Is Arab boycott causing turbulence for beleaguered Qatar Airways?

While maintaining its aggressive expansion policy, Qatar Airways is running into heavy turbulence. This is becoming more and more obvious with its CEO Akbar Al-Baker’s recent statement in Canberra that the airline will post a loss this year.

He directly attributed the impending loss to the land, sea and air boycott by the quartet of Gulf and Arab states since last June, when the diplomatic crisis erupted, with Doha accused of directly supporting terror groups in the region and the wider Middle East.

On the other hand, only a year ago the airline had a net profit growth of 22 per cent amounting to around $540 million, and rise in revenues by 10 per cent.

The main reasons for the looming loss, al-Baker said were the increased maintenance and fuel costs due to flying longer routes as a result of boycott by Saudi Arabia, UAE, Bahrain and Egypt.

At the same time, he said the airline will continue its planned expansion in terms of new destinations as well as aircraft acquisition.

He did not address the main issue of loss of passengers from the key markets of Saudi Arabia, UAE and even Bahrain – at the regional level as well as for their long-haul routes.

Qatar Airways’ chief executive Akbar al-Baker attends a function in the Australian capital Canberra on Feb. 13, 2018, marking the airline starting daily flights to the city. (AP)

Keith Lepor, an analyst based in Boston, Massachusetts, in comments to Al Arabiya English said: “Official statistics from the Government of Qatar are difficult to come by for January and February 2018. However, the evidence is quite apparent despite the lack of official statistics that Qatar Airlines is aggressively meeting its new reality and challenges.”

Lepor cited figures from ‘Capital Economics’ which reported that flights by Qatar Airways were down 20 per cent in November 2017 compared to a year earlier and tourism receipts since initiation of the boycott in June 2017 had plummeted by $600 million.

But despite these setbacks, according to Lepor, the national air carrier “has not only put on a strong face but has aggressively sought to build up alternative markets and routes.”

SEE ALSO: Qatar airways boss predicts losses, blames Arab boycott

He pointed out that last week Qatar Airways had “taken delivery of the world’s first Airbus A350-1000 which is the latest premier wide-body aircraft from Airbus and will commence service this month on the Doha-London route.”

Ultimately, how will the loss such key markets affect the airline and the hub status of Qatar International Airport ?

Saj Ahmad, Chief Analyst , London-based StrategicAero Research, in exclusive comments to Al Arabiya English, addressed this question: “There is no question that the loss of traffic from places like the UAE and Saudi - both very high markets - will have directly led to a negative financial impact on Qatar Airways. This may well even account for a sizeable part of the projected losses.

“While Doha Airport will still benefit from various oneworld partners flying to the hub, there is no escaping the fact that the loss of access to places like Dubai, Jeddah, Abu Dhabi and other cities will have created an unfillable regional void.”

Uncharted territory

Whether Qatar Airways can continue to maintain the policy of business as usual and how long the airline and the airport can sustain such losses is another moot point.

Saj Ahmad said: “That really depends on how long Qatar Airways’ owners are either prepared to put up with losses, or getting financial aid from other state-backed instruments. There’s just no telling when the boycott will end. Therefore, there’s no telling how long Qatar Airways will put up with the status quo. Frankly, no one expected the boycott to last as long as it has and this is now arguably unchartered territory in terms of its duration.”

There has been near-term and long-term reputational damage to the airline, and seems to be the reason that Al-Baker also said in Canbera that “he had no interest in using ‘fifth freedom’ rights to stop in other countries en route to the United States.”

In this Friday, June 16, 2017 photo, Qatar Airways planes are seen parked at the Hamad International Airport in Doha, Qatar. (AP)

“US airline whining is nothing new,” said Ahmad, “but if Qatar Airways does get state-backed aid, it will foment US airlines into claiming they were right all along. But US airlines have been flat out wrong when it comes to clarity, say, in the case of Emirates – whose financial performance is crystal clear.”

On the other hand, Ahmad said, “For Qatar Airways, it might be able to use the boycott to put a positive spin with marketing to prove that they can continue as normal – there’s no such thing as bad PR, as they say! That will help stave off some dilution or erosion of traffic on an international basis, but regionally – the airline has lost a swathe of ground by the boycott and has been locked out of markets that it took for granted – markets with high yield and frequencies – and no amount of growth beyond the GCC will replace that.”

“With regards to fifth freedom rights to the US– it’s not a priority right now. Removing the boycott most certainly is,” the Chief Analyst said

Last month, the United States and Qatar inked a deal to resolve years-old quarrel over alleged airline subsidies. What were the main guarantees that Qatar Airlines gave to maintain the peace over American skies?

“Given clarity on reporting seems to be the main gambit, however, this will likely not appease the critical US airlines – airlines that do not even serve the Gulf region, so quite how they are ‘harmed’ is actually laughable. But as this boycott continues, whatever assurances and agreements have been put in place by the US and Qatar, there will be those who will want to see evidence of Qatar funding Qatar Airways so that they can argue the case that the USA should cancel its open skies agreement.”

“While I don’t think a treaty cancellation is on the cards given the US presence at Al Udeid Air Base, Qatar Airways’ capability to conform to rules and regulations and trying to avoid anything dressed up as subsidies will be the most challenging aspect of this story so far,” said Ahmad.