Sep 26, 2018

Qatar Airways Short Of Aircraft

More aircraft orders and more international investments could be on the cards as Qatar Airways tries to put its toughest year behind it. But could further losses be on the way too?

Last month, Qatar Airways revealed a $69 million loss in the 12 months to the end of March 2018. That was a radical reversal from the $770 million profit it made during the previous year – a change the airline said was due to the travel and trade boycott imposed in June 2017 by four of its neighbors, led by the UAE and Saudi Arabia.

Speaking in Doha on September 8, the airline's chief executive Akbar Al Baker said the situation has stabilised this year, with growth resuming in terms of both passenger numbers and its route network. However, it remains to be seen if the group can translate such trends into profits.

When the boycott first struck, Qatar Airways found itself forced to abandon 18 regional routes, leaving it with more aircraft than it needed. It meant it was able to lend some of its aircraft and crew to British Airways (BA) to help the latter deal with strike action last summer and to cope with additional maintenance checks on BA's Boeing 787s earlier this year.

With 24 new routes added since June last year, that situation has now been reversed and Al Baker said the problem of having too many planes in its fleet is now a thing of the past. "We don't have any excess aircraft. As a matter of fact we are short of aircraft," he said, on the sidelines of the IPEC conference in the Qatari capital.

However, the airline continues to feel the pain of the boycott, not least in having to taking longer routes around the airspace of the boycotting countries which it is now barred from. The load factors on some routes to Africa and South America have been dropping as a result, because the airline is now forced to use bigger aircraft to carry the additional fuel needed on these longer journeys. "They are narrow-bodied markets and we are operating with wide-bodied aircraft to carry additional fuel to reach those destinations," he said.

Despite its difficulties, Qatar Airways is still eyeing up more potential investments. The airline has built up a 20% shareholding in BA's parent company, International Airline Group, along with stakes in a number of other airlines including Hong Kong-based Cathay Pacific, Air Italy and the LATAM Airlines Group of South America. Al Baker said more deals may follow. "If there is an opportunity, we will make investments," he said.

The airline does not appear to be discouraged by the troubles at nearby rival Etihad Airways, which until recently also had a strategy of taking minority stakes in other airline groups. It proved to be a disastrous policy for the Abu Dhabi-based carrier, which has been forced into a fundamental restructuring of its business model. However, Al Baker insists that his group's approach is different. "Their strategy failed," he said. "I don't need to take any lessons because actually I will teach them lessons."

And notwithstanding the fact that his airline needs all the planes in its fleet, Al Baker said he was prepared to lend some aircraft to the partner airlines if needed.

"If they require airplanes, we can always adjust our schedule to help them," he said. "We don't know what is the future in store for airlines in which we have stakes but if they require we will always be there to help them, though I want to stress I have no spare aircraft capacity at the moment."

Alongside the geopolitical problems in its neighborhood, the airline is also facing the challenge of high oil prices, something which may mean it introduces a fuel surcharge on its passengers. While higher fuel costs affect all airlines, Qatar Airways is arguably more exposed than many of its rivals, given the more circuitous routes its planes sometimes have to follow.

Whether the airline's current strategy will prove good enough to allow it to climb out of the red and back into profit this year remains to be seen. Having been very public about the likelihood of posting a loss last year, Al Baker is being far more circumspect about the commercial performance of his airline this year.

"I don't aim to make a loss but I don't know," he said. "This time I don't want to say I will make a loss. As an airline CEO I would always in normal circumstances want to make a profit."