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Analysis: American Airlines to End Qatar Airways and Etihad Code Share Agreements

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Analysis: American Airlines to End Qatar Airways and Etihad Code Share Agreements

Analysis: American Airlines to End Qatar Airways and Etihad Code Share Agreements
July 13
08:20 2017

MIAMI – American Airlines will drop its code share agreements with Middle Eastern airline rivals Qatar Airways and Etihad beginning on March 25, 2018, marking the latest salvo in an increasingly heated battle between American and its Oneworld Alliance partner Qatar Airways. An American spokesperson told Airways:

In light of our ongoing dispute over the Open Skies agreements, American Airlines notified Etihad Airways and Qatar Airways on June 29 of our decision to terminate our codeshare relationships. Given the incredibly strong public stance that American has taken on the ME3 issue, we have reached the conclusion that the codesharing relationships between American and these carriers no longer make sense for us. This decision has no material financial impact on American and is an extension of our stance against the illegal subsidies that these carriers receive from their governments. We are committed to doing everything we can to continue to support our team members and ensure that there is fair competition between American and the Gulf carriers.

American’s ire appears to be mostly directed at Qatar Airways. In late June, the Doha-based flag carrier announced its intention to acquire an initial stake of 4.75% of American’s stock, eventually building up to 10% ownership. Earlier this week, Qatar Airways withdrew that notice and re-filed a new one with the Federal Trade Commission reiterating its commitment to eventually own 10% of American and asking for antitrust clearance.

American’s SEC filing about the re-filing also takes a more aggressive stance on the company’s ongoing dispute with the Middle Eastern airlines Emirates, Etihad, and Qatar Airways:

The proposed investment by Qatar Airways was not solicited by American Airlines and would in no way change the Company’s Board composition, governance, management or strategic direction. It also does not alter American Airlines’ conviction on the need to enforce the Open Skies agreements with the United Arab Emirates and the nation of Qatar and ensure fair competition with Gulf carriers, including Qatar Airways. American Airlines continues to believe that the President and his administration will stand up to foreign governments to end massive carrier subsidies that threaten the U.S. aviation industry and that threaten American jobs.

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American fights back against Al Baker and Qatar Airways


The response by American to a proposed investment from one of its Oneworld partners in the three weeks since the news initially broke has been fierce. Doug Parker’s immediate statement in response to Qatar Airways’ first regulatory filing was harsh, stating that American did not seek out this investment with Qatar Airways and was essentially unhappy with the move. He also reiterated that American would continue to fight for the Middle Eastern air service agreements (ASAs) to be adjusted away from OpenSkies agreements as part of the Partnership for Open and Fair Skies (along with rival full-service carriers United Airlines and Delta Air Lines).

In the weeks that followed, Parker and Qatar Airways CEO Akbar Al-Baker engaged in a war of words over the matter, with Al-Baker inflaming tensions by insulting unionized airline employees at US full-service carriers. As View From the Wing’s Gary Leff notes:

Akbar al-Baker was videotaped declaring “there is no need for you to travel on these crap American carriers”… He also declared that since the average age of flight attendants ‘is 26’ his airline compares favorably to U.S. airlines where “you will always be served by grandmothers.”

Al Baker’s commentary makes little sense in the context of the potential deal to buy a stake in American, as the primary roadblock will likely be the company’s employees. For a moment assume that the claims of the Partnership for Fair and Open Skies are true and that thousands of US jobs will be lost to the Middle Eastern carriers while the companies lose billions in revenue.

Well, for managers and shareholders, one way of offsetting those problems would be to give them a nice return on existing outstanding shares, buy a stake in them so that the economic interests are aligned, and set up joint ventures so that they can profit from your global growth. The problem is that none of those things benefit employees on the front line (unless they are significant shareholders) because while revenues and returns might stay constant, the amount of flying done by American itself would be lower.

So while on the management level, this investment is a tough sell and has some question marks; at the employee level, if you believe in the protectionism of the Partnership, then this is an existential crisis. For a variety of reasons that have been covered numerous times in this space, we think those protectionist concerns are overblown, but they are believed in the eyes and minds of rank and file employees.

American isn’t a hypocrite anymore


One of the more surreal parts of the last two years has been watching American argue on the one hand that the Middle Eastern carriers were a grave threat to the company and US aviation, and then turn around and collect codeshare and frequent flyer partnership revenue from two of those same Middle Eastern carriers (albeit one forcibly via Alliance membership). And at times it seemed that Doug Parker was the US airline CEO most lukewarm about the entire effort.

No longer. With this move, American has announced its full-throated arrival into the fight with the Middle Eastern giants, a battle that appears to be picking up steam with some members of the Trump administration. Given the Trump administration’s domestic challenges, it may turn to protectionism (promised but largely undelivered thus far in the administration) as a way of getting a clear win in the eyes of its supporters, many of whom work for airlines in the rank and file.

For American though, this is more about symbolism than anything. It says the loss of the code shares will have no material financial impact (which means that it wasn’t generating tens of millions of dollars in revenue for either side as cost savings on American’s side would be material). And the real danger might have been to AAdvantage in losing two attractive partners in short succession after the Alaska partnership was gutted and the end of the Jet Airways relationship was announced. But American didn’t cut at least the Etihad AAdvantage partnership (Qatar Airways is required as a condition of oneworld Alliance membership to remain a frequent flyer partner). Ultimately, this suggests that this move is mostly about symbolism for American and its employees.

Update: An earlier version of this story was unclear about the scope of the AA code share and the relative dollar value of material. 

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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