Blockade ‘may force Qatar Airways bailout’
Qatar’s robust growth continues to defy Saudi sanctions, Jack Torrance reports from Doha
THE boss of Qatar’s state-backed airline has admitted it could be forced to seek a government bailout if a blockade by the country’s regional neighbours continues.
Akbar Al Baker, who has led Qatar Airways since 1997, said that a potential bailout was “still some time away” but that it would probably need to seek government cash if the sanctions persisted over the long term. He said: “At the moment I don’t need it, but if this blockade continues then I’m sure that the government will be prepared to inject capital, because Qatar Airways is a very important economic tool.”
The airline has suffered after its neighbours, including Saudi Arabia, the UAE and Egypt, severed ties with the country. It has been forced to halt flights to 19 destinations and fly more expensive routes to avoid their airspace. In April, Mr Baker revealed the airline fell to a “substantial” loss last year. A bailout would almost certainly infuriate US rivals, who have accused Qatar Airways and regional rivals of being subsidised by their governments.
But Mr Baker said there was a big difference between investment and a subsidy, adding: “Similarly, we do not have the privilege that the carriers across the Atlantic have that when they are in trouble they can clean their books via Chapter 11 [bankruptcy].”
If Qatar is in crisis, you wouldn’t notice it on a flying visit. Even during Ramadan, when many shops and most restaurants are closed during daylight hours, the tiny peninsula state’s roads are packed with gas-guzzling 4x4s ferrying well-heeled Qataris between air-conditioned offices, palatial homes and a shiny new airport.
Viewed from the top of any of its skyscrapers, the sandy landscape is dotted with busy building sites amid a construction boom that means even the ruling emir, Sheikh Tamim bin Hamad Al Thani, has to put up with the sound of pneumatic drills as workers toil a stone’s throw from one of his favourite residences in the capital Doha.
That’s despite sanctions imposed by Qatar’s powerful neighbours, including Saudi Arabia, the United Arab Emirates and Egypt, which say they are blockading the country over its alleged support for terrorists and extremist groups such as the Muslim Brotherhood. Last June, the oil-rich state found itself adrift almost overnight as its only land border, with Saudi Arabia – led by Muhammad bin Salman, often described as the most powerful leader in the Middle East – was cut off, and its aeroplanes were denied access to big swathes of airspace. Boats laden with goods destined for the country were turned away from nearby ports, leaving supermarket shelves empty.
Among the companies hardest hit is Qatar Airways. The state-owned flag carrier had enjoyed a strong run, growing faster than its Emirati rivals Etihad and Emirates. But the blockade has forced it to suspend routes to 19 destinations for the foreseeable future and most of its remaining flights have become significantly more expensive to run, as its planes have had to take longer routes that avoid the hostile countries’ airspace, burning gallons of extra fuel in the process.
The costs of the sanctions were mitigated by the airline’s decision to lease nine of its grounded planes, along with their crew, to British Airways, to help it cope with strike action last summer, which Qatar Airways chief executive Akbar Al Baker says allowed him to avoid making any redundancies.
But he has revealed the airline made a “substantial” loss last year after new routes failed to drum up as much cash as more established ones, which have been closed off.
“Unfortunately the routes where we were forced to stop were very mature routes we had been flying for many years and we had really developed our brand in those markets,” he says. If the crisis continues, Baker admits his company will likely need to seek a capital injection from the government to avoid loading up with more debt.
He has been a vocal critic of the International Civil Aviation Organisation’s handling of the crisis. The body, part of the United Nations that is in charge of laying down the rules for the use of airspace, has “taken a back seat”, he claims, leaving Qatar without the opportunity to appeal against the restrictions.
“Airspace doesn’t belong to a country, it belongs to an international community. Qatar is part of the international community, it is a member of the ICAO and the UN, so they need to do their job,” he adds.
“We are not asking for permission to land in their country, we are asking that this international airspace can be used for international civil aviation traffic.”
The sanctions have also caused havoc for international businesses with a presence across the Gulf.
ATG Access, a UK company that makes anti-terrorist security bollards, has found its products in high demand in the region. However, not long after opening a new factory in Abu Dhabi, the company was suddenly unable to ship to Qatar, its largest export market, because of the blockade.
“We had taken a couple of good sized orders, we were manufacturing, and literally with two days’ notice we were told that we couldn’t ship it,” says Gavin Hepburn, an ATG director.
Even sending products via a neutral intermediary such as Oman won’t work because customs officials demand evidence of a product’s final destination.
ATG has been forced to move production back to the UK and to Singapore as a result, but even now getting its wares into Qatar isn’t easy.
In the past, boats would dock at deep water ports in Dubai and Saudi Arabia, where their cargo would be moved across to smaller vessels more capable of handling Qatar’s shallow waters, but that is no longer an option.
“There are still ports that are not too far away that will deal with Qatar, but none of the standard shipping routes and that does mean there are fewer options, less competition and higher prices,” says Hepburn.
Shipping costs are pushed even higher by rising demand as Qataris are forced to bring in staple foods and other basics that would have previously come over the Saudi border from further afield.
That said, the blockade has also forced Qatar to consider ways of becoming more self-sufficient. While it used to buy most of its dairy products from Saudi Arabia, for instance, it is now in the process of importing more than 10,000 cows that will allow it to produce enough yogurt, cheese and milk to meet its own needs.
Media restrictions have proven a
particularly controversial aspect of the blockade. Saudi Arabia and the UAE have blocked their citizens from accessing Qatari news agencies such as Al Jazeera, which they initially called for Qatar to shut down.
“One of the affiliates we work with in Dubai cannot get access to information any more,” says Lauren Fryer, an Australian expat who runs Doha-based marketing agency Qanect. “The Dubai government has blocked all websites out of Qatar, [so] they can’t get links to the news coverage that’s happened on the ground here.”
BEIN Media Group, a state-backed Qatari broadcaster that holds the regional rights to several major sports competitions, including the Premier League, has been banned from selling its set-top boxes in Saudi Arabia.
Its broadcasts have also been pirated by a rival company, Be-outq, which the Saudi government has failed to shut down. BEIN’S Daniel Markham says: “Usually piracy is somebody in their bedroom doing it over a web stream but these guys have basically launched Sky Sports – they’ve got set-top boxes, satellite space, marketing, editing.”
Rights holders including Uefa and the Premier League have spoken out against Be-outq, but their protests have so far fallen on deaf ears.
BEIN’S production staff, who have to travel to the blockading countries for work, have also faced difficulties.
“We’ve had various forms of harassment, from reporters not being allowed in to countries … interrogations at airports, not being allowed into stadiums, being treated aggressively by security personnel and staff,” says Markham.
But while the sanctions have proven to be a major headache for some companies, the economy as a whole still seems to be holding its own.
Involuntary unemployment remains all but absent and last month the Qatar National Bank upgraded the country’s economic growth forecasts for 2018 to 2.8pc – not off the charts but a level the UK would be grateful for at the moment. Qatar has been able to weather the storm largely because of its massive oil and gas reserves, which have continued to flow, providing tens of billions of pounds per year.
It helps that its biggest export partners are not its immediate neighbours but Japan, South Korea, China and India, where demand for petrochemicals shows no sign of abating.
The government’s massive $300bn (£225bn) sovereign wealth fund gave it the firepower to inject $38bn into the economy in the months following the blockade, equivalent to almost a quarter of its GDP. Ehsan Khoman of Mitsubishi UFJ Financial Group, formerly an economist at the Qatar National Bank, wrote in a note last month that the “brunt of the economic hit looks likely to have passed”, with a downturn in the travel and leisure industry having been offset by growth in oil, gas and manufacturing, as Qatar makes more of its own products in response to the blockade.
A key question for many is whether the blockade will be halted in time for Qatar’s hosting of the football World Cup in 2022.
It has been investing billions of pounds ahead of the tournament, and not just in hi-tech stadiums with air conditioning but also in massive infrastructure projects including a new metro system, an expanded airport and Lusail, a whole new city.
Just north of Doha, the settlement will cost an estimated $45bn to build and will be home to the Lusail Iconic Stadium, where the World Cup final will be played.
Qatar’s hosting of the contest has so far been marred by controversy. There have been allegations that Fifa officials took bribes in return for supporting the bid. Hundreds of construction workers, mostly migrants from other parts of Asia, have died working on the new sites. Some officials are simply furious the country’s hot weather means the event will have to take place in November, in the middle of most clubs’ domestic seasons.
But Baker says the competition will “introduce the world to my country”. He adds: “Today some people say that it is somewhere in the backwaters of the Gulf, it is a small town. But when they see what we can deliver it will be such a big boost to the reputation of the culture we have here.”
The World Cup could be the spur that encourages Qatar’s neighbours to open their doors once again, as tourist hotspots such as Dubai get a chance to attract the legions of visitors that will descend on the region.
It seems unlikely the dispute will come to an end any time soon though, with neither side showing any sign of softening its stance. Saudi Arabia is even contemplating digging a trench along the border, turning Qatar’s metaphorical island into a literal one.
“We don’t see any light at the end of the tunnel because the blockading countries are adamant that what they are doing is correct,” Baker says.
A key question for many is whether the blockade will be halted in time for Qatar’s hosting of the football World Cup in 2022
Qatar Airways, left, is among those hit by sanctions from Saudi leader Mohammed bin Salman, below right