Type: Process Essays
Sample donated: Kenny Swanson
Last updated: June 13, 2019
Doha is the capital of the State of Qatar, a small country on the northeastern cost of the Arabian Peninsula, sharing boarders with only Saudi Arabia.
With a population of a booming 2.6 million of which 2.3 million are expats, Doha is flourishing into a household multicultural commercial city knows for its diversely mixed community and endless business opportunities. Within a short span of thirty years Qatar has been able to excel in developing and prospering in all major industries.
From holding the first place in the highest per capita income globally, to developing a dynamic commercial business hub, to creating a world leading five-star airline and airport. With a GDP ?of a staggering ?$152 billion in 2016, Qatar’s wealth, is not only a result of having the world’s third-largest oil and natural gas reserve, but also from the intelligently formulated strategies of their Al Thani leaders in diversifying their sources of revenue. Home to the world-renowned Hamad International Airport, which is the primary hub to the Airline of the year for four years, Qatar Airways, this tiny country is a giant beast pioneering the aviation industry. The industry giant we know today as Qatar Airways started off in 1994 as a small-scale regional carrier with only a few routes. However, in 1997 under the command of Sheikh Hamad bin Khalifa Al Thani it was relaunched with a vision to turn the humble airlines into a globally recognized name.
Akbar Al Baker, the chief executive of Qatar Airways played a major role in leading the development of Qatar Airways as well as Hamad International Airport. He was able to elevate the level of service of the airlines to exceed the standards of global competitors, making it a shining role model of excellence admired and replicated by many up-and-coming airlines as well as leading legacy carriers. The state-owned flag carrier is headquartered in Doha.
It serves more than 150 destinations worldwide, with a fleet size of over 200 aircrafts, consisting of a mix of both narrow body and widebody Airbus and Boeing aircrafts, including 6 A380s and 30 Boeing 787 Dreamliners amongst others. Starting off with a staff of only 75 employees, Qatar airways now employees over 43,000 people. In 2015 alone, it carried over 30 million passengers. It is also a member of Oneworld, making it the first and only airlines in the gulf region to sign with an airline alliance. The airlines strategically grew at a moderate pace to reach the top, winning many awards and achieving a number of outstanding accomplishments along the way. Qatar Airways was named Airline of the Year for the years 2011, 2012, 2015 as well as 2017 by the legendary Skytrax World Airline Awards voted for by over 18 million travelers across the globe.
They have also achieved many other accolades such as the Best Airlines in the Middle east and the Best Business Class in the World. Page Break Aim of the study As we know, the aviation industry is one of the most dynamic and highly competitive industries in the world. The slightest setback can lead to the failure of an entire airline. During the summer of 2017, one of the most historical events took place in the gulf region, six countries cut off all diplomatic ties with Qatar, which included blocking off their land, sea and air spaces from Qatar. This turning point is known as the Qatar blockade.
This major political crisis had not only an outstanding effect on the State of Qatar, but also on its renowned national carrier. The aim of this research study is to examine the economic and social impacts of the Qatar blockade on the world-leading airlines, Qatar Airways. Research Questions Before beginning the research process, it is essential to set some research questions to get the most out of this study.
The question will be used as a guide to help extract the accurate information required to achieve the aim of the study. 1) What are the economic and social impacts of the blockade on Qatar Airways? 2) What is Qatar Airways doing to recover from the impacts of the Blockade? 3) What does the future look like for Qatar Airways? Page Break Significance of the Study This research study is going to first discuss the history of Qatar and its national luxury airline. Furthermore, it will focus on the events that took place with the announcement of the ban, and the economic and social impact it had on Qatar and more specifically on Qatar Airways. Moreover, it will go into further detail on what Qatar and its national carrier are doing to cope with the dilemma. Finally, it will analyze all the information gathered from the different methods of research used, to predict what the future might look like for Qatar’s star carrier. Page Break Chapter 2 Literature Review According to an article written by the Financial Times in August of 2017, The Saudi-led political blockade on Qatar irrupted after years of rising tension between the two nations.
The Quartett, which include Saudi Arabia, the UAE, Bahrain and Egypt rapidly intensified the isolation of Qatar keeping themselves little realistic option to exert more pressure on their nemesis neighbor. Saudi journalist, Mr Fayadh claims that the Qatar embargo is justified after nearly twenty years of the Qatari media’s attempts to sabotage Saudi Arabia and the gulf. (Financial Times, 2017) Furthermore, Qatari news channel Al Jazeera reported on their website, that while addressing the UN General Assembly on the 20th of September 2017, Qatar’s ruling prince Sheikh Tamim Al-Thani explained how the blockade by his nations neighboring countries was a “betrayal”. And that their attempts to pressure Qatar by blocking medicine and food from the Qatari people and to coerce them to change the nation’s political affiliation was in itself “one of the definitions of terrorism,” he said. (Sheikh Tamim, 2017) Qatar Airways CEO Akbar Al Baker maintained a brave face for a long period of time following the diplomatic dispute.
However, the damages caused by the ban were too severe to be able to deny any longer. In an interview with American news channel CNBC given in Singapore during the CAPA aviation conference, he admitted to this being one of the most difficult years for the Gulf’s fastest growing carrier. Al Akbar also called for the need of more international pressure to help put an end to the catastrophe that Qatar was unfairly facing. Also, in the report which was published on the CNBC website in November of 2017, he stated that Qatar were depending on the United States’ President Donald Trump to do something about it. Taking into account that the US and Qatar were allies and considering the major assets and benefits the States would stand to gain from Qatar, he excepted more of President Trump during their predicament. “President Trump is trying to do more, but I think he needs to do even more because he has given an undertaking to my ruler that he will solve the problem and he will solve it soon,” said Al Baker.
(Oriel Morrison-David Reid, 2017) Company Profile Sector: Consumer Discretionary Industry: Passenger Transportation Sub-Industry: Airlines IATA code: QR ICAO code: QTR Founded: 22-11-1993 Commenced operations: 20-1-1994 Hub: Hamad International Airport Alliance: Oneworld Destinations: Over 150 Frequent-flyer program: Qatar Airways Privilege Club (Qmiles) Parent company: Government of Qatar Slogan: Going Places Together Website: www.qatarairways.com Executive Board Members: H.E. Ali Shareef Al Emadi- Chairman H.E.
Sheikh Abdul Rahman bin Khalifa Al Thani- Vice Chairman H.E. Issa Mohamed Al Mohannadi- Member H.
E. Jasim Saif Al Sulaiti- Member H.E.
Akbar Al Baker- Member and GCEO of Qatar Airways H.E. Sheikha Hanoof bint Thani Al Thani- Member Qatar Airways Figures: Qatar Airways has announced the launch of 24 new destinations: Abidjan, Ivory Coast Accra, Ghana Canberra, Australia Cardiff, United Kingdom Chiang Mai, Thailand Chittagong, Bangladesh Douala, Cameroon Dublin, Republic of Ireland Kiev, Ukraine Las Vegas, United States Libreville, Gabon Lisbon, Portugal Medan, Indonesia Mombasa, Kenya Mykonos, Greece Nice, France Prague, Czech Republic Rio de Janeiro, Brazil San Francisco, United States Santiago, Chile Sarajevo, Bosnia and Herzegovina Skopje, Republic of Macedonia Utapao, Thailand Malaga, Spain Fleet size: Qatar Airways fleet comprises of both narrow and wide body aircrafts, which are a mixture of Boeing and Airbus. Below is the current fleet including commercial, cargo and executive aircrafts.
Aircraft type Number of Aircraft Airbus A3I9LR 2 Airbus A320 39 Airbus A32I-200 8 Airbus A330-200 13 Airbus A330-300 13 Airbus A340-600 4 Airbus A350-900 16 Airbus A380 7 Boeing 787 Dreamliner 30 Boeing 777-200LR 9 Boeing 7770300ER 34 Airbus A330F 8 Boeing 777F 12 Boeing 747F 1 TOTAL 196 Qatar Executive fleet operates a mix of luxury jet services available for charter to cater to the growing business travel community: Aircraft In service Orders Bombardier Challenger 605 3 0 Bombardier Global 5000 4 0 Bombardier Global Express XRS 1 0 Gulfstream G650ER 3 10 Gulfstream G500/G600 0 20 Total 11 30 Financial report: Financial highlights Fiscal 2017 Fiscal 2016 Revenue and other operating income QAR m 39,387 35,681 Operating profit QAR m 2,092 3,015 Operating margin % 5.3 8.5 Profit attributed to owner QAR m 1,972 1,621 Profit margin % 5.
0 4.5 EBITDAR QAR m 10,545 9,354 EBITDAR margin % 26.8 26.2 Total assets QAR m 99,722 93,760 Cash assets QAR m 19,744 22,785 Debt to equity ratio 0.33:1 0.34:1 Employees Employee number at fiscal end 43,113 39,369 Airline operating statistics Fiscal 2017 Fiscal 2016 Passengers carried Number ‘000 32,007 26,654 Cargo carried Tonnes 1,153,825 954,191 Available seat kilometers Million 185,208 151,980 Qatar Airways Group: 100% owned by Qatar Qatar blockade On the fifth of June of 2017 the Qatar blockade or as some may call it the gulf crisis took place.
Six countries including the United Arab Emirates, Saudi Arabia, Bahrain, Yemen, Egypt and the Maldives cut off all diplomatic and economic relations with Qatar. Which not only included trade but also travel bans with the country. The six countries inflicted a sea, land and air blockade with Qatar, alleging that the state funded terrorist groups and supported the United States in the War on Terror, which is a violation of the agreement previously set between the members of the Gulf Coorperation Council (GCC). The allegations of aiding terrorists imposed by the six countries continue to be strongly denied by Qatar. While attending the UN General Assembly Sheikh Tamim bin Hamad Al Thani, the ruling prince of Qatar said, “I stand before you while my country and my people are subjected to an ongoing and unjust blockade imposed since June 5 by neighboring countries,” he also added, “the countries who imposed the blockade on the state of Qatar interfere in the internal affairs of many countries, and accuse all those who oppose them domestically and abroad with terrorism.
By doing so, they are inflicting damage on the war on terror.” (UNGA, 2017) *Mention figure 1 with a title after each picture you add* Non-the less the countries accused of the embargo, continue to sever relations with Qatar. The Saudi government said that, “The Kingdom of Saudi Arabia declares that any dialogue or communication with the authority in Qatar shall be suspended until a clear statement explaining its position is made in public and that its public statements are in conformity with its obligations.” (Deutsche Welle, 2017) A list of thirteen demands including restraining relations with Iran among others were issued to Qatar, stating that if all of them were properly met the embargo would be terminated by all participating states.
However, the Qatari government has refused to meet any of these demands “denouncing them as attempts to infringe Qatar’s sovereignty.” (Qatar, 2017) Indicating a protentional breakthrough in the conflict, Qatar has stated that they are open to resolving the issue. There were a number of attempts to reach a mutual agreement all of which have been hopeless so far. Oman and Kuwait were the only two gulf countries that remained linked to Qatar, due to their neutral foreign policies. With the support of the Sultan of Oman, Qaboos bin Said Al-Said, Kuwait’s Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah played the role of peace maker to try and mediate the row and come to a mutual agreement between the rival states, aimed to strengthen relations and bring back peace and stability to the region. Impacts of Blockade on Qatar and Qatar Airways Economic impacts on Qatar: The gulf crisis resulted in many implications, both economic as well as social. The high cost of the blockade was not only received by Qatar, but also by its neighboring rivals, Saudi Arabia and the UAE predominantly due to both countries deep relations with Qatar.
Many major multinational Emirati and Saudi businesses, such as banks and law firms are based in both Doha and Dubai. As a result, over 1,080 Emirati companies operating in Qatar and over 4,200 Qatari companies in the UAE have taken a hard hit from the embargo. The value of Qatar’s trade flows in 2015 alone, amounted to over $7 billion with the UAE, $2 billion with Saudi Arabia and $500 million with Bahrain. In addition, Qatar sits on the largest natural gas reserve in the region. Despite the diplomatic dispute, Qatar does not plan to shut down the Dolphin gas pipeline which pumps two billion cubic feet of gas per day to the UAE. Qatar worries that cutting of the pipeline would cause a harmful impact on the well-being of the Emirati people and the UAE’S need for natural gas to survive and sustain. Qatar also imports 40% of its food, by the use of Saudi airspace and the UAE port of Jebel Ali, which as a result of the boycott is no longer possible. Resulting in an immediate pour of help and support through the shipment of large quantities of food, goods and other cargo to Qatar, from other allies such as Turkey, Oman and Iran.
Qatar started shipping cargo from Oman’s port of Sohar to Doha’s Hamad port to bypass the need to dock in the Gulf states that have severed ties with Qatar. The standoff caused the most damage to the banking, tourism, and trade sectors in Qatar. Within one month of the blockade Qatar’s imports dropped 40% in comparison to the previous year as well as a slump in the number of tourist visiting Qatar from other gulf countries, as shown in the graphs below: Social impacts on Qatar: In addition to the economic implications suffered by Qatar and its neighbors, damage was also done to social relations due to the deep ties shared by the gulf states. The blockade imposed on Qatar led not only to breaking up business, but also families. Saudi Arabia, the UAE and Bahrain forbid Qatari nationals from entering their borders and gave their own citizens 14 days to evacuate Qatar. With a staggering number of 6,474 families where one spouse is Qatari. Thousands of mixed-citizenship Qatari couples had to face the harsh reality of breaking up, which called for the intervention of the United Nations as it was violating human rights.
According to official statistics there are an estimated 20,000 Saudi citizens and 15,000 Bahrainis and Emiratis who live and work in Qatar that might be tragically affected by the blockade. Financial impacts on Qatar Airways: The overnight diplomatic crisis led to Qatar Airways losing over fifty flights per day, eighteen destinations and an estimated eighteen percent of the airlines total seating capacity. While the number of reservation also suffered a drop, Qatar Airways executives were not shaken by it and rather said that the dip was manageable. The ban prompted the cancelation of a few short haul flights, while numerous lucrative intercontinental destinations to Africa and Europe needed to be rerouted due to the airspace restrictions, raising fuel prices and making flight time longer and less competitive.
Doha’s national carrier even had to go as far as replacing several narrow-body routes with wide-body to be able to carry more fuel to fly the longer distance. Despite the giant gulf airline collecting a rather sizable cash injection of nearly $500 million in additional government subsidies in fiscal year 2017, they still suffered great losses that undoubtedly hurt their business. According to their annual report of fiscal year 2017, the industry giant suffered the operating loss of a staggering $703 million in FY2017, which is a huge decline than the previous fiscal year of 2016, where their operating loses reached an estimated $358 million. The Saudi-led embargo led to the airline losing approximately 20 percent of its revenue, 25 percent of its duty-free sales in its hub during the first week of the blockade and 11 per cent of its network giving it the fourth worst financial performance in the global airline industry for the year 2017.
Despite the heavy backlash Qatar Airways chief executive persists on staying defiant. He mentioned in an interview with CNN that, “losing access to its neighbors is simply an opportunity for Qatar Airways to serve the markets it didn’t have the bandwidth to cover in the past.” (Zhang, 2017) Aviation impacts on Qatar Airways: As previously mentioned, the blockade on Qatar by the boycotting gulf states also included blocking off their airspace from Qatar. All Qatari registered aircrafts flying to and from Qatar were banned from entering the airspace of the United Arab Emirates, Saudi Arabia, Egypt and Bahrain. Due to the ban, Qatar airways could also no longer fly over the participating countries to highly profitable destinations in the United states and Europe.
Therefore, the airline had to undergo major damage control and reroute most of their flights over Turkey and Iran. Resulting in an increase in fuel prices, longer flight times, and inefficient routing which we will further go into more detail. Not only that but the sudden ban led to hundreds of Qatar airways offices to be shut down, staff being thrown out without prior notice, passengers unable to get a refund and managers being detained. In addition, all Qatari media including the Qatar Airways website were blocked, as well as famous Qatari owned news channel Al-Jazeera and other popular football and cartoon channels.
The Dubai-Doha route is the busiest in the gulf, they share nearly twenty flights each day. However, on the morning of June 6th 2017, the Emirati government abruptly ended all flights between the two countries. The nightmare came as a shock as Qatar Airways scrambled to cancel all flights to and from Dubai, while the overnight ban left hundreds of chaotic travelers stranded at airports not knowing where to go, or what to do next. On Wednesday, the UAE confirmed that Qataris will no longer be allowed to enter or land at any airports in the country while expats residing in Qatar will no longer be eligible for visas upon arrival in the Emirates.
“The biggest falls came for Qatar’s routes to and from Saudi Arabia, where net bookings slumped from 10,000 to minus 110,300, and the UAE, from 4,700 to minus 36,000,” said a spokesman for Travelport, the global travel commerce platform specialist. (Travelport, 2017) On the other hand, the Bahraini government were nice enough to partially open up their airspace to Qatar. If not for this gracious act, Qatar airways would have had to terminate all operations due to the fact that the Bahraini airspace virtually surrounds most of Qatar. Qatari aircrafts were given permission to only use two routes. The first for arriving aircrafts, and the other for departing. Leading to an intensely congested air space, as the majority of flights to and from Qatar had only those two routed to pass through.
Figure 1 is an illustration of what that might look like. Figure 2 in an example of the detrimental aftermath of the blockade. It shows how the flight time from Doha to Khartoum nearly doubled after the blockade. While it previously took three and a half hours, and flew above Saudi Arabia. On June 6, day one of the embargo, the flight took 6 hours, as it steered clear of UAE and Saudi airspace, having to fly around the Arabian peninsula. How Qatar Airways is dealing with the crisis The Saudi-led embargo on Qatar resulted in a gigantic economic and social impact.
The political dispute disrupted trade, delayed projects and business deals in Qatar and the gulf, and caused devastation to many families and laborers. Temporarily, the expenses will fall all the more intensely, yet not solely, on the State of Qatar. Nevertheless, if the dispute continues, Qatar will rely on alternative channels, that might possibly reshape the political, economic and social scene in the region that might eventually hurt Qatar’s neighbors. Even though the blockade cost Qatar Airways to lose a large number of flights, of which include a big portion of their flights in the gulf as well as other lucrative international destinations. Al-Bakri continues to claim that the diplomatic quarrel does not hinder the global giant’s growth, and if anything pushes it to reach new horizons.
In a strategy to counteract this great deal of loss, the carrier doubled up on new global destinations such as Mykonos, Dublin and Prague. As the crisis caused the leading carrier to realize that they are unable to depend on their gulf partners, and instead must diversify their portfolio by expanding globally. Qatar’s national carrier increased the number of wide-body destinations that use Hamad International Airport as a transfer point. In addition to that they purchased stakes in both South America’s largest airlines Latam Airlines Group as well as British Airways owner IAG, after attempting to invest in American Airlines Group but being disregarded by the American giant. Another strategy that Qatar Airways took was to drastically drop ticket prices. Going into a price war with gulf rival Emirates, who has approximately double the traffic of Qatar Airways was a risky move. Nonetheless cutting fares in the gulfs highly competitive market could be the way to lure passengers their way.
Even if the blockade adds a bit to travel time on Qatar’s national carrier, “it’s amazing what cheap tickets can do,” says Andrew Charlton of Swiss consulting firm Aviation Advocacy. (Andrew Charlton, 2017) This past September Qatar Airways closed a deal to buy 49 percent of the Italian carrier, Meridiana. Furthermore, the gulf giant also bought ten percent stake from the Hong Kong carrier Cathay Pacific Airways Ltd worth $661 million, in which they aim to codeshare on more flights than just their Dubai and Hong Kong hubs, as well as seek opportunities for joint purchasing in ground handling, fuel and maintenance in hopes of profiting from the blooming Chinese market. In August, only two months after the boycott, Bahrain and the United Arab Emirates granted Qatar access to a new route in their airspace located above international waters which the Civil Aviation Authority in Qatar considered as a “great success”. In addition to that, International Civil Aviation Organization (ICAO) has been working with “various Middle Eastern states to ensure equitable access to airspace for Qatar-registered aircraft” since the ban took place said a ICAO spokesman Anthony Philbin. (ICAO, 2017)