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  • ANALYSIS: Al Baker's Guangzhou gambit

ANALYSIS: Al Baker's Guangzhou gambit

Qatar Airways' taking of a 5% stake in China Southern Airlines could further align the Chinese carrier with the Oneworld alliance, while giving the Middle Eastern airline greater access to the booming mainland Chinese market.

In an announcement yesterday, Qatar said it acquired the minority stake as part of its strategy “to invest in the strongest airlines around the world” and to enhance operations and connectivity.

“China Southern Airlines is one of the most prestigious airlines in the Chinese domestic market and an important player in the world, with massive potential for cooperation In the future,” Qatar Airways' group chief Akbar Al Baker explains.

China Southern meanwhile says that the acquisition is a strategic investment, and that Qatar could further increase its stake over the next 12 months.

CHINESE PARTNERS

Still, the move is somewhat surprising, considering Qatar already has a Chinese partner with its 10% stake in Hong Kong’s Cathay Pacific.

“It doesn’t make sense to me to invest in both Cathay and China Southern,” says K. Ajith, director of Asia Transport at UOB Kay Hian.

“The other way to look at it, however, is that it is hedging its bets on the Pearl River Delta region or greater China, for greater access to that region as a whole.”

Qatar has previously said that it has no plans to play an active role in the airlines that it invests in, and will largely remain a passive investor. Besides its holdings in China Southern and Cathay, it also has a 20% investment in International Airlines Group, 10% in LATAM Airlines Group and 49% in Air Italy.

It has also been on the look out for new partners with the impact on its network last year, following the blockade imposed by Saudi Arabia, the United Arab Emirates, Egypt and Bahrain amid a regional political dispute.

CHINA ACCESS

FlightGlobal schedules shows that Qatar flies direct to seven Chinese points from Doha. These include China Southern’s base in Guangzhou, as well as to Beijing, where the Chinese carrier has plans for a second hub with the upcoming opening of the capital’s second airport in September.

Qatar Airways' flights to China - January 2019

Asset Image

FlightMaps Analytics

China Southern meanwhile connects to Dubai from Guangzhou, Shenzhen and Wuhan.

The partnership with China Southern could give Qatar access to passengers from the massive mainland China market, who could possibly transit in Doha and connect onto its flights to Europe.

For China Southern, having a second foreign investor, after American Airlines, is in-line with the country’s push for more foreign and private investments into its state-owned enterprises, targeted at driving efficiency and raising competitiveness. China Southern can tap on these experienced international players for guidance on matters big and small. American bought a 2.68% stake in 2017.

ONEWORLD CONNECTION

More interesting is that Qatar is also an Oneworld member, albeit an apparently unhappy one. This further aligns China Southern with the Oneworld alliance.

The Chinese carrier dropped its SkyTeam membership at the start of the year, as part of its strategy to “better align with the new trend of cooperation model” in the global aviation industry.

From as early as 2017, around the same time that Oneworld’s American closed its $200 million investment in the airline, there were reports that China Southern was mulling a departure from SkyTeam for Oneworld. After all, it also has codeshares with Qantas, Japan Airlines and British Airways.

Having China Southern under its banner would also be a major win for Oneworld, considering it is the only alliance without a mainland Chinese member. This would likely be opposed by the grouping’s founding member Cathay, since China Southern’s main hub in Guangzhou is less than an hour’s high-speed rail ride from Hong Kong.

LONG-TERM GAINS

Having Qatar on its side, could thus strengthen China Southern’s case to join the alliance, says Ajith. Interestingly, Qatar has threatened to quit the global grouping over growing frustrations with certain members, in particular American, which has been vocal against alleged state subsidies Qatar received that allowed it to essentially dump capacity in the US market. It would hence also be in Qatar's favour to be friendly with a potential Oneworld member, and to use the China Southern relationship to ease tension with American.

While it remains to be seen what exact synergies could derive from this new China Southern-Qatar partnership, it appears to be a win-win that could see long-term gains.

“Given the complementary strengths and resources of each of China Southern Airlines and Qatar Airways, there are opportunities for us to work together and build a long-term relationship in ways that would bring benefits to customers of both airlines,” says Al Baker.

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