Qatar Airways Reports Record $639 Million Loss

Filed Under: Qatar

Qatar Airways has today published their annual report for 2018-2019, and the results are rough.

You have to read quite a bit into the report to see just how bad things were. The title of the press release announcing the results simply says that the report “highlights strong growth in overall revenue.”

Then the first sentence notes that the results are “highlighting the airline group’s success and underlying robust financial health in the face of the continued illegal airspace blockade against the State of Qatar.” Personally that’s not my takeaway from these results…

Qatar Airway Reports 639 Million USD Loss

Qatar Airways has today reported a net loss for the past year of about 639 million USD. Last year the airline lost about 69 million USD, and they labeled that as the most challenging year in their history. This year’s results represent a nearly tenfold increase in the company’s losses.

I’d note that while these results are audited and technically accurate, this probably doesn’t quite equal a “free market” loss of the same amount at another airline. For example, Hamad International Airport is also owned by the government, so the airline pays much lower fees than other airlines would pay at their hub airports.

Why Did Qatar Airways Lose So Much Money?

There are a lot of important numbers beyond just the loss, so let’s take a look at some other key figures:

  • Passenger revenue increased by 14.3%, while capacity (measured by available seat kilometers) grew by 13.5%; increased revenue outpacing increased capacity sounds like good news
  • Cargo revenue increased by 16.8%, while capacity (measured by available ton kilometers) grew by 11.8%; again, increased revenue is significantly outpacing increased capacity here
  • The airline added 11 destinations to their route network and 25 aircraft to their fleet

Qatar Airways blames these results on the loss of mature routes, higher fuel costs, foreign exchange fluctuations, and of course the ongoing blockade with their neighbors.

There’s no denying that the Gulf blockade has a huge impact on their business:

  • The airline is having to fly longer routes to avoid certain airspace, which increases their fuel bill and reduces their aircraft utilization
  • The airline has had to cut routes to several countries, including Saudi Arabia and the UAE, which used to be their two single biggest foreign markets

But there’s no end in sight for this blockade, so at this point this just seems to be an ongoing reality for them.

Qatar Airways’ prolific CEO, Akbar Al Baker, had the following to say:

“2018-19 was a year of achievement in the face of adversity for Qatar Airways. Despite facing challenges that are unparalleled in the airline industry, I am very proud that we have grown our fleet, expanded our network and seen overall revenue increase to QAR 48 billion (USD 13.2 billion), a rise of 14%. Passenger numbers are up, capacity as measured by available seat kilometres has risen and our Cargo business is now the largest in the world.

2018-19 was nonetheless a challenging year and while it is disappointing that Group has registered a net loss of QAR 2.3 billion (USD 639 million) – attributable to the loss of mature routes, higher fuel costs and foreign exchange fluctuations – the underlying fundamentals of our business remain extremely robust.

Our success is due to an unwavering belief in our strategy to give our passengers the very best, backed by the perseverance and hard work of our staff. I look forward to 2019-2020 with optimism and confidence that our growth will continue and we will serve even more countries around the world.”

My goodness, His Excellency has quite a take on the state of his airline (in fairness, he can also do no wrong):

  • “Despite facing challenges that are unparalleled in the airline industry” — really? Worse than 9/11 was for US airlines?
  • “The underlying fundamentals of our business remain extremely robust” — and those fundamentals would be that if you have bottomless pockets you can keep growing capacity and revenue, or…?
  • “Our success” — come again?

Bottom Line

Look, I’m a huge fan of Qatar Airways’ innovation and onboard product. I also think the US airlines unfairly single out Gulf carriers in their attacks.

However, I’m not really sure I get Qatar Airways’ strategy at this point. They plan to continue growing, though it sure seems like the more they grow, the more they lose.

Which of the fundamental challenges they face do they think is going to improve in the next year? Do they think the blockade will end? Do they think there will be less currency fluctuation? Do they think fuel costs are going down?

So yeah, to me those results are alarming. Of course the reality in the Middle East is that everything is fine as long as the government is willing to fund them. But we also saw how that strategy worked for Etihad Airways, when Abu Dhabi had enough…

What do you make of Qatar Airways’ results?

Comments
  1. I guess pumping all that money into a failing airline (Air Italy) to bypass 5th freedom is paying off for them.

  2. I won’t be surprised if the Qatar government starts paying more attention to return on their myriad investments after the 2022 World Cup…

  3. So the ‘worlds best airline’ with the ‘worlds best business class’ is making a huge loss and we wonder why other airlines aren’t like them…

  4. Also not mentioned is that they own QDC which holds the only license in the country for importing and selling pork and alcohol In the country. In January, the government doubles the price of alcohol resulting in a massive reduction in sales.

  5. Air Italy is most definitely a money pit, so there’s that. Then there’s the Cathay Pacific problem, but we don’t know how damaging that is yet. What was the whole point of Air Italy anyway? Added US capacity by way of Milan?

  6. Just looked at the financials, their fuel costs are up 5bn QAR which is 1.3bn USD. Their revenue for both pax and cargo is in fact up. I think the loss is clearly attributable to the blockade. Their landing and ground handling and crew layover costs are 6.5bn QAR which is around 1.7bn USD and up 20% year on year.

    DL had quarterly revenue of 12.5bn USD (so 50bn annual) and landing fees and other rents account for 1.6bn (annualised). So much MUCH lower as a percentage of revenue (and relative to fleet size as DL’s fleet is muuuch bigger)

  7. When Qatar Airways was started more than 20 years ago, the goal was less about having a standalone profitable airline (despite what may have been said publicly) and more about having an initiative that was net profitable to the State of Qatar. While these numbers are not public, you can be quite certain that, by this measure, Qatar Airways has been a spectacular success. When looked at as a whole, one must consider the value of: construction and real estate income provided by employees of Qatar Airways, petroleum product purchases by QR, Qatari bank loans for purchase/leasing of aircraft, increase in tourism revenue due to QR, public relations value from QR halo effect, and many other things. The value of the handful of things I just mentioned dramatically exceeds $639M in 2019. Such are the benefits of being a state-owned airline of a country largely ruled by one family.

  8. @Chris Exactly, Qatar Airways basically has single-handedly has put the state of Qatar on the world map. Without this airline online people involved in the Oil&Gas industry would know about Qatar.

  9. Abit off topic…

    It’s been reported that Etihad has parked its already 5 ‘delivered’ A350-1000 in Bordeaux France. Etihad is planning to introduce them to their fleet at a later point. The first was already ‘delivered’ and parked in June.

    I think Etihad is probably going to sell or lease these planes. I don’t see them joining their fleet anytime soon.

  10. @chris wonderful insights. Thanks for sharing! I wonder what the break-even point is (how much more loss at QR can be tolerated) before QR starts curtailing routes, product offerings etc.

  11. Ben, to be fair maybe His Excellency did not refer to historically unparalleled adversity but perhaps relevant to the reporting period. I trust the US airlines would have been happy if 9/11 impact would have been only some 600 mil. USD. And honestly losing two biggest markets due to politics could have bankrupted a number of airlines. A large organisation like QR’s result can be significantly impacted also by the other external influences like oil price and exchange rates development even if it was to take measures to address them, due to delayed effect. I do hope their finances recover as we all should in order to keep the routes and frequencies coming, as well as the investment into product and their regular sale fares in premium cabin.

  12. I have to imagine QR’s strategy will expire in 2022. It’s important to them that their strategy stays until the World Cup, but all bets are off what happens after that.

  13. @Gio – no idea, but I suspect the airline would have to lose at least a couple of billion dollars annually before anyone would get truly concerned. Think about just the 48,000 Qatar airways employees (the vast majority of whom are in Qatar). For those people alone, what they spend on housing, transport, schooling, and dining and entertainment each vastly exceeds this year’s annual airline loss. And most of that spend flows back to the Qatari government, due to government ownership of so many related entities. So it really is money out of one pocket and into another. If your left pocket next year has another $100 than this year, but your right pocket has $60 less, you still have $40 more.

  14. @Chris is exactly on the money. Qater Airways is what Emirates and Etihad are, vehicles for bringing tourists into the country and created revenue/profit elsewhere, not just in the airline. Granted not nearly as many people want to go to Qatar as want to go to Dubai, but without this airline almost no one would have any reason to go to Qatar.

  15. They are also experiencing a drop in EU government business trips being booked due to some unease surrounding their alignment with questionable organisations in Qatar, certainly UK civil servants are being booked with other airlines which is a great shame.

  16. @Jake – In full agreement with you.

    But as others have mentioned QR is not a company whose purpose is to make a sustainable profit. They’re sole purpose is to function as an investment tool for the State of Qatar, and to that end the venture has been very profitable. The airline itself will likely never make a sustainable profit, but then again that’s not its purpose.

  17. The US probably could end this ridiculous blockade by banging once their fist on the table, and they may very well do so soon. The blockade’s only net effect so far, has it already been 2 or 3 years?, has been to push Qatar into Iran’s hands as Iran has now not only become Qatar’s air access and circulation guarantor, it has also tremendously increased the trade between both countries.

    If and when the US and Saudi Arabia decide to increase their grip on Iran, Qatar (where the US has a major base) will quickly be axphyxiated UNLESS the US imposes free circulation for Qatar to, from and over Saudi Arabia and the Emirates. Unless the US, Saudi Arabia, the Emirates mend their relationship with Iran, unlikely, the blockade will vanish.

    The only problem is that this scenario has been expected for a long time and it has not happened. What am I missing?

    Maybe this will not happen all in one shot but free circulation and overflight rights should be re-established quickly. To limit their dependency on circuitous routes, Qatar Airways has already restarted flying over Syria. I’d much rather see them fly over Saudi Arabia (and Israel, since Egypt has also blocked its airspace) than over a place full of crazy Russian surface to air missiles maanaged by nobody-knows-who, like in the case of MH 17.

  18. Sad to see a great airline suffer like this. I’m based in Khartoum and Qatar Airways discontinued it’s service to Khartoum after flying around the blocked airspace for a long time which doubled flying time to Doha.

  19. May 27 2018, in the shadow of darkness, without warning, in the most under-handed and despicable act of corporate fraud against it’s most loyal customers, the bloody bastards ripped the crap out of their frequent flyer program by reducing availability, doubling points required for redemptions, increasing surcharges on award tickets by ten-fold, closing down the call centre, barring access to their Lounges in DOH for frequent fliers on award tickets in premium and making award availability on One World partner airlines almost impossible to take up, and even if you can, the price is normally 3 to 4 times what it was before May 27. And then had the audacity, the hide, the cheek to try and pass it off as improvements, enhancements. So put that one down Big Sheikh Al. And one year later, $639M loss. Time for you and your arrogance to go Al. You’re fired.

  20. Qatar has many obscure and downright bizzare destinations operating out of their Doha hub. I would have expected some of those to get the chop eventually, but no, they just keep adding new ones!
    Loadings in and out of Australian airspace are going gangbusters, and a Bus. award seat is as scarce as Qantas these days. Maybe some extra capacity there is viable.
    @Sam~ the mothballed new EK A350-1000’s will never be used by QR in and way, as they wouldn’t be seen dead flying an aircraft in (brand new) Emirates livery! haha

  21. Qatar have some of the best cabin crew teams in the world but with senseless policies and the ridiculous meglomaniac Ali Al-Baker in charge then there’s undoubtably, even with constant Qatar government cash infusion, going to be a disaster. Who could imagine it – perhaps Saudia will soar or even Bahrain’s Gulf Air might reclaim the Arabian skies?

  22. The one industry the Middle East tried to dominate and control global economics was oil. The resolve of the challengers squashed that. So they moved from oil – using the quad-zillions they pilfered from the rest of us – to try to create their new global dominance in air travel. Well….how’s that working?!?

  23. @Lilly Ming, ‘perhaps Saudia will soar or even Bahrain’s Gulf Air might reclaim the Arabian skies?’ You just gave me a morning laugh. Lol

  24. Qatar, Etihad and Emirates are all on a very tired losing streak. Gulf Air is obviously a ridiculous suggestion competitor for supremy of the skies. China Southern has a very good chance and also China Eastern and Tianjin Airlines.

  25. In almost 2 yrs of unprecedent blockade this is the only significant loss. Qatar has grown strong and self reliant. Qatar has started a lot of factories to produce things which it used to import from its neighbors. Qatar Airways too will learn to adopt the look east policy … Fly smaller planes to higher population areas. (Today they fly only double-isle bigplanes) fly more to Iran, China, Indonesia, Malaysia, Bangladesh, Srilanka, Philippines and India than to US, UK and to the blockaded countries.

  26. Qatar Airways is a highly overrated airline. Qsuites being nothing but a staggered seat with a door, First class being non-existent on 99% of the network, bad wines and deteriorated catering. No chauffeur service like Emirates

    I dare someone to challenge me.

  27. I don’t have access to the financials. What happened to their load factor? It’s all nice and good to have more planes and routes but if they aren’t filling seats that doesn’t help. Top line is nice but bottom line is important.

    If the statement about fees paid by Qatar at Hamad Intl Airport is correct doesn’t this show the US carriers’ complaint about subsidies to Qatar Airways is at least partially correct?

  28. I wanted to book a flight from Singapore to Jordan ..last month .
    The rates were above 1000 USD .while the rival UEA airlines a bit cheaper ..but what it surprised me that .to fly from KL in Malaysia are Cheaper ..So my point is Qatar have to open up for tourism ..which they are not ..at at Least not to a level can be competitive with other countries ..slow down on the percentage of profits and go for mass air ticketing market ..from business perspective..time now to make the prices cheaper with expand wide destinations..
    Alternatively reduce the big size airplanes to middle size and fill it all the time ..

  29. “a net loss of QAR 2.3 billion (USD 639 million) – attributable to the loss of mature routes, higher fuel costs and foreign exchange fluctuations –”
    I am not buying the “higher fuel costs” as Qatar has tons of oil.

  30. He should have said unique problems instead of unparalleled. Maybe unparalleled in Qatar, where a total of one airline is based and they are that airline.

  31. @Ksa63 +1. Fuel costs are higher than labor costs in a region known for subsidized fuel. Digging deeper, labor costs appear to be spread out over multiple accounting “buckets,” helping to obfuscate fees and charges by DOH for usage. Also what I found surprising is that the airline earns a relatively large proportion of revenue from non-transport services (duty-free, concessions, etc.).

    I’m not saying the US3 are 100% spot on, but there’s definitely merit to their argument that the airline is operated as an extension of government policy, rather than at arms length – an argument that has merit especially in an age of wealth inequality.

  32. @Pierre

    The Qatari government chose this loss, neighbors actions are results of Qatar mistakes by supporting terrorism and extremist groups and spends billions only to ensure harm to its neighbors,

    All countries in the region have very bad experiences with wars, the only beneficiary of wars are the manufacturers of weapons 🙂
    There are many different ways to reply in this new world.

  33. @Caroline the airline buys a significant amount of fuel at outstations for return journeys – so whatever they pay QP for jet fuel, roughly half the fuel bill is paid for at market rates and therefore varies as the price of fuel does.

  34. For me the service on QR has deteriorated immensly
    So many cuts in food and beverages. No more smoothies on board. No more sit down menus in the business class lounge
    Being forced to fly backwards which Lucky loves (and I detest). On and on
    And the food on the business class extension flights such as EZE GRU positively stinks
    Counsels more then 8 years old. What a shame.

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