‘National carrier’s losses may reach $247 million

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The impact of the rift between Qatar and the Saudi-led Gulf Cooperation Council over ties with Iran dominated IATA’s 73rd Annual General Meeting in Cancun, Mexico, on June 5.

Akbar Al Baker, CEO of Qatar Airways, left the conference moments after news of Qatar Airways being banned from landing in Saudi Arabia, Bahrain, Egypt and the UAE broke.

Meanwhile, UAE airlines, including Etihad Airways, Emirates airline, Flydubai and Air Arabia suspended their operations with Qatar at 2.30am local time on June 5.

Among Qatar Airways operations set to be shut is a shuttle to Dubai that operates 14 times a day. More than 75 daily flights are likely to be grounded, of which 52 are operated by Qatar Airways, according to data from scheduling firm OAG.

Diogenis Papiomytis, Director of Aerospace and Defence Practice at Frost & Sullivan, tells GulfRetail: “The Qatari crisis is an important development and a major headache for QR’s [and EK/EY] network planning department. More than ten per cent of all seats flying to/from Qatar are assigned to the four countries [UAE, KSA, Bahrain, Egypt].” (Editor’s note: QR, EK and EY are flight codes for Qatar Airways, Emirates Airlines and Etihad Airways, respectively.)

He adds: “By our calculations, eight out of ten passengers flying between Qatar and UAE are people whose origin or final destination is beyond those two countries. So the combined network impact is huge.”

In addition, foreign airlines may also have to seek permission for overflights to Qatar, according to a statement from the state-run Saudi Press Agency.

Qatar Airways: the biggest loser

Qatar Airways was expecting record profits by June 2017, according to CEO Al Baker’s comments at Arabian Travel Market exhibition in April. “It will be the highest profit Qatar Airways has ever made,” he said. The carrier posted a strong financial performance in 2016, registering an operating profit of $823 million (QR3bn), the best ever for the Doha-based airline.

But the crisis is set to destroy all hopes for an increase in profits this year – and not just for Qatar Airways.

Papiomytis notes: “What the impact will mean financially depends on the length of the crisis. We believe QR could see a negative impact of up to 30 per cent on revenues for the second half of 2017 and EK / EY possibly around ten to 15 per cent.”

“That’s a conservative estimate if the issue is not resolved in the next six months,” he adds. “It is based on the closure of routes to the four Middle East countries, the negative impact on QR’s medium and long-haul network, the expected decline in leisure and business traffic in/out of Qatar, the drop in aircraft utilisation and the airspace ban, with the corresponding impact on fuel costs and timetables.”

If 30 per cent of the carrier’s revenue is affected as a result of yesterday’s diplomatic breakdown, as predicted by analysts at Frost & Sullivan, it would mean a staggering loss of $247m as compared to last year.

Papiomytis explains: “On profitability, the impact will be even more detrimental, as routes to the four Middle East countries would have supplied an even bigger portion of QR’s premium traffic. The closure of routes to/from UAE, KSA, Bahrain and Egypt will also have an impact on all other destinations, with significant amount of traffic transiting through Qatar.”

Plans to bar Qatari jets from entering airspace over the countries could also be tricky, inflating expenses by forcing major diversions and putting the feasibility of some routes at risk.

Air traffic to ME airports will shrink

Qatar Airways flies to 50 destinations in the Middle East region. With Saudi Arabia blocked to its west, the country’s airspace is effectively surrounded by Bahrain’s airspace, with a small window to its south through which it can fly to the UAE.

If the UAE and Bahrain rescind their open skies commitments, Qatar Airways would be effectively locked out of being able to fly out of Doha.

And that will affect traffic to the region’s airports. Flydubai and Qatar Airways boosted passenger traffic at Dubai World Central (DWC) by nearly 80 per cent in 2016, according to Dubai Airports.

Papiomytis outlines a grim scenario: “With the airspace ban, all carriers will have to re-adjust their flight paths and that certainly will have financial implications, assuming the current network’s flight paths are the most economically possible.”

“All flights to Europe, North America and Africa will be impacted and timetables need to be adjusted. The question is whether we are talking about a new business environment or a short-term inconvenience,” he notes.

What it means for GCC travellers

Most affected airlines have stated they will offer a full refund and free alternate rebooking. But it is not clear if the refund will be in cash or in credit against other ticket purchases with the same airline.

It is also not yet clear if it is possible for GCC residents to reroute their travel to Qatar via airlines from other countries not involved in the ban.

Here are the updates for citizens of each country:

Nationals

1. Qatari citizens will be denied entry and transit through the territories of the UAE, Saudi Arabia, Bahrain and Egypt. Further, all Qatari citizens currently staying in the UAE have been instructed to depart within the next 14 days.

2. UAE and Bahraini authorities have announced bans for their citizens from travelling, transiting or residing in Qatar.

3. Saudi Arabia, Egypt and Yemen have not yet applied similar restrictions on their citizens.

Expatriates

1. It is not clear whether holders of the residency visas from Qatar will face restrictions for obtaining visit visas to the UAE, Saudi Arabia, Bahrain and Egypt.

2. It is also unclear whether there will be any impact on foreign residents of the UAE, Saudi Arabia and Bahrain seeking entry to Qatar based on the visitor visa for GCC residents.

While the internationally recognised government of Yemen has cut its ties with Qatar, the relationship between Kuwait, Oman and Qatar remain unchanged at the time of writing.

Source: Press Release

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