MASTER AND COMMANDER
Akbar Al Baker’s single-minded vision has powered Qatar Airways into a leading global network carrier. And rivals be warned, the long-serving chief executive is getting ready to take the airline to the next level
Few people had heard of Qatar Airways, or Akbar Al Baker, when he was appointed chief executive in 1997 and tasked with creating a world-class airline for the small Gulf emirate. Fifteen years on as the airline achieves a century in both its route and fleet count, the canny boss is looking to take Qatar Airways to the next phase of its evolution as it prepares for the opening of its $15 billion new Doha hub, moves nearer to a stock market flotation and examines opportunities to broaden international partnerships.
But Al Baker, who has a reputation for his forthright opinions and an autocratic and ruthless approach to business, confesses that many people, including his close rivals, did not treat him seriously at first. “My statements were being taken by the industry peers with a pinch of salt. In particular, both Emirates and Gulf Air used to think that I was a joker when I mentioned my plans – even though I was very modest when I said that we would have only 35 aircraft and 35 destinations and that people should not get very worried about Qatar Airways.
“Things are very different now. We have become a major global carrier in a short span of just over 10 years, and we are going to be even stronger and most certainly will be in the league of airlines that are very profitable.”
None of Al Baker’s adversaries are laughing now. He masterminded the then three-year-old airline’s relaunch in 1997. Like local rival, Dubai-based Emirates, Qatar Airways quickly overtook the region’s long-time star carrier Gulf Air and is now firmly established as the number two airline in the region, having carried in excess of 16 million passengers in its 2010-11 fiscal year, which ended on 31 March.
But as Bahrain-based Gulf Air’s star has dimmed, in its place has come a new rival in the form of Abu Dhabi-based Etihad Airways, which is set on developing its own global network hub down the road from Emirates. Al Baker relishes the challenge.
“As far as I am concerned Etihad is just another entity with which I have to compete, and for me competition is healthy,” he says.
“The issue is: who will be able to be the dominant airlines in the Middle East? As I have often said, there will only be two dominant carriers but it should not be perceived that Etihad or Gulf Air will be out of the game. In Europe there are many airlines, but there are only three that dominate – BA, Air France and Lufthansa. In the Middle East there will be only two, and that will be Emirates and Qatar Airways.
“The reason I say that these two will be dominant is that in my case I am the sole beneficiary of traffic rights, and in the UAE the major benefactor is Emirates, which was established 20 years before Etihad.”
Al Baker is confident that, while he will not be able to catch Emirates from a traffic perspective, he will get on terms financially. “At a certain time in the current decade our revenue figures and our fleet numbers will be similar, although our ASKs will be lower as we have shorter routes and smaller aircraft.” he says.
Like the UAE network carriers, “country building” is a principal driver for the airline, which is 50% state-owned. Qatar, which occupies an area of just over 11,400km2 (4,400 miles2) and has a population of 1.7 million, put itself firmly on the world map earlier this year when it won the bid to host the FIFA football World Cup finals in 2022. The airline’s development has been central to Qatari ruler Emir Sheikh Hamad Bin Khalifa Al Thani’s vision of sustainable growth for a country with a plentiful and sustainable flow of cash from its vast natural gas deposits.
Aggressive growth has been a key element of Al Baker’s strategy, driven by the introduction of new-generation narrowbody and widebody airliners from Airbus and Boeing featuring the latest in cabin amenities. Al Baker calculates that the compound annual growth rate of the airline’s revenues at the EBITDA operating result level has averaged 47% since 1997.
The fleet, which numbered just a dozen aircraft in 2001, will be at over 100 units by the time 2011 ends. And this level of expansion is set to continue in the near term, says Al Baker. “We will continue the aggressive growth until 2013 – that’s over 25% and the addition of 10-12 destinations annually. By then we’ll be operating almost 130 aircraft and an equivalent number of destinations, and we will level out to grow at the normal levels of a full-service carrier. So from 2013 we’ll maybe add two or three destinations a year and grow at around 10% annually.”
The airline has firm orders for around 170 airliners and is expected to sign further deals at June’s Paris air show. So despite the slowdown in growth from 2013 “we’ll continue to receive a new aeroplane on average every 15-16 days. But that will mostly be a fleet roll-over programme,” says Al Baker.
Some A320s and A330s will start to be retired from 2012, “depending on how the deliveries of our new aircraft go”, he adds.
Al Baker is likely referring to the much-delayed introduction of his Boeing 787s, which were originally due to be delivered from mid-2010 but should now begin to arrive just under a year from now. The Dreamliners will progressively replace A330-200s, signalling the beginning of the fleet roll-over Al Baker refers to. The A330 fleet is earmarked for freighter conversion – subject to Airbus agreeing a modification deal – and these aircraft will be used both by Qatar Airways’ cargo arm and for lease to third parties.
The year after the Dreamliners arrive, Qatar Airways should receive two new Airbus widebody types – the first of five A380s and 80 A350 XWBs. However, with the airline being launch customer for the latter, Al Baker believes that it is unlikely that the planned service entry in the second half of 2013 will remain on schedule.
While the airline has never been slow in coming forward about its fleet growth, sourcing reliable financial data has often proved hard. But this reticence, which has helped kindle suspicions of government support, diminishes during the Airline Business interview, with Al Baker keen to divulge some revenue and profit numbers.
“In 2009-10 [to 31 March] the group recorded a profit of $205 million, and the airline made half of that,” he says, adding that this was the carrier’s healthiest profit to date.
Al Baker projects that group revenue in the last fiscal year (2010-2011) would reach $5.7 billion, of which the airline would earn $5.05 billion. He expects revenue will rise by at least 25% in the next fiscal year.
“In 2010-11 the airline will be profitable, but it will not be that strong because the performance during last three months has been affected by the regional issues and the rising oil price,” he says. “As a group we’ll still make more than the $205 million we made in 2009-10, but unlike the previous year the airline may account for less than half of that.”
From a group perspective, Al Baker says, the airline has been “in and out” of profit. “For example in 2008-09 we were in loss, but in the two years prior to that we were in profit. “ During those two profitable years as a group, the airline business was at break-even. “And as an airline we had two profitable years prior to that. Al Baker says that the drop into the red in 2008-9 was caused by the downturn and soaring fuel prices, and he expects similar difficulties this year.
The group’s long-talked-about flotation is conditional on three continuous years of profit at the airline. “That means it could happen as early as 2013,” says Al Baker. This sustained profitability caveat has been set so Al Baker can ensure that investors will have confidence that the airline is “on an uphill track as far as profitability is concerned”.
He rules out any strategic deal to sell a stake in the airline ahead of the IPO, and says if another carrier or group wants a slice of Qatar Airways then that will be the time to do it.
The airline was rumoured to be on the famous “list” of potential partners drawn up by Willie Walsh, now chief executive of British Airways/Iberia parent, the oneworld-alliance-aligned International Airlines Group. Al Baker denies that any talks have been held about a tie-up, but says he would welcome Walsh on the Qatar Airways board. “At the same time, it will be open to them if they want to buy shares in Qatar Airways when we go to our IPO. They can buy as many shares as they want of the percentage that will be floated – we have to keep in mind the sovereignty issue that the airline must remain majority-owned by Qatari entities.”
Qatar Airways is not a member of any of the global alliances and Al Baker says he is aware that one of the alliances is currently “looking at us in a very favourable way”. However, the airline “is not in a hurry” to join an alliance at the moment because the codeshares with alliance partner airlines are viewed as sufficient, he adds. Al Baker says that the carrier is often approached by airlines about partnerships or deeper relationships – most recently Olympic – but he is wary of jumping straight into a tie-up if there is no obvious benefit to Qatar Airways. “I have seen airline executives that wanted to grow their business and grab all the opportunities that they get without considering that there could be, in this investment, a downturn during the process of trying to turn around the organisation, and this will then drain the resources they have from a successful operation they are running.
“I am very conservative. We would be interested to buy a going concern that is profitable and doesn’t need our management time. But I’m not interested in an airline that is in financial trouble and needs restructuring. This would mean I use my management resources to rescue somebody else and lose focus on my own business. My priority as a CEO is Qatar Airways, not somebody else.”
The airline would be interested in a strategic tie-up with a strong partner “like Lufthansa or British Airways” and would also consider “an airline that has big potential and a solid management structure, but needs a strong partner like us to take an equity share”, says Al Baker. Ruling out any potential deal for Virgin Atlantic, which is seeking some form of strategic tie-up, he reveals that the airline is in talks with “somebody who meets our conditions”.
From an operational perspective, next year will mark the start of the biggest upheaval in the airline’s history as it prepares to transition to Doha’s all-new international airport that is close to being completed on reclaimed land a few kilometres from the existing base.
“The new airport is earmarked to be handed over and fully operational by the end of 2012,” says Al Baker, although one senses that there may be some doubt about this schedule. The transition will be phased over six months to allow testing of systems and facilities.
Despite its imminent replacement by this new hub (which will have an initial capacity of 24 million passengers), the airline’s relentless expansion means that development of the current airport, which is bursting at the seams, will continue.
The Qatar Airways network now extends into every continent, and the most recent addition, South America, was connected last year with direct flights to Buenos Aires and São Paulo. Expansion this year sees eight new routes joining the network. Its 100th route, Aleppo in Syria, launched on 6 April.
“Our strategic focus is to serve key business and leisure cities around the world, as well as underserved markets with new flights and increased capacity,” says Al Baker.
However, he has little interest in tackling the low-cost threat in the region, despite previous indications that he might. “We are ready to react, but we do not feel that we should because there is a possibility it will dilute the Qatar Airways full-service product.”
Although he views the low-cost carriers as “an irritant”, he thinks that their business model is at odds with structure of the intra-Gulf network, which lacks secondary airports with large captive populations, and deregulated skies.
But despite all the threats and challenges that he must repeatedly overcome, Al Baker says he remains dedicated to his cause: “I am extremely proud to serve my country, and as long as my head of state wants me to be in this job and that I am delivering the right value to my country, I will be here.”