Why Do Airlines Buy Parts of Other Airlines?
Photo by Paul Thompson
Last week, Qatar Airways announced that it had increased its ownership percentage in British Airways parent company IAG (International Airlines Group) from 15.67 percent to 20 percent. Qatar’s original 15.67 percent stake was announced in early May, so what led Qatar to buy a bigger chunk of IAG?
Brexit. IAG’s stock has plummeted 23 percent following the United Kingdom’s vote to leave the European Union, making it more attractive for Qatar to increase their slice of the IAG pie. In a statement last Monday, Qatar Airways’ Chief Executive Akbar Al Baker said, “The recent market valuation of one of the world’s leading airline groups has provided what we believe is an attractive opportunity to increase our shareholding in IAG.”
But why would an airline want to own part of another airline? It’s mostly about the networking. In Qatar’s example, owning a significant part of IAG allows Qatar to exert influence over where IAG-owned airlines (British Airways, Aer Lingus, Iberia and Vueling) are routed.
Let’s pretend a passenger wants to fly from Doha, Qatar to Reno, Nevada. They could fly Qatar Airways to London Heathrow, where they could connect to British Airways and fly from London to Dallas/Ft. Worth. At DFW, they would connect to American Airlines, who would fly them to Reno. Qatar, British, and American are all tied into each other through the One World alliance of airlines.
Alliances and ownership stakes provide mutual ticket sale opportunities, allowing carriers to advertise more destinations to their customers. You’ve probably seen examples of this when looking to buy tickets online. Once you’ve entered your search options, the results display on the next page. On that page, you’ll often notice in small print “Operated by XYZ Airlines” even though you’re looking for flights on ABC Airlines’ website. Many airlines also extend equivalent frequent flier status perks to members of other airline programs within the same alliance.
What other airlines own parts of other airlines? In 2013, Delta bought 49 percent of Virgin Atlantic, and then announced a codeshare agreement on over 100 routes. Delta also owns 3.5 percent of Brazilian airline Gol, 4.1 percent of AeroMexico and 3.5 percent of China Eastern. United owns 5 percent of Brazil’s third-largest carrier, Azul.
Abu Dhabi-based Etihad owns stakes in Airberlin (29 percent), Alitalia (49 percent), Jet Airways (24 percent), Virgin Australia (25 percent), Air Seychelles (40 percent) and AirSerbia (49 percent). When Etihad bought its Alitalia state, it even influenced the new uniforms Alitalia flight attendants would wear. Qatar Airways also owns 10 percent of South America’s largest carrier, Latam, and 49 percent of Italy’s second largest carrier, Meridiana Fly.
Another benefit for airlines to own stakes in other airlines is on the financial side. When the owned stock does well, the owner airline realizes a monetary benefit.
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