Qatar Airways set on robust expansion despite huge losses
Qatar Airways is set to report a large loss for the current financial year ending later this month, the Doha-based carrier’s CEO Akbar Al Baker confirmed on March 7, 2018. The carrier remains defiant as it faces a blockade placed on Qatar by its Middle Eastern neighbors by announcing new flights to numerous destinations across Europe and Asia to be launched in 2018-2019.
Speaking at the recent International Travel Trade Show in Berlin which took place on March 7-11, 2018, Al Baker said he expects Qatar Airways will announce a large loss for its financial year, the magnitude of which has not been detailed yet, making it a huge step back for the airline which enjoyed continuing growth and a significant jump in net profit in fiscal year 2017.
However, Al Baker stressed that despite the losses the company will continue to follow its robust expansion strategy. “I have already said that the airline will post a loss this year due to the blockade, but this doesn’t mean that we are going to shrink,” the airline chief reassured. “We will keep on expanding and growing the company,” USA Today reported him as saying back in February 2018.
Drawn into the blame game
Several years ago, the state-owned Gulf airline was accused by three major U.S. carriers – Delta, United and American Airlines (A1G) (AAL) – of competing unfairly by accepting subsidies from the oil-rich state of Qatar. In fact, The Partnership for Open & Fair Skies, a coalition composed of the three U.S. airlines, among other aviation bodies, argued that not only Qatar, but also the two UAE-based carriers – Emirates and Etihad – have long received unfair subsidies from their own governments, USA Today reported.
The three U.S. aviation giants asked the government to reopen Open Skies negotiations with Qatar and the UAE, urging to halt flights from those countries until subsidies ended. Recently, on January 30, 2018, officials from the U.S. and Qatar reached an agreement ending the three-year dispute, by which Qatar Airways has agreed to issue its financial statements in the coming year, and, within two years, to publicly disclose any significant new transactions with other state-owned enterprises.
Thrown a new curve ball
Another dispute erupted in June 2017, when Saudi Arabia, the UAE, Bahrain and Egypt cut diplomatic ties with Qatar and announced a land, sea and airspace blockade, accusing the country of harboring, funding and backing Islamist terrorists.
This blockade subsequently forced Qatar Airways to fly longer routes instead of taking direct paths across the four nations. For instance, the carrier would frequently fly over neighboring Saudi airspace but now has to make its journey through Iran and Turkey.
Most importantly, these routes, avoiding the embargo airspace, require wide-body aircraft instead of narrow-body airliners in order to carry additional fuel. The result: lower load factors and higher operational costs, Flight Global explains, including increased maintenance costs and higher fuel consumption.
In addition, not only were Qatar Airways banned from the airspace of the blockade countries, forcing the carrier to re-route a number of flights, the ban also halted its flights to 18 cities across the region, Reuters writes. This led to losing revenues for some of the most popular routes – like Saudi Arabia and the UAE – in their network, and cutting capacity.
When asked in an interview with Reuters TV whether the airline would need to request for a cash infusion from its state owner in order to stay afloat as the blockade continues, Al Baker’s answer was: “Not for the foreseeable future, but if it continues long term our shareholders will have to put additional equity into the company.”
The prediction of major financial losses comes after the carrier had generally been on an upward trend. Qatar Airways reported a near 22 percent rise in net profit in its last financial year that ended in March 2017. According to its annual financial report, net profits rose to 1.97 billion Qatari riyals ($541 million) from 1.62 billion Qatari riyals ($445 million) in 2016 on revenue up 10.4 percent at 38.9 billion Qatari riyals ($10.7 billion).
Defiant and not defeated, yet
Just as in the case of allegations made by the U.S. carriers, Qatar’s flagship airline, or rather its CEO, has remained defiant. Al Baker responded to accusations of receiving billions in state subsidies with a promise to add dozens of new U.S. destinations, including Atlanta, the biggest hub for Delta Airlines (DAL) , The LA Times reported.
This time, in response to the blockade launched by the four Middle Eastern countries, the Qatar Airways chief announced that the airline plans to add 16 international destinations and expand service to eight other cities. “We are very determined to make sure that this illegal blockade is defeated in a very, very strong way,” Al-Baker was quoted as saying by Airline Geeks. Although the outspoken chief admits the ban has put financial strain on his carrier, he stresses that it will seek to continue expansion even under loss, looking to find new revenues.
While at the International Travel Trade Show in Berlin, Qatar Airways announced these new destinations: London Gatwick, United Kingdom; Cardiff, United Kingdom; Lisbon, Portugal; Tallinn, Estonia; Valletta, Malta; Cebu and Davao, Philippines; Langkawi, Malaysia; Da Nang, Vietnam; Bodrum, Antalya and Hatay, Turkey; Mykonos and Thessaloniki, Greece, and Málaga, Spain. With these new routes, the carrier will be flying to some destinations already served by airlines from the blockade countries, including Etihad and Emirates.
And as for the cuts the airline has had to make to its network following the blockade, in a press conference Al Baker commented: "These destinations are not the whole world. There are so many other nice places in the world. So, we have not lost anything. As a matter of fact, it is their loss to lose such an important airline, but at the same time, to lose what we always thought was a family member."
These destinations are not the whole world… we have not lost anything. It is their loss to lose such an important airline. pic.twitter.com/JiX68DjwI4— Qatar Airways (@qatarairways) March 7, 2018
At the Travel fair in Berlin, Al Baker also spoke about the blockade against his country: “During the blockade Qatar Airways continued its expansion; it continued its march ahead … Today, we are more independent than we were nine months ago. We are very defiant, and Qatar Airways will keep on expanding and keep on raising the flag for my country all over the globe.”
Al Baker promises his airline will grow not only by new destinations but will also grow frequencies. It was announced that services to Warsaw, Poland; Hanoi and Ho Chi Minh City, Vietnam; Prague, the Czech Republic; and Kyiv, Ukraine, will increase to a double daily frequency. Services to Madrid and Barcelona, Spain; and the Maldives will increase to triple daily.
The chief of the Qatari carrier has not commented on when the new routes would make up for the markets lost, saying only that it depends on how fast the airline “will be able to mature the new destinations” operated instead of those lost to the blockade, USA Today reported him saying.
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