We’ve heard airlines around the world talk about how they need state aid to survive, though here’s an interesting twist on that…
In this post:
Qatar Airways needs state aid to survive
Qatar Airways’ CEO, Akbar Al Baker, has revealed to Reuters that Qatar Airways will be seeking government support, as the airline is running out of the cash needed to continue flying.
He revealed that the airline only has enough cash to continue operations for a “very short period,” and said that “we will surely go to our government eventually” for help.
Qatar Airways is taking a different approach in this crisis than other airlines. While Emirates, Etihad, and Oman Air have grounded their entire fleets, Qatar Airways has increased flights to get people home.
Qatar Airways has increased frequencies in some markets
Al Baker insists that the airline isn’t taking advantage of the current situation, but rather claims that “this is a time to serve people who want to be with their loved ones.”
In an interview a couple of days ago, Al Baker said that the airline is seeing load factors around 60%, and is seeing up to an 80% decline in revenue. Also, what the heck went wrong with this interview, between the constant “beep” noise on the phone, and the host seemingly not knowing what to ask?
There’s one small wrinkle…
There’s nothing unusual about an airline asking for state aid at this point, as we’ve seen airlines around the globe do this. There’s only one small wrinkle with Qatar Airways — they’re government owned.
The airline has constantly claimed that they don’t have any government subsidies, but rather that the government simply has equity in the airline.
To me that raises the question of how this is any different, actually? For example, the last financial year, Qatar Airways recorded a loss of $639 million. Presumably this involved the government pumping more money into the airline, though at that point it wasn’t viewed as “state aid,” or even discussed for that matter.
Qatar Airways has long argued they aren’t subsidized
COVID-19: the great subsidy equalizer
The US airlines have of course spent the past several years arguing against government subsidized airlines, and that rhetoric has come to a screeching halt with this situation.
As Al Baker describes the situation:
“People now should forget about the question of state aid. The people that were bragging about not taking state aid and about being independent and our now themselves all over the world asking for state aid. Aviation is an important part in every country’s economy.”
Fair point!
Just to be clear about my stance on this — I’ve never fundamentally had an issue with the US airlines taking aim at subsidies. What I’ve taken issue with is how conveniently and selectively they applied these standards so that it suits them.
For example, let’s look at Italy. Delta was totally fine with basket case Alitalia, which Etihad had a 49% ownership stake in back in the day, and which the Italian government has given endless subsidies to. The two airlines even had a transatlantic joint venture, and were splitting revenue (meaning Delta was profiting off the subsidies).
Meanwhile Air Italy, which Qatar Airways had a 49% ownership stake in, was pure evil, as far as Delta was concerned.
US airlines took big issue with Air Italy, but not Alitalia
Bottom line
At this point a countless number of airlines around the world need subsidies to survive. Of course it’s not surprising that this also applies to the Gulf carriers.
While inconsequential, there’s something I do find interesting about Qatar Airways changing the narrative from “state equity” to “state aid” at this point.
Up until this point all money from the Qatari government has been viewed as “equity” (even if they already had a 100% ownership stake), while now Al Baker seems comfortable calling it aid.
Yes, this even applies when the airline lost over $600 million last year due to “illegal” (as Al Baker called it) blockades from other countries.
Anyone else find the semantics of this Qatar Airways situation to be interesting?
I'm waiting for a $2600 refund MIA-DOH-DEL-DOH-MIA...
@Bob
Thanks for the clarification. I agree with all what you wrote in your last comment. Just one small point. The US3 even if private are US companies. While the ME3 belong to three different governments. Qatar is a nation but Dubai and Abu Dhabi are two different states with a different account. Abu Dhabi being the largest sovereign fund in the world definitely won't have problems. But Emirates is a 13 billion USD turnover...
@Bob
Thanks for the clarification. I agree with all what you wrote in your last comment. Just one small point. The US3 even if private are US companies. While the ME3 belong to three different governments. Qatar is a nation but Dubai and Abu Dhabi are two different states with a different account. Abu Dhabi being the largest sovereign fund in the world definitely won't have problems. But Emirates is a 13 billion USD turnover company. Bailing EK out wouldn't be a joke for Dubai. For this reason I think Emirates somehow will bail out itself and I believe its governance is a manual lecture that should be taken as an example by most airlines.
@StuartP
I’m Italian and don’t mind flying with Alitalia. Yet Skytrax gave Alitalia 3 stars. Is that wrong? I love the 777 business class of AA and yet it has overall 3 stars. Is that wrong? Have you ever flown with QA? I think they deserve 5*. None of my reviews was ever filtered or denied, both positive and negative ones. Do I agree with all that it’s written there? Hell no. But to say that it’s a joke is a bit of hyperbole.
@Nicola.......anyone who still believes in the validity of the Skytrak "stars" and rankings needs a reality check. Their annual "star" awards to airlines is a joke. Any knowledgeable airline employee will tell you that Skytrak has become a mickey mouse outfit.
@Ray "I’m about half-convinced they’re only doing this to “rub salt in the wounds of Delta”, in that Delta can’t really accuse them of misbehaving considering their own need for a bailout. Al-Baker isn’t above that level of pettiness"
Al-Baker's statement was meant for no other reason than to send a message to regulators and rug salt in Delta & co...
Nicola,
I think you missed my point. the US3 have claimed for years that due to state aid/state ownership/whatever, that the ME 3 have had the advantage of an uneven playing field. I don't completely agree with that, but I do partially agree. Their respective governments/owners can subsidize whatever losses they incur. The privately owned US3 could not. Now, airlines like Qatar are asking for money. So are the US3. In other words, they're...
Nicola,
I think you missed my point. the US3 have claimed for years that due to state aid/state ownership/whatever, that the ME 3 have had the advantage of an uneven playing field. I don't completely agree with that, but I do partially agree. Their respective governments/owners can subsidize whatever losses they incur. The privately owned US3 could not. Now, airlines like Qatar are asking for money. So are the US3. In other words, they're all hypocritical.
I did put the following quote in my post above: "Both groups, the US3 and the ME3 are functionally identical in terms of asking for state bailout monies. Those that haven’t asked, will. For all of them, pot? Kettle calling…" In other words, both groups of airlines are essentially acting identically whenever they request some form of state aid, and both are to be condemned.
Personally, I do think that there's a bright spot from the current Covid-19 disaster: the Inivisible Hand will play a huge role. Leaner, meaner, more flexible airlines like Southwest and Spirit in the USA will likely survive in some meaningful form due to their business models, or perhaps a startup like Moxie/Breeze will slide into prominence without needing a great deal of handout money. That's good for them, and will be good for consumer, as well.
I just got off flight from London to Auckland one way first class Lon to doha business to Auckland.
The late was mwehhhh and they ran out of vintage krug in first.
How rude!
@Bob
1. The ME3 are state owned airlines and not private. The difference is substantial.
2. Etihad has made losses during most of its lifetime. If it was subsidized probably it wouldn’t have made as much losses as it did. The emirate (Abu Dhabi) poured money to cover the losses as any shareholder would be required to do.
3. It’s the first time that QA asks for a bailout as far as I’m concerned and...
@Bob
1. The ME3 are state owned airlines and not private. The difference is substantial.
2. Etihad has made losses during most of its lifetime. If it was subsidized probably it wouldn’t have made as much losses as it did. The emirate (Abu Dhabi) poured money to cover the losses as any shareholder would be required to do.
3. It’s the first time that QA asks for a bailout as far as I’m concerned and it also pays the price of a Gulf blockage since 2017. This might have been the further hit.
4. Emirates has never got subsidies (I live in Dubai and a good number of friends of mine work for the airline). Emirates has paid off a good amount of dividends to its owner: Dubai. And yet is it’s not asking any bailout (Dubai doesn’t have the funds of Qatar or Abu Dhabi). So stereotyping for the ME3 in the same way isn’t right.
And yes their service is quite good. Have a look at Skytrax, which I believe isn’t a ME/Gulf based business.
Qatar Airways is state owned therefore they can revive state money, which I have no problem. Questions about unfair completion is different.
Honestly, Qatar is heavily reliant on Boeing, Delta, I cant say so anymore.
This is so funny. For years, the ME3 denied that they needed state aid, that they were simply better airlines than the US3 and that the US3 should stop complaining. Now, look at them? In exactly the same boat. Both groups, the US3 and the ME3 are functionally identical in terms of asking for state bailout monies. Those that haven't asked, will. For all of them, pot? Kettle calling...
Al Qaeda will bail them out.
Al Baker is right that virtually all airlines around the world are requesting state aid but at least in the US the "grants" portion goes toward labor costs - airlines' largest expense. The "loans" portion will be a backstop of last resort. Compare that to the US CARES bills' boosting of unemployment insurance, loan to grants for small business, and other "in effect UBI" initiatives.
Qatar (the nation) still has the problem of concurrent shocks...
Al Baker is right that virtually all airlines around the world are requesting state aid but at least in the US the "grants" portion goes toward labor costs - airlines' largest expense. The "loans" portion will be a backstop of last resort. Compare that to the US CARES bills' boosting of unemployment insurance, loan to grants for small business, and other "in effect UBI" initiatives.
Qatar (the nation) still has the problem of concurrent shocks and will have to pay out of its sovereign war chest not only for QR's needs but also its state budgetary items. Does anyone know if QR's labor is paid in riyals, or in foreign currency?
Economically speaking, the most important thing that must come out of all this is that resiliency is equally valued as efficiency.
U.S. Airlines: It's unfair for Middle Eastern airlines to accept government subsidies.
Also U.S. Airlines: When can we have our bailout money?
@Jon
Go to your bathroom and take a look in the mirror. You'll see who's gonna pay for all this bailouts. (•‿•)
Ben, right now would be a great time to roundup all the defunct airlines you’ve flown and reviewed.
I heard that the world needs 7 trillion to go back to normal after the pandemic. I wonder who's going to pay the bills.?
He denied the Reuters report in an AlJazeera interview just now. Didn’t exclude that it might be necessary at one point, like with any other airline currently.
I think cash is the last issue QA airways will have, being owned by the world’s largest gas reserves in the planet. Good for them.
I’m about half-convinced they’re only doing this to “rub salt in the wounds of Delta”, in that Delta can’t really accuse them of misbehaving considering their own need for a bailout. Al-Baker isn’t above that level of pettiness
Qatar asking for a handout was to be expected considering how stupid their strategy has been lately.