Qatar Airways is pressing ahead with ambitious plans to expand its route network and fleet, but realising this will require new investment
$40bn: Value of Qatar Airways’ orderbook for 170 new planes
120: Number of planes Qatar Airways plans to operate by 2013
Sources: Qatar Airways; MEED
The Qatar Airways growth story is far from over. With two years of profitability under its belt, the airline has ambitious plans to increase both its fleet size and the number of passengers it carries.
Just a few minutes’ drive from the existing Doha International airport is the Qatar Airways headquarters. On the ninth floor of the building sits Akbar al-Baker, chief executive officer of the carrier, and the man orchestrating not only the airline’s expansion, but also the growth of Qatar’s aviation industry.
We hope that within the next two years, we will [launch an] IPO. Qatar Airways is already a profitable airline
Akbar al-Baker, Qatar Airways
So far this year, Qatar Airways has launched services to three new European destinations: Bucharest, Budapest and Brussels. The carrier plans to unveil five more routes in 2011. It begins flights to Stuttgart on 6 March and Aleppo on 6 April. The Syrian city will be the 100th destination serviced by Qatar Airways since it was founded in 1994.
Qatar Airways fleet expansion
Qatar Airways is also pressing head with expanding its existing fleet of 94 aircraft. The carrier has 170 planes on order at a value of about $40bn. It aims to operate 120 aircraft by 2013. Al-Baker says he expects to receive an average of one new aircraft a month. In addition to launching new destinations, the carrier is increasing frequencies on eight existing routes as part of its expansion plans.
|Qatar Airways current fleet|
|Boeing 777F cargo freighters||2|
|Airbus A300-600 cargo freighters||3|
|Airbus long-range A319LR||2|
|Bombardier Challenger 605||2|
|Bombardier Challenger 300||1|
|Bombardier Global 5000||1|
|Source: Qatar Airways|
In the 2009/10 financial year, Qatar Airways carried more than 14 million passengers and expects to carry about 16 million passengers in 2011/12. This compares with about 3.4 million in 2003/04.
Realising these plans will require substantial investment and the management is once again talking of launching an initial public offering (IPO). Tentative plans are being made for a stock market flotation in 2012 or 2013.
|Qatar Airways fleet on order|
|Bombardier Global 5000||1|
|Source: Qatar Airways|
“We hope that within the next two years, we will [launch an] IPO,” says Al-Baker. “Qatar Airways is already a profitable airline and we will continue this. Our profit is estimated to grow on average 25 per cent year-on-year. We have already performed very well in the past two years and we estimate that our profit will keep growing at the same rate of the capacity we are introducing. This figure is very conservative. We always perform much better than what we have predicted.”
Al-Baker has previously said the airline would only go ahead with a share sale following three consecutive years of profit.
IPO benefits for Qatar Airways
Industry analysts say an IPO can only be positive for the airline. In addition to providing money to fund its rapid expansion, public ownership will bring greater transparency and accountability, with stricter accounting requirements.
“This would be good from an airline perspective as it results in cash mobilisation,” says John Siddharth, aerospace and defence analyst for South Asia and the Middle East at US-based consultancy Frost & Sullivan. “After the airline is listed, the company would need to furnish its accounts, which would give a clear understanding of operational profitability.”
An IPO gives them a financial shot in the arm at very little cost and risk if the share price … grabs investors
Saj Ahmad, FBE Aerospace
“An IPO gives them a financial shot in the arm at very little cost and risk if the share price at flotation grabs investors,” says Saj Ahmad, analyst at UK-based consultancy FBE Aerospace. “That capital can be reinvested immediately, either in equipment, infrastructure or even expanding quicker, through the purchase of new aircraft to assist their growth strategy.”
Qatar Airways could also benefit from first-mover advantage. As the first of the national airlines in the GCC to go for a share sale, it would expect to see huge interest in its stock.
“An IPO will help Qatar Airways immensely, not only would it gain publicity on a much more international scale, but it would also mean that it’s the first of the big three Arab carriers to undertake such a move,” says Ahmad.
In a further sign of the airline’s ambition, Al-Baker is not ruling out the possibility of establishing a low-cost carrier to compete with the UAE’s Flydubai and Air Arabia.
“If the low-cost entrants into my market will take my market share, [then] that is the time I launch a low-cost carrier,” says Al-Baker. “Up until now, they are not making any dent. If I have to launch, I have to launch now, not at [the time of the 2022 World Cup]. It will be too late by then.”
World cup boost for Qatar
Qatar’s success in winning the right to host football’s 2022 World Cup represents a huge opportunity for the airline. Some 500,000 fans are expected to travel to Doha for the event.
“The 2022 World Cup will also provide the airline with a short-term capital boost,” says Ahmad. “They’ll be pulling in traffic from practically every corner of the earth and with their final destination in Doha that means they can drive up revenues on a wider basis.”
|Number of passengers carried, 2010|
|*=2009/10 financial year. Source: MEED|
“As far as the World Cup is concerned, this will make a big impact not only for Qatar Airways, but also in my country and for the economy,” says Al-Baker. “It is too early for me to predict how to quantify this benefit.”
Underpinning the airline’s growth and a key aspect of Qatar’s World Cup bid is the development of a new central airport. The existing Doha International airport is already the second largest hub in the Middle East in terms of passenger numbers, with some 10 million air travellers using it each year. The $14bn New Doha International airport will significantly increase the volumes of traffic Doha, and therefore Qatar Airways, can handle. The airport will have a capacity for 50 million passengers a year, when it is completed in 2015. The first phase is expected to open in 2012 and will be able to handle some 24 million passengers a year.
The new airport has been designed to accommodate the wide-bodied Airbus A380, the world’s largest passenger aircraft, for which regional rival Dubai-based Emirates airline was the first to place an order. Qatar Airways has five A380s on order.
Taking on airline rivals
Qatar Airways is also taking on its competitors in other ways. The landing rights dispute between the UAE and Canada has thwarted Emirates’ and Abu Dhabi-based Etihad Airways’ plans to increase the frequency of flights to Toronto. Qatar Airways, on the other hand, has successfully signed an agreement with Ottawa that will allow the airline to fly three passenger flights and three cargo flights a week.
“We don’t like politics to come into our negotiations for traffic rights,” says Al-Baker. “We like to do it in a very subtle way and we also like to do it in a way that satisfies our immediate requirements.”
With plans to expand its fleet and route network and launch an IPO, Qatar Airways has a challenging few years ahead. But under the steady guidance of Al-Akbar, the airline has already established itself as a regional leader. Since 1999, when the Skytrax airline ratings system was launched, Qatar Airways has achieved a 5-star rating every year. It is something only seven airlines have managed worldwide and, something Emirates and Etihad have yet to achieve.
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