Qatar Airways Company Q.C.S.C.

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Qatar Airways Company Q.C.S.C.

RECAPITALIZATION AND RELAUNCH: 1997

ORIGINS

In 1993, a group of investors and corporate interests in Qatar came together to organize an airline to provide direct connections between the capital of Doha and other regional centers. At the time, connections to Europe or Asia were usually routed through Bahrain, an island to the north of the Qatar peninsula. In addition to convenience, there was the hope that better connections would help diversify the oil-dependent economy.

The airline’s start-up capital was a relatively paltry $7 million (QAR 25 million), all supplied by local, private interests. The largest shareholders were Qatar Insurance and Al Muftah, owning 10 percent each. Chosen to lead the new airline was Sheikh Hamad Bin Ali Bin Jabor Al Thani, a pilot credited with a number of intrepid aviation achievements.

Qatar Airways began flying on January 20, 1994, with an initial flight from Doha to Sharjah and Dubai. Within a few months, the route network included Abu Dhabi, Amman, Kuwait, and Cairo and even stretched outside the Middle East to London, England; Bombay, India; and Colombo, Sri Lanka. It was soon preparing to extend this reach even further through routes operated jointly with other carriers.

Entry into the Doha-Dubai route brought the company into direct competition with Emirates Airlines, which had become a global powerhouse since its launch in the mid-1980s. With its high standards of passenger service and low cost operations, Emirates was taking business from more established European and U.S. airlines on long-haul routes, helping to make Dubai a global hub in the process. It would eventually be a model, as well as rival, to the upstart from Qatar. However, Qatar Airways’ original aim was to provide convenient point-to-point routes rather than lavish amenities.

There was also the matter of Gulf Air, an airline formed in the early 1970s by a handful of regional governments, including Qatar, which held a 25 percent stake (it had not yet invested in Qatar Airways). The Qatari government withdrew from Gulf Air in 2002. This freed up traffic rights to a number of countries that had blocked additional carriers from Qatar on the basis of bilateral agreements.

Initial equipment was comprised of a couple of Airbus A310s; a Boeing 737 arrived in the summer. All were leased and previously owned. These planes carried 124,000 people during the carrier’s first full year in business. Robust long-haul traffic growth prompted the airline to acquire a couple of used Boeing 747 jumbo jets in 1995, while two Lockheed Tristars were purchased to charter and lease out. Hamad told Airline Business that secondhand aircraft were preferred for the start-up in order to greatly lower capital requirements and to reduce the risk of costly technical problems.

Qatar Airways broke even in its first year, when it carried 124,000 passengers. It also had a small but vital cargo business. By 1996, the airline was flying 448,000 passengers a year. However, lucrative business and first-class traffic was lacking.

RECAPITALIZATION AND RELAUNCH: 1997

After a couple of years as a budget carrier, in 1997 Qatar Airways was recapitalized and relaunched as a premium airline in order to attract lucrative business and first-class passengers. A new CEO, Akbar Al Baker, arrived from the country’s Civil Aviation Department. He promptly cut the number of routes by a third while upgrading levels of service to rival the opulent offerings of other airlines in the region. The carrier invested in lavish in-flight entertainment systems and lulled business class travelers with such amenities as lie-flat seating.

Qatar Airways began flying Airbus aircraft exclusively after its relaunch, though its four Boeing 727 continued to be used for a while after being refurbished. The big Boeing 747s were leased out and replaced with smaller A300s, allowing for more frequent flights to London. The upgraded interiors offered more room and better in-flight entertainment systems. Also improved was the quality of food onboard.

By 2001, Qatar Airways was carrying about 1.5 million passengers a year. Though still tiny by world standards, it billed itself as the world’s fastest-growing airline. The fleet numbered a dozen aircraft by the end of 2001, but with traffic increasing 35 percent a year, more capacity was needed for Qatar Airways to continue to grow.

Qatar Airways was affected by the downturn in the aviation industry that plagued airlines around the world following the September 11, 2001, terrorist attacks on the United States. However, it remained committed to expansion. Passenger count rose by one-half in 2002 to 2.5 million. Its route network included 38 destinations, including 11 in the Indian subcontinent. There were 21 Airbuses in the fleet. Qatar Airways ordered $5 billion of aircraft from Airbus in June 2003, an ambitious commitment to its long-term future.

In spite of difficulties such as the war in Iraq, the Persian Gulf continued to emerge as a hub for global crossings between Europe and Australasia. New entrants were tempted into the market, such as Abu Dhabi’s Etihad Airways.

Revenues were up to $1.5 billion by the year ended March 31, 2006. The company was operating at a loss, though its subsidiaries such as the duty-free stores were profitable. The carrier prepared to operate its own flights to North America after adding service to a handful of U.S. cities via a codeshare arrangement with Lufthansa in May 2006. Qatar Airways had four dozen planes by the end of 2006, plying the skies between 70 cities.

COMPANY PERSPECTIVES

Qatar Airways is the national carrier of the State of Qatar. Currently undergoing rapid expansion, Qatar Airways is one of the fastest growing airlines operating one of the youngest fleets in the world.

The airline had a year earlier announced its intentions to acquire 20 Boeing 777s for its long-haul fleet at a cost of $4.6 billion, but this was delayed, as was an even larger order for five dozen Airbus A350s worth $10 billion. Qatar Airways was an extremely important client for Airbus, being the launch customer for a version of the A350 as well as for the 550-seat A380 super jumbo, due for delivery in 2009. It planned to use a pair of the giant planes on the crowded Doha-London route. The airline also ordered 30 Boeing 787 Dreamliners in 2007, reported the Seattle Post-Intelligencer.

FACILITIES AND FUEL FOR THE FUTURE

Qatar was building a new airport as it vied with its neighbors for a leading share of transcontinental traffic. A $120 million, highly automated catering facility at the new airport was opening in 2007. The first phase was expected to open two years later at a cost of $2.5 billion; the rest would be completed by 2015.

Qatar Airways was planning to become the world’s first airline to use diesel fuel produced from natural gas. Qatar’s liquefied natural gas industry was booming, giving its residents some of the highest per-capita incomes in the world, and stimulating the economy. It was also helping propel the state’s own airline to new heights. The airline expected its fleet to number 110 aircraft by 2015.

Frederick C. Ingram

PRINCIPAL SUBSIDIARIES

Doha International Airport; Qatar Aircraft Catering Company; Qatar Airways Holidays; Qatar Aviation Services; Qatar Distribution Company; Qatar Duty Free; United Media International.

PRINCIPAL COMPETITORS

Emirates Group; Etihad Airways P.J.S.C.; Gulf Air Company GSC.

KEY DATES

1994:: Qatar Airways begins operations as a budget carrier.
1997:: Airline is relaunched with four aircraft.
2002:: Government of Qatar withdraws from Gulf Air; fast-growing Qatar Air has 21 planes.
2005:: Fast-growing airline orders billions of dollars worth of new aircraft.

———, “Rising Star: Dubai, Bahrain and Abu Dhabi Beware. A New Retail Force Is Emerging in Qatar, Where Airport Investment Is Fuelling Rapid Sales Growth. But Will Qatar Duty Free Match the Achievements of Its Illustrious Neighbours?” Travel Retailer International, August/September 2004, pp. 17–18.

Trevidic, Bruno, “Qatar Airways deviant le premier gros client de l’Airbus A350,” Les Echos, June 14, 2005, p. 25.

Turney, Roger, “Converting Qatar; Little Qatar Airways Is Pushing onto the World Stage and Cargo Service Is Part of the Strategy,” Air Cargo World, July 2003, pp. 16–17.

Vandyk, Anthony, “Airlines Exploding Quietly; Little-Known Qatar Airways Is Growing, Though Virtually a One-Man Operation,” Air Transport World, Vol. 33, No. 5, p. 83.

Velocci, Anthony L., Jr., “Qatar Takes on Rivals with Low Fares, New Routes,” Aviation Week & Space Technology, August 22, 1994, pp. 34+.

Wallace, James, “Qatar Airways Is Mystery Customer; Dreamliner Order Made by Key Airbus Client,” Seattle Post-Intelligencer, April 26, 2007, p. E1.

Whitaker, Richard, “Second to None? Qatar Airways Ahead of Forecasts After Second Launch,” Airline Business, November 1997, pp. 44+.

Whyte, Al, “Finding Five Billion,” Trade Finance, October 2003, pp. SS23.