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07
Jun

Qatar Airways Ambitions Threatened by Gulf Diplomatic Breakdown

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By Deena Kamel | Bloomberg

Over the past two decades, Qatar Airways has grown from a regional player into a world-straddling colossus, with flights to more than 150 destinations, some of the industry’s newest planes, and ambitious plans for overseas alliances. The diplomatic spat between Qatar and its Middle East neighbors threatens to scuttle those ambitions.

On Monday, Saudi Arabia, Bahrain, Egypt, and the United Arab Emirates suspended ties with Qatar, shutting down flights and maritime links to the country. That will force state-owned Qatar Air to ground more than 50 daily departures--or about 10 percent of its total--according to scheduling firm OAG.

The carrier operates a shuttle to Dubai 14 times daily, as well as frequent flights to Riyadh, Cairo, and more than a dozen other destinations in the countries imposing the blockade. If the ban continues, Qatar Air’s revenue could fall by 30 percent due to lost traffic and idled planes, the cost of diverting flights, a decline in premium bookings, and a possible slump in leisure demand, consultancy Frost & Sullivan estimates.

Plans to bar Qatari jets from entering airspace over the countries involved in the dispute--especially neighboring Saudi Arabia--could be even more problematic, inflating expenses by forcing significant diversions and putting the viability of some routes in jeopardy, according to Martin Consulting, an airline advisory firm in Dubai.

“Diverting around closed airspace means higher fuel costs and longer flight times,” said Mark Martin, the firm's chief. “Destinations in Africa and across the Indian Ocean may no longer be sustainable.”

The Saudi ban on flights was introduced Monday, with the airspace restrictions to take effect on Tuesday. Egypt and Bahrain have also said that Qatari carriers will be barred from overflights, though the U.A.E. has indicated that its airspace will remain open. Qatar Air declined to comment, beyond saying that it has suspended service to the four countries.

--QuickTake Q&A: Why Tiny Qatar Angers Saudi Arabia and Its Allies

Other regional airlines will also take a hit, though not as dramatically as Qatar. Dubai-based Emirates and FlyDubai, Etihad Airways PJSC of Abu Dhabi, and Air Arabia of Sharjah were set to cease flights to Doha on June 6. Saudi Arabian Airlines, Egyptair, and Bahrain-based Gulf Air will also halt services; all told, those carriers will cancel about two dozen daily departures, according to OAG.

Etihad and Emirates—which last year began deploying an Airbus SE A380 superjumbo for some Doha services—could see their revenue fall by as much as 15 percent if the ban continues, according to Frost & Sullivan. Qatar Air code-share partners such as British Airways and American Airlines could also be hurt by the measures, the consultancy says.

Earnings at Qatar Air, like other Gulf carriers, are already being squeezed as the low price of crude weighs on economic growth in the region and hurts demand for travel among oil-industry executives. And an American ban on people using laptops aboard U.S.-bound flights amid concern about potential terrorist attacks is also taking a toll on business-class demand.

More than 10 percent of all seats in and out of Qatar are on flights involving the four nations imposing the ban, said Diogenis Papiomytis, director of aerospace at Frost & Sullivan, with most passengers who use those links transferring to or from the long-haul services that make up the bulk of Qatar Air’s earnings. On routes between Qatar and the U.A.E., 80 percent of passengers have an origin or final destination beyond the two countries, according to Papiomytis, who said the measures represent a “major headache” for route planners at all carriers concerned.

“The network impact is huge; the financial impact depends on the length of closures,” he said.

The disruption is dealing a blow to the plans of Akbar Al Baker, Qatar Air’s chief executive officer, who has overseen construction of a gleaming new hub in Doha and has said he wants to strengthen ties to overseas carriers. Qatar Air owns 20 percent of British Airways parent IAG SA and 10 percent of South America’s biggest carrier, LatAm Airlines Group SA, deals that Al Baker says can help cut costs on purchases of planes and other supplies.

Qatar Air has expressed interest in Royal Air Maroc, it’s negotiating the purchase of a 49 percent stake in Italy’s Meridiana SpA, and Al Baker has said he aims to set up an airline in India with a fleet of 100 narrow-body planes. Before the blockade, the carrier had planned to add more than two dozen new routes this year and next.

“We see there is potential for us in many other regions and cities,” Al Baker told Bloomberg Television in April. “We have a lot of other opportunities, a lot of other new markets.

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