- 01 January, 1996
- SOURCE: Flight Airline Business
Now two years old, Qatar Airways has survived the pain of its launch period. But the carrier still has to transform Doha from a regional outpost into a global hub able to compete with Dubai and Bahrain. Report by Sara Guild. One expects to find a sheikh up front, but possibly not in the pilot seat. But then Qatar Airways' chief executive officer, Sheikh Hamad Bin Ali Bin Jabor Al Thani, believes in hands-on leadership. 'The whole objective behind the CEO flying [the aircraft] is that when you are in your office, everyone tries to make you happy. When the CEO flies, he can see the people, he meets them, he hears their suggestions. It gives him insight that things are going in the right direction,' says Hamad. By all accounts, things are going in the right direction for Qatar Airways. The carrier broke even in each of its first two years of operation, will be operating 30 international routes in its third year, and is planning an initial stock offering in early 1996 which could boost its capital 16-fold, providing for continued network growth and fleet expansion. But all has not been golden from the start. Qatar Airways originally wanted to establish a network of partners in the Gulf region but lack of cooperation from neighbouring country carriers forced it to go it alone. 'They feel we are coming to take their market and maybe it is true. But I think they are very short sighted because if we cooperated we could complement each other,' says Hamad. The reluctance of the others to cooperate or give the venture any form of support has sparked Hamad's competitive spirit. 'They thought they would weaken the carrier, and that made me determined instead of having this success over four years to make it over two,' he says, smiling. Qatar Airways also had to obtain the right to be recognised as the Qatari national airline in the country's bilateral agreements. But with 100 per cent ownership by Qatari nationals, as opposed to the Qatar government's 25 per cent stake in Gulf Air, Hamad says this was quite straight forward. So far the go it alone strategy appears to have paid off. Financially, the carrier shows no signs of straining to achieve its plan of rapid expansion. In 1994 the carrier made Riyal58,000 ($16,000) - which Hamad refers to as break even. He estimates 1995 will show a similar break even figure and 1996 will begin to show profits. On the revenue side, combined total turnover in 1994 and 1995 to mid-November was Riyal260 million ($71 million), which Hamad expects to double in 1996. Route expansion is in full swing: from 16 routes in its first year of operation in 1994, the airline had grown to 22 by December 1995, and will be operating 30 routes in 1996. Passenger traffic almost doubled from 124,000 in 1994 to more than 200,000 in 1995. Strategically, the carrier's aim is to establish Doha airport as an international hub in its own right, instead of just feeding regional traffic into the hubs of other Middle East carriers such as Gulf Air and Emirates. However the actual site of Doha airport is small and the terminal needs to be expanded, though Hamad says the Qatari government now has definite plans to develop the airport and is confident it can handle further expansion in 1996. He acknowledges, however, that the facilities could be stretched post-1996. As the Qatari economy grew, the government realised its 25 per cent stake in Gulf Air was not providing the direct, nonstop services that were needed, says Hamad. 'Now the government has seen evidence that other carriers are not working for Qatar. They are trying to create international points in the Gulf and we feel we are left out as an international destination,' he adds. Qatar began heading for a free market economy four years ago, and the recent accord which will develop the transport of liquid natural gas from the country's gas-rich north field to Israel and Jordan is certain to boost the government's policies further. Indeed, foreign investment in the project has been allowed for the first time with two Japanese companies taking financial stakes. Hamad says he foresaw this growth of Qatar's economy and with it the need for an airline to serve the growing community. 'We are an airline for society so we are catering for the business traveller, the tourist traveller and the VFR type of business. These new companies need a carrier to accommodate their needs and carry their cargo, their staff and those who want to do business with them,' says Hamad. Cargo is growing strongly and will account for 7-10 per cent of the carrier's 1995 revenues. In December the carrier will operate its first Far East flights once a week to Manila, Bangkok and Dhaka. Geneva and Frankfurt will be added to its European network, which includes Istanbul, Athens and London, in early 1996. The airline currently serves Middle East destinations such as Dubai, Abu Dhabi, Kuwait, Oman, Beirut and Damascus, as well as Khartoum and Cairo in Africa and Karachi, Bombay, Madras, Colombo and Kathmandu on the Indian subcontinent. Hamad says traffic feed from east to west and vice versa should grow stronger with the new Far East routes. These will also draw on the strong labour market which moves from Asia to the Middle East. The airline has already tapped into the labour market through its routes to India and Pakistan, and Hamad says these are the airline's strongest routes along with the European destinations. The highest yields are from Europe and Qatar Airways varies its two-class cabin service according to the routes being flown. On Europe and Middle East routes the front cabin is first class, while to the Far East and India it is business class. This, says Hamad, reflects the demands and requirements of the passengers. The carrier does not fly to the US 'yet' but has had 'initial discussions' with Continental Airlines about a possible alliance, says Hamad. He adds that there have been problems with other Middle East carriers 'discouraging other [carriers] from cooperating with us'. But as Qatar Airways continues to grow, more carriers are showing interest in alliances and agreements, he adds. 'We are trying to give passengers the most convenient and economical option with Qatar Airways. We need alliances for the rest of the Far East and the US.' One of the keys to Qatar Airways' success as a startup airline is the use of second-hand aircraft. Qatar currently has three Boeing 727-200As and two 747-100Bs, and a 747SP will be delivered in early 1996. 'We have taken a different approach. We go for used aircraft which have 10 to 20 years to go. There are plenty of good used aircraft which can do the job and, as a small airline, you cannot afford to take a new aircraft and then run into technical problems,' says Hamad. The carrier is however weighing up the options for a new medium-range jet to fit between the 727 and 747, although Hamad says several manufacturers are in the picture and second-hand aircraft remain an option. So far the capital outlay required and low utilisation levels have turned Hamad away from the glamour and fuel savings of new aircraft. 'Unfortunately people measure economy with fuel costs, but it is impossible to offset the capital costs for a new aircraft,' says Hamad. 'Also new aircraft are not good for a startup airline. We cannot build high utilisation, we require more aircraft to make a bigger hub and make us successful. New aircraft will not make us successful.' Qatar Airways' B727 utilisation is low, even for the secondhand market, at approximately 2,000 hours per year. This compares to a maximum utilisation of the 727-200 of about 3,000 hours by carriers such as Delta, Continental and Ansett. The capital for continued route and fleet expansion, whether the aircraft be new or used, should come from a planned initial public offering on the Qatar stock exchange in the first quarter of 1996. However at presstime Hamad was awaiting government approval to change from a private to a public shareholding company, and Deloitte Touche Tohmatsu was still conducting a strategic evaluation of the carrier. The carrier is currently 20 per cent owned by two companies - 10 per cent by Qatar Insurance company and 10 per cent by Al Muftah - with the remaining 80 per cent held by private individuals, of which Hamad is one. The individuals hold between 10 and 12 per cent each of a total capitalisation of Riyal 125 million($6.8 million). Hamad says more than 60 per cent of the carrier's stock will be offered through the IPO, from which the carrier hopes to raise Riyal400-500 million ($109-137 million). A group of financial institutions has been approached to underwrite the offering. The drive for growth does not stop with the carrier's own network, as Qatar is also establishing a charter and leasing division. At presstime the carrier had signed a letter of intent to purchase three L.1011s from American Express Bank. 'There is a big potential within the Gulf area. We will fly the charter on behalf of other airlines, whether they are local airlines to supplement their summer traffic, or whether they are international airlines,' Hamad says. He estimates up to 35 per cent of the carrier's forecast revenue, or about Riyal 182 million, could be derived in this way. And the carrier does not want to stop with the leasing division. Hamad says Qatar is looking to boost its leisure traffic by promoting the country as a 24-48 hour stopover destination. The carrier is investigating the possibility of investing in a hotel venture along with local financiers, to compensate for Doha's lack of hotel infrastructure. Qatar still has to prove itself against its neighbouring competitors, but so far it has withstood the growing pains of rapid expansion. With its chief executive literally in the driving seat, Qatar Airways should be able to take advantage of early warning signs of danger.