One of the big commercial losers of the protests that have rocked the island of Hong Kong this year has undoubtedly been its airline, Cathay Pacific.
The carrier is consistently ranked among the world’s best, but it has been going through a torrid time in 2019. It has lost its chief executive, threatened other staff with dismissal if they take part in demonstrations and had to cancel hundred of flights from its home airport due to the protests.
As the demonstrations have gained in size and significance over the summer, the airline has been feeling ever more pressure. In a trading update on August 21, chief customer and commercial officer Ronald Lam said the airline had fared well in July, but added “we anticipate a much more significant impact to our revenue in August and onwards. Traffic into Hong Kong, both business and leisure, has weakened substantially.”
Passengers queue near a Cathay Pacific desk in Hong Kong International Airport on August 13, 2019. (Photo: Vernon Yuen/NurPhoto via Getty Images)
NurPhoto via Getty Images
The airline’s share price has been drifting south. From a recent high of HK13.92 ($1.77) a share in April, it closed on August 26 at HK10.30, a drop of 26%.
That weakness offers an opportunity for anyone confident about the airline’s longer-term prospects who has the wherewithal to back that up with money. Step forward Qatar Airways.
The state-owned Gulf carrier has a history of backing Cathay Pacific when others might be losing heart. It bought a 10% stake in 2017, at a time when the Hong Kong airline was struggling to cope with tough competition and was losing money.
Qatar Airways’ chief executive Akbar Al-Baker appears to again be among the optimists. He said on Tuesday he would consider buying more shares in the Hong Kong airline if they became available. “We have no concern about the brand, we have no concern on the viability of the airline,” he told Reuters.
Increasing its stake may not be straightforward though. The biggest shareholders in Cathay Pacific are local conglomerate Swire Pacific, which has a 45% holding, and Air China with 30% and it is not clear that either would be willing to reduce their holdings. Indeed, there have been suggestions that Air China would prefer to increase its stake too.
Diplomatic complexity
The backdrop to any deal between Qatar Airways and Cathay Pacific is an increasingly complex one, as the small but wealthy Gulf state tries to balance its commercial and political interests with the Asian giant.
Among other things, China is one of the most important buyers of Qatari natural gas, the country’s key export. In 2018, China bought 12.7 billion cubic metres of liquified natural gas (LNG) from Qatar. According to oil giant BP, that made China the fourth largest customer for Qatari LNG last year, accounting for more than 12% of Qatar’s total trade. Only South Korea, India and Japan bought more.
Further contracts were agreed in the second half of last year, with China’s Oriental Energy and PetroChina International Company both signing up to take liquified petroleum gas from Qatar Petroleum.
While commercial relations between the two sides are progressing well, the diplomatic side is more complex.
Over the years, Qatar has forged a reputation as an agile diplomatic actor, able to bring differing sides together in a number of disputes. One recent example is its hosting of talks between the U.S. and Afghanistan’s Taliban movement.
However, Qatar risked upsetting Beijing last month when it removed its name from a letter expressing support for China’s human rights record. That came amid an international debate over the Chinese government’s policy towards its Uighur minority, which has seen it detain more than 1 million people and subject them to “re-education,” according to analysts.
Doha had initially signed a letter offering support to Beijing, alongside the likes of Algeria, Iran and Russia, but it subsequently changed tack, claiming it wanted to stay neutral in the dispute. It may also have been tempted by an easy opportunity to differentiate itself from other signatories such as Saudi Arabia and the UAE, both of which are fierce regional rivals of Qatar.
The boycott of Qatar by Saudi Arabia, the UAE and others, which was launched in June 2017, caused significant pain for Qatar Airways which, like Cathay Pacific today, found itself unwittingly caught up in a wider political dispute. Whether or not it is able to increase its shareholding in the Hong Kong carrier, at the very least Qatar Airways has some useful experience it can share with its partner.
