In-depth: Qatar Airways global expansion despite blockade
Since 2017, a Saudi Arabia-led blockade has had its fair share of negative impact on Qatar Airways’ operations. While the airline’s latest report includes a statement by its Chief Executive Officer Akbar Al Baker claiming that the Doha-based carrier’s “adversaries have suffered far more than” Qatar Airways did, a $639 million (QAR2.3 billion) loss in FY2019 might point otherwise. A $1.3 billion increase in fuel expenses compared to FY2018, in part due to the blockade, forced the flag carrier to navigate some tough waters and airspace, quite literally, as neighboring countries are not too keen on letting Qatar-registered aircraft bypass their airspace.
While Qatar Airways declaring bankruptcy is not a sight that we are likely to see in the short-term, the poster boy (or rather airline) of the Gulf country is having a tough time. After all, the Big Three Gulf airlines, including Emirates and Etihad, have become marketing tools for the specific countries’ flags placed on the side of fuselages. Thus, in the face of a blockade, remaining a global powerhouse within the industry and Qatar’s connection to the outside world is crucial not only for the airline but for the country it represents as well.
New Qatar Airways horizons
On December 15, 2019, the airline’s Airbus A350-900 landed for the first time in Botswana’s capital Gaborone (GBE). The route is fairly bizarre: coming from Doha, Qatar (DOH), the A350XWB first landed in Johannesburg, South Africa (JNB). Then, the same Airbus jet continued its journey to Gaborone, whereupon it landed and turned back to Johannesburg for a flight back to Qatar’s capital city. The newly inaugurated route to Botswana’s capital is served three times a week.
Qatar is betting on the success of Africa. In 2019 alone the carrier added three flights from Doha to Africa (including Gaborone), namely Mogadishu, Somalia and Rabat, Morocco. In 2020, it also plans to launch flights to Luanda, Angola. Furthermore, on December 17, 2019, the airline announced that it will increase frequencies on 20 destinations it serves, including changes to six flight schedules from Doha to Africa.
The strategy should not shock anyone. In Qatar Airways’ FY2016 report, the carrier highlighted that in the short and medium-term, the two biggest markets set for growth are “on the African continent and India”, while China and South America continue to showcase “strong underlying growth”.
And the airline has made it clear that it wants to increase Qatar Airways’ brand presence not only by deploying aircraft but by slipping in cash, in the form of investments, as well.
Taking stakes up and down, side to side like a rollercoaster
Since 2015, Qatar Airways had been taking stakes in various airlines and airline groups. Its first huge splash-of-cash target was International Airlines Group (IAG) (IAG), the parent of such airlines like British Airways and Iberia. In January 2015, the deal, worth more than $1.7 billion for a 9.99% stake in IAG, was announced. Gradually, the Doha-based airline increased its stake, stopping at 21.43%, according to Qatar Airways’ latest financial report.
In December 2016, the company acquired 10% of LATAM Airline Group, the largest airline group in South America. Almost a full year later, in November 2017, Qatar Airways ventured in another market where it foresaw growth – China. The airline made an investment in the Hong Kong-based carrier Cathay Pacific.
Perhaps its most interesting investment is Meridiana, an Italian airline now known as Air Italy. The company owns 49% of Air Italy since September 2017, with the majority owner being Alisarda, a predecessor to Meridiana. Threatened by Air Italy’s rapid expansion, U.S. based carriers went haywire, accusing Qatar Airways of using the Italian airline to go around its Open Skies agreement with the North American country.
Its latest investment is a 5% stake in China Southern Airlines (ZNH) , which Qatar Airways acquired in January 2019.
Out of all the regions that the carrier outlined as the biggest growing markets in the near future, Qatar Airways is missing a stake in an airline from one – Africa. However, the continent has attracted a different type of investment from Doha.
Playing the long con in Africa
Coming back to the airline’s FY2016 report, the continent received its fair share of attention:
“The aviation industry in Africa is still in its early stages of development, meaning that the continent is poorly served by its own national airlines,” states the report. “Increasing air connectivity between Africa and the rest of the world will drive economic growth” in the continent. The carrier “continues to invest in Africa, adding new service and up-gauging aircraft where the market is already maturing.”
Since the blockade, the carrier launched only a handful of new destinations to Africa.
Yet it has increased its presence there in other ways, especially in one country – Rwanda. Qatar Airways‘ CEO Akbar Al Baker attended the African Aviation Summit in Kigali, Rwanda in April 2019, where he “stressed the need for a decisive shift in the current hubbing dynamics for Africa’s full aviation potential to materialize.”
“Qatar Airways is committed to remaining a trusted partner in this important aviation market,” he added.
On December 9, 2019, the company took a 60% share in Rwanda’s upcoming state-of-the-art international airport near the country’s capital, Kigali.
The @RwandaGov and @qatarairways today signed an investment partnership for Rwanda’s new international airport. The partnership features three agreements to build, own, and operate the state-of-the-art facility. #InvestInRwanda pic.twitter.com/OFWK5nrWw2— Rwanda Development Board (@RDBrwanda) December 9, 2019
Potentially, this is not the only deal that Qatar Airways is looking to nail down in the country. Rwanda’s Infrastructure Minister Claver Gatete mentioned that the Qatari airline could help run RwandAir, the flag carrier of the African state, yet provided no further details, reports Reuters.
Nevertheless, investing and taking a stake in an airport in a country that is poised for rapid growth is a long-term move by Qatar Airways. According to Deloitte’s report called “Single African Air Transport Market”, Rwanda is one of the markets in the continent that is expected to grow at least 8% for the next 20 years and “doubling in size each decade,” predicts the company. And the latest frequency increase positively impacts Kigali Airport (KGL) – three out of the seven weekly flights from DOH to KGL will fly directly between the two capitals instead of stopping in Entebbe, Uganda on the way there.
Africa is not the only developing market that is at the center of Qatar Airways’ attention – Asia-Pacific has also received its fair share of love.
The Qatari carrier finally managed to ink some kind of deal with IndiGo, after four years of trying to do so. The codeshare agreement, confirmed on November 7, 2019, is fairly modest – Qatar Airways’ flight codes are only going to be placed on three IndiGo connections from Delhi, Mumbai and Hyderabad to Doha. However, with Al Baker’s clearly stated intentions (since 2015) to purchase a stake in the Indian low-cost carrier, this could be seen as the first stepping stone towards a further investment when the Doha-based airline gets its finances straight. The company plans to do so in two years’ time and break-even losses wise, according to the CEO, as reported by LiveMint.
“We believe this agreement will be just the first step in strengthening our relationship and we very much look forward to working together to harness our complementary strengths and resources to enhance the travel experience for our passengers around the world,” said Al Baker during a press conference, announcing the partnership with IndiGo.
India is not the only market Qatar Airways is placing its money on.
Malaysia, for one, is also in the crosshairs of the airline. On October 16, 2019, Qatar Airways inaugurated its third route to the gateway to the South East Asian country, landing in Langkawi International Airport (LGK). While a new route to a rising tourist destination is nothing out of the norm, a press conference attended by the company’s CEO and various other top-of-the-line Qatari and Malaysian officials and executives is a fairly unusual affair. After all, LGK is an airport that welcomed only 2.7 million passengers in 2018, according to Malaysia Airports’ full-year report, making the destination a very small dot in the global picture.
Yet this is not the first time that Al Baker has attended meetings or conferences in Malaysia. In August 2019, the CEO met with the country’s Prime Minister Mahathir bin Mohamad and the Minister of Transport, Anthony Loke Siew Fook. Qatar Airways’ Chief Executive noted that “Malaysia is an important, and growing, market for Qatar Airways,” adding that the two sides “were able to discuss a wide range of mutually beneficial issues” and that Al Baker is looking forward to continuing “dialogue with him [Malaysia’s Prime Minister – ed. note] and his government.”
The dialogue, seemingly, produced some initial results. The financially-struggling flag carrier of Malaysia, Malaysian Airlines, has been inside a rumor mill for quite a while now, as the owner of the carrier, the Malaysian government, wants to offload the ailing airline or at least split the bill. In October 2019, the Edge Malaysia reported that Qatar Airways was one of the potential parties to purchase a stake in Malaysia Airlines, citing sources close to the matter.
Sri Lanka is another market that the airline is expanding. On December 16, 2019, the national flag carrier of the island SriLankan Airlines and Qatar Airways announced an extension of their codeshare agreement, allowing the former airline’s passengers to book flights to 33 extra destinations in Europe, America, and Africa.
Brand power and reasoning behind it
The company is also heavily involved in sponsoring various events and is especially present in sponsoring soccer leagues or clubs. Over the past month, Qatar Airways announced new sponsorship of two leagues in Asia – the Philippines Football League (announced on November 26) and All Nepal Football Association League (announced on December 12, 2019). Both sponsorships include Qatar Airways‘ logo featuring on all club and officials‘ shirts and “perimeter boards, stadium flags, LED screens and online digital content as well as other activity,” according to the two, almost identical, press releases.
There is a good reason why Qatar Airways is expanding its brand presence around the world – its hub, Hamad International Airport in Doha (DOH), plans to expand. In 2018, the airport handled 34.5 million passengers. Starting from 2022, DOH plans to be able to welcome more than 60 million passengers per annum, according to Qatar Airways’ press release dating October 23, 2019. While the 34.5 million mark, achieved in 2018, is planned to almost double in just four years, there is a reason why 2022 is chosen as the date – Qatar will host the 2022 FIFA World Cup. However, while the World Cup will bring a fair amount of glitz and glamour to the Gulf state, a question arises on how many tourists it will actually bring to Qatar. A case study, conducted by Robert Baumann and Victor Matheson called “Mega-events and tourism: the case of Brazil”, concluded that the “2014 FIFA World Cup increased foreign tourism by roughly 1 million visitors.” Meanwhile, TASS, the Russian news agency indicates that “more than 5 million tourists, including 2.9 million foreigners” visited the host cities of the 2018 World Cup in Russia, according to the head of the Russian Federal Tourism Agency, Oleg Safonov.
The decision to host the World Cup in Qatar has attracted a great amount of controversy. Nevertheless, the controversy will put a strain on the country‘s ability to attract a significant amount of tourists. Furthermore, the same study by Baumann and Matheson also concluded that “potential hosts should not count on the event to consistently produce out‐sized tourism figures.”
A transit destination?
Despite its trials and tribulations regarding the World Cup, the expansion of Doha’s main airport is set to commence by early-2020. If we were to remove the hypothetical scenario of Qatar struggling to attract visitors during soccer’s most important international event, the airport, together with its main carrier, still needs to attract visitors annually and to warrant the expansion of the airport.
The blockade, however, possesses further threats. In Qatar Airways’ 2018 financial report, the carrier highlighted that it lost 18 destinations from its route network to nearby countries. Worryingly, Qatar’s main airport is a hub, rather than a final destination for most of the passengers. While there is no publicly available data on how many passengers use Doha Hamad International Airport (DOH) as a transit location, some other statistics can shed some light:
DOH welcomed 34.5 million passengers in 2018. The annual tourism performance report, issued by the Qatar National Tourism Council, indicated that 1.8 million international visitors arrived in the country in 2018. Previous to the blockade, in 2016, the number was 2.9 million, of which 1.4 million were Gulf Cooperation Council (GCC) nationals, including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. In 2016, Hamad International Airport welcomed 37.3 million passengers.
That provides a problem for Qatar – the lack of tourists, something that the state has tried to address together with its national airline. In FY2017/2018, the Qatar Tourism Authority, together with Qatar Airways, launched “+Qatar”, a program “encouraging passengers to enjoy a stop-over break in Doha as part of their travel plans,” states the airline’s financial report from 2018. The aforementioned Qatar National Tourism Council was established in January 2019 with the goal to “make Doha a sustainable world-class tourism and conference destination.”
Qatar Airways aims to improve its position as a global powerhouse, which it undoubtedly is – after all, transferring 29.4 million passengers in FY2019 is no small feat. At the same time, both the state and its national flag carrier have a very steep hill to climb, especially considering the current events surrounding Qatar.
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