Qatari government continues to support QR in defiance of the aviation capabilities of the rest of the Arab world including against Emirates. The UAE appears to no longer be willing to subsidize Emirates and Etihad as they were years ago – and there is no need to do so given that most of the Middle East including the UAE has very good air service.

    The Arab Middle East has very little strategic value to US airlines other than the limited local and as a connecting point to South Asia and yet Emirates, not Qatar, dominates that market. Qatar’s network in India is a fraction of the size of Emirates’. Air France/KLM and Lufthansa serve SE Asia from their European hubs just as BA does. AA is simply swapping a preference for QR over BA. And CX and SQ carry significant portions of the high value US East Coast to SE Asia traffic anyway.

    Qatar is simply looking for as many partners as it can to help increase flow across its network to offset the much lower strategic value of its network compared to Emirates. Absent success on most of its international network, AA makes a perfect target esp. in light of the equity position with IAG from which the biggest benefit is providing wet lease aircraft to British Airways every time a BA labor group decides to go on strike. AA flies much of its network to continental Europe because its employees would not have allow such a large joint venture with British Airways if AA did not have something to offset BA’s much larger presence to the UK. AA underperforms DL and UA to most of continental Europe.

    American will neither gain much from a relationship with QR nor will any routes they add to Doha come close to adding the value of US carrier service to cities in Asia that can support it or the value that they could have had from service to other parts of Asia if they could have sustained it.

    As for Latam, QR’s investment had little strategic value to Latam purely because of geography; Delta’s has far more strategic value and Latam will not hesitate to tell any investor that Latam will do what is best for Latam.

    Delta and United have the global coverage on their own networks that American lacks and Delta’s global capacity is actually just a few percent behind UA’s; DL is much closer in global capacity to UA than AA is to DL despite the internet folklore that Delta outsources so much of its international flying. Delta and United got nearly identical amounts of revenue from Latin America and Europe in 2019. The big difference in UA’s international network over DL’s is its larger network in Asia which is nothing but dead wood right now because of the virus but even before then UA’s much larger Asia network didn’t deliver the profits that it should or that Delta’s Asia network does.

    American took a different track in not succeeding at developing its international network post merger. None of the partnerships that American has changed will help them close the gap between themselves and DL and UA. The real gap-closing strategic move came from Delta with its investment in Latam and DL’s impending growth at Miami; none of AA’s moves will have as great of a significance in the balance between the big 3 of a much larger DL in Latin America.

    1. +1. This is fiddling while Rome burns. Reminds me of when Smisek invested in Azul — nothingburger me-too move that didn’t lead to any deep south growth, UA continued to slide until Smisek was fired and someone with an actual strategy (Kirby) arrived. I can’t remember the last time a codeshare deal made a difference, this won’t be the exception.

      Get excited about AA when Parker, Kerr and Raja (and OG UA Znotins!) are no longer employed there.

  5. I think that a flight to DOH will need to be flown by AA and then they’ll apply for Anti trust immunity. AA is finally getting back to basics. I think they just sat pat after the merger and thought that everything would work out and that’s not true. Now with these bold moves adding GOL, the biggest airline in Brazil, Alaska bringing them the Pacific Northwest and now Qatar with help in the Middle East AA has finally gotten its mojo back. I hope to see them expand greatly in BOS and SEA as well as their regular hubs.

  6. Finally! People simply love flying QR and there is a reason for that! There is a lot of things for AA to gain with this. Together along with QR, BA, CX and JL, AA will be largest of the US3 into India to India. DL can continue with their fight and preaching against the ME3 by uploading new videos, when AA and UA keep snatching all the India traffic away; especially if the rumored UA-EY partnership is indeed true.

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