Qatar airline gets new deal to continue cargo service

Qatar Airways will receive another round of subsidies that could total hundreds of thousands of dollars to provide twice- weekly cargo flights between Pittsburgh International Airport and Doha under a new one- year deal.

But the maximum incentive — $ 780,000 — is only about half of the $ 1.48 million in payments made to the airline last year after its twiceweekly flights failed to generate anywhere near the amount of cargo required to avoid the subsidies under a one- year agreement.

And in a flip of the script, under the new deal with the Allegheny County Airport Authority, Qatar qualifies for more incentives if it brings in more cargo. Subsidies will be lower or won’t be awarded at all the less cargo the carrier flies into and out of Pittsburgh.

“It just seemed to make more sense this way,” authority CEO Christina Cassotis said Wednesday.

The new deal is retroactive to last October and runs to the end of September. After that point, the authority won’t be able to provide any more incentives under Federal Aviation Administration regulations.

Based on what the airline has hauled since the start of the latest

agreement, it will not get the maximum subsidy under the new agreement, Ms. Cassotis said.

But, during an interview in Pittsburgh, a top Qatar executive said the airline has no intention of bolting even after the subsidies run dry.

“We are here to stay and to grow,” said Peter R. Penseel, Qatar’s senior vice president of cargo sales and network planning.

Mr. Penseel said that although the incentives are important to help the airline gain a foothold in the Pittsburgh market, they are “not the driver.”

“It’s a small portion of doing business with each other,” he said. “We are not here to collect money.”

Mr. Penseel said he sees the potential for even more flights into Pittsburgh in the future, particularly as major airports on the East Coast and in the Midwest become more congested.

The airport’s infrastructure and the number of distribution centers within 300 to 400 miles of the region, plus the speed with which goods can get to those places, all work in Pittsburgh International’s favor.

“This is a great showcase for our industry that the secondtier airports ... can make the difference,” Mr. Penseel said.

Although Qatar fell well short of meeting cargo goals under the last agreement, it opted to continue service from Pittsburgh International even before the new deal was reached.

In its first year in Pittsburgh, Qatar never came close to producing the 480 tons of cargo, on average, needed monthly for the airport authority to avoid the subsidies.

But the airline’s fortunes have taken a turn for the better with the decision by Sri Lanka- based freight forwarder EFL to make the Pittsburgh airport a distribution point as part of the nonstop Qatar flight.

EFL made its first 90- ton shipment on a flight into Pittsburgh in May. Since then, it has been nearly filling the Boeing 777 used by Qatar on one of its weekly flights to the airport. The jet can handle about 100 tons of cargo.

Senthil Shanmugam, EFL Group CEO, said the freight forwarder decided to use Qatar to ship through Pittsburgh because it can get its clients’ products on the move faster than it can in major cities like New York and Chicago.

In Pittsburgh, it takes about two hours to unload goods from the plane and get them off airport property. In major cities, that can take as much as 24 to 48 hours, Allegheny County Executive Rich Fitzgerald said.

“Speed is essential for us,” Mr. Shanmugam said.

EFL currently ships mostly apparel to Pittsburgh but is investigating other possibilities, including pharmaceuticals, he said.

“We saw the value in this, meaning that we could cut the lead time of the supply chain as compared to going into any of the major airports,” Mr. Shanmugam said.

“I can tell you that it has worked very well so far, and we are looking at a longterm, sustainable operation here.”

Mr. Fitzgerald said the Qatar flight and the deal with EFL are part of an effort to make the airport a major cargo and distribution hub.

“We’ve been planting these seeds for a couple of years now. Now the fruit is starting to bear,” he said. “We’re competing with a lot of cities around the country and around the world, and the fact we’ve had this success is really a feather in everyone’s cap.”

Ms. Cassotis said the EFL deal “is a game changer for us and Qatar.”

The commitment by Qatar to stay in Pittsburgh beyond the two years, along with the deal with EFL, shows the value of providing incentives, she argued.

“When you’re taking a risk on a brand- new market, you got to know that you’ve got a partner that has skin in the game,” she said.

Qatar began operating the cargo service from Pittsburgh International in October 2017. It represented Pittsburgh’s first international freighter route.

According to the airport authority, the flights have provided $ 42.8 million in annual economic output for the region and have created 265 jobs. Mr. Penseel said the plane used by Qatar for the flight is valued at $ 250 million.

Under the expired deal, the authority was obligated to pay the airline a guaranteed “support fee” of $ 15,500 a flight — or a total of $ 744,000 — for the first six months of the service.

Payments were required regardless of whether Qatar met the goal of 60 tons of cargo — imports and exports — per flight.

During the second half of the year, the support fee would have decreased “based on calculations agreed to by the parties” if the 60- ton goal per flight was met. But that never happened. As a result, the authority handed over another $ 744,000.

Under the new deal, Qatar is not paid anything if it hauls less than 10 tons per flight on average. It gets $ 2,500 a flight if it carries 10 to 29.9 tons and $ 5,000 a flight it hauls 30 to 59.9 tons. It receives $ 7,500 a flight if it lugs more than 60 tons.

Although the flights did not hit any of Qatar’s goals during the first year, they have produced about 2,300 tons of cargo over the past 18 months, Mr. Penseel said.

“That is substantial,” he said.

Over the past few years, the authority has paid out about $ 7 million in subsidies to airlines in exchange for coveted service.

Besides Qatar, they include British Airways, which is receiving $ 3 million over two years for a flight to London, and Condor Airlines, which got $ 500,000 over the same period for seasonal service to Frankfurt, Germany.

The authority is suing bankrupt regional business carrier OneJet, which stopped flying last August, to recoup $ 763,000 of the $ 1 million it paid for service from the airport.

It also is trying to recover $ 187,500 of the $ 800,000 in subsidies it gave to Wow Air for two years of service to Iceland. The carrier suspended service in January.