FLUG REVUE June 2002: Qatar Airways seeks expansion

RECORD GROWTH AT QATAR AIRWAYS

By Andreas Spaeth

High noon at Doha airport. Here in the Persian Gulf, the mercury in the thermometer creeps up towards the 40 degree mark around midday, and the sun is occluded by a sand storm. Nine out of the thirteen aircraft in the fleet of Qatar Airways, with their distinguishing oryx antelope insignia on the tail, are on the ramp, waiting to depart for destinations in the Gulf region and Europe. The daily services from Kathmandu and the Maldive Islands, the most important transit routes through Doha for Europeans, have already landed, amongst other flights. Around midday, the connecting services to London, Paris and Munich take off in rapid succession.

In the Business Class lounge of the recently modernised old airport terminal, not only are passengers dressed in suits and clutching briefcases waiting for their onward connections, but there is also a group of young Arabs clad in the traditional "dishdasha” white garment. They have covered the leather seat with a brightly coloured towel, on which a falcon is sitting. Hunting with falcons is one of the preferred hobbies of the elite. It goes without saying that the valuable birds travel in the aircraft cabin with their owners, uncaged. But to keep the noble bird of prey calm, it has a leather hood over its eyes.

Meanwhile an elegant-looking Arab, also clad in a dishdasha, has parked his BMW next to an A320 on the apron and has taken up a position in the shade underneath the wing. It is the Chief Executive Officer of Qatar Airways, Akbar Al Baker. His staff call him "Napoleon Junior” half jokingly, and half in awe. Al Baker is Qatar Airways, and, as he likes to say, he also keeps a personal watch over the minutest operation in "his” airline, which still employs over 1,500 people and is owned partly by the government and partly by private investors in Qatar. The competitive situation is further complicated by the fact that Qatar also owns 25% of Gulf Air, which, however, Al Baker refers to as "an airline in decline”.

Immediately opposite the main building is the low VIP terminal, from where the ruling Al Thani family, whose clan numbers several thousand members, embark on journeys. The emir and his ministers pursue an active foreign policy world-wide and accordingly are frequently on the move, complete with retinue of women and children. For this purpose they have four Airbus jets at their disposal all around the clock. These are provided by Amiri Flight, the private VIP air service which is operated under the umbrella of Qatar Airways and bears the same colours.

An A319 corporate jetliner is currently being prepared for an Amiri flight to Jeddah in Saudi Arabia within view of Akbar Al Baker, and a red carpet has been laid on the gangway. "When a flight like that is going out, the boss is always there and supervises everything personally,” says an employee.

A319 of Qatar Airways

The Qatar peninsula is a small country made up of sand, half the size of Schleswig-Holstein, which sticks out into the Persian Gulf like a thumb. 600,000 people live here, but only relatively few of them, some 150,000, are actually Qataris. The rest are guest workers from all over the world. Those engaged in simple work come primarily from India, the Philippines and Thailand, while those with more demanding jobs are frequently from Europe, especially from the former colonial power, England, but also from Germany. Akbar Al Baker is himself half-Indian, and scarcely any natives of the country work for Qatar Airways. Even among the 680 men and women who make up the cabin crews, there is not a single Qatari. This is not culturally desirable, we are told. Although Qatar is a free, west-oriented country, only a few indigenous women pursue a career. Most Qataris have a good income whether or not they work, either through membership of the ruling family or else as "sponsor” of a foreign company in the country. Qatar is one of the richest states in the world, with a per capita income three times as big as that in Saudi Arabia, and, unlike many oil states such as the Arab Emirates, this wealth will be sustained for a long time. The source of Qatar's wealth is its stocks of natural gas, which are the third biggest in the world and will continue to provide reserves for several hundred years.

This is a good base for an airline that is minded to expand. Already today the average Qatari flies three times a year on international routes, and the economy is growing at a meteoric rate, around 30% per annum. Qatar Airways is doing its best to emulate the national economy. In many respects Dubai-based Emirates, which is three times the size of Qatar Airways, serves as a model. Neither airline suffered as a result of the terrorist attacks of 11 September, and in fact both airlines are experiencing record growth. At Qatar Airways 39% and 38% more passengers were carried, respectively, in February and March 2002 than in the same months in the previous year, and even in September 2001 passenger numbers were still up by 15%.

An astonishing success story for a company which in its present form was only founded in 1997, when Al Baker took over management of an ailing predecessor company with a few old Boeing 727's and within the space of a year had succeeded in doubling the number of passengers. In the business year 2001-02 just ended, Qatar Airways carried 1.85 million passengers to a total of 28 destinations in the Middle East, Africa, Europe, India and south-east Asia, with a fleet comprising thirteen Airbuses of types A320 and A300-600. Today only 38% of journeys begin or end in Doha, whereas 62% are transfer passengers. Above all, the Europeans value the time they can save by flying to the Maldive Islands and Kathmandu via Doha. The capital city of Nepal, largely cut off from air traffic after internal unrest, actually enjoys two services a day from Doha. Akbar Al Baker aims in the future to achieve a 50:50 balance between passengers commencing or finishing their journey in Qatar and transfers, but as far as tourism is concerned Qatar is still at the very early stages of development and does not in fact have a lot to offer, especially compared with its higher profile neighbour Dubai. However, Qatar is trying hard to bring some major events into the country, from tennis tournaments involving top tennis stars through to the WTO summit meeting in the autumn of 2001 or the 2006 Asian Games, at which up to 500,000 visitors and competitors are expected.

Growth of this magnitude, which has included an increase in the number of destinations serviced over a period of five years (1998 to the end of 2002) from 19 to 35, expansion of the fleet from 7 aircraft to 17 and a 139% increase in seat capacity, has naturally not been achieved without problems. Doha airport, which only a short time ago was a kind of barracks, is still not up to handling the new traffic flows despite modernisation and expansion, and even for First and Business Classes checking in is chaotic. Up to now less than two million passengers have been handled per year, whereas the planned new airport is to have capacity for ten million passengers. Inhabitants of Qatar of all people find it difficult to reach the airline and make telephone bookings as the telephone network is just as overstretched as the booking centre.

"We are small enough to be able to move quickly,” says Commercial Director Lee Shave, who up to the end of 2001 worked as a manager at Swissair. "Growing is fun, but keeping up with rapid growth is quite difficult, especially if one continues to grow all the while,” says the Englishman. But Akbar Al Baker is not prepared to make any compromises over the high-grade product on board, whose special features range from Hutschenreuth porcelain in First Class through to regular, meticulous special cleaning of the aircraft by a specialist 14-person cleaning brigade.

And the expansion continues: this summer alone the flight schedule includes services to Milan, Casablanca, Riyadh, Teheran, Sanaa, Sharjah and Frankfurt for the first time. Al Baker had long wanted to fly to the Rhine-Main region of Germany, but the slot situation in Frankfurt, combined with restricted traffic rights, had resulted in delays in starting up this new route. But from 13 June, the airline will fly four times a week from Doha to Frankfurt, although due to slot constraints the four return flights will depart from Frankfurt at three different times. "What we would really like is to operate daily services to Munich and Frankfurt,” says the airline CEO. Especially as Qatar Airways uses its QR code on Lufthansa flights from Munich to eleven European destinations, whereas the Lufthansa code has been missing on flights run by the Arabs for some time.

"The reason reciprocal codesharing was stopped was an audit by Lufthansa, which identified certain shortcomings on our side, such as the absence of a separate emergency centre,” explains Al Baker. In the meantime, 80 per cent of the requirements have been satisfied and the airline is currently working with Lufthansa Consulting to address the remaining areas. However, the most important event of the year for Qatar Airways will be the delivery in May of the first of six Airbus A330-200's on order, each with 238 seats configured in three classes. A second aircraft will arrive in July. The previous widebody fleet of seven A300-600's was taken over second-hand, having been used by Korean Air amongst others, and already has an average age of nine years, so that these A330-200's will be the airline's first brand-new widebody aircraft.

"Technically, the A330 is not a quantum leap for us, it is just bigger and more complicated, especially as regards its in-flight entertainment system,” says Technical Director Tony Saville. The new First and Business Class seats from the A330, both of which allow passengers to lie down, are to be retrofitted in the A300-600 fleet as well within 18 months. Qatar Airways is remarkable in achieving around eleven hours' usage per day with this well established type – in fact this is the highest daily utilisation for this type of any operator world-wide. "And that is with 99 per cent technical reliability,” says Saville. Qatar Airways would be happy to order the A321 as well, but without auxiliary tanks its range is not quite big enough, and with auxiliary tanks it cannot carry sufficient payload. "That is a great pity,” says Tony Saville.

On the other hand, preparations are already under way for the arrival of two A380's at the end of 2007. First of all the airline has to decide on its choice of engine. "We still have time, but we meet regularly with Rolls-Royce and other engine manufacturers,” says Saville. The airline industry still finds it amazing that a small airline like Qatar Airways is to be among the A380 launch customers. Insiders say there has never been a real business plan for the ultra-large aircraft, but that it is simply a case of the airline wanting to get its own back on its competitor and A380 major customer, Emirates. Prestige is very important in the Middle East, but there are enough people around who trust the energetic Akbar Al Baker to be also operating super jumbos successfully in five years.

From page 22 of FLUG REVUE 6/2002

Interview with Akbar Al Baker, Chief Executive Officer of Qatar Airways

"We want to be a premium carrier with very high standards”

FLUG REVUE: Qatar Airways is currently one of the fastest-growing airlines in the world. What is your ultimate objective? Do you want to repeat the success story of Dubai-based Emirates?

Al Baker: No we want to stay a medium-sized carrier with a maximum of 30 to 35 aircraft, not 100, as Emirates is planning to fly in a few years' time. We want to maintain the high standard which we have today with twelve aircraft into the future as well. A 70-strong fleet requires a lot of compromises in the product. If one is small, it is easy to retain a proper overview and keep the business under control. If something happens at my airline that impairs our product, I find out immediately and can take appropriate countermeasures. We plan to freeze our fleet expansion no later than 2005 and then wait until we get our A380's. But we are servants of our country, and if my government wants me to expand more than is allowed for in my business plan, then I have to obey. We are geared towards the requirements of the state.

FLUG REVUE: Qatar is one of the richest countries in the world, and a lot of people say that Qatar Airways really does not need to earn any money.

Al Baker: If that were true, then I wouldn't be sitting here. If money is an irrelevance, there is no need to manage an airline properly and the government would not have put me in charge. I am a businessman, and for me it is very important to turn this company into an outstanding airline, while at the same time it is a personal challenge to make it profitable. The government only guarantees our loans and we repay them out of our revenues. In three to four years we plan to go public and then we shall also publish our accounts.

FLUG REVUE: What are your priorities as regards joining an airline alliance? Other Gulf airlines such as Emirates have made a conscious decision to remain independent.

Al Baker: We are taking time to grow, and then we shall seek out an alliance. We would fit well with all three major alliances. Anyone who thinks he can go it alone will soon find he has made a mistake. All airlines will find themselves in a major alliance sooner or later or else they will be forced to rely on hefty state subsidies.

FLUG REVUE: What are your plans for Doha airport?

Al Baker: When the airport was handed over to Qatar Airways in December 2000 by the civil aviation authority, we began immediately on an expansion course. All the planners said that the existing building could not be expanded significantly and that we needed to build a new terminal or even a new airport. We accepted this and are planning a completely new airport. But until it is ready, we have had to enlarge the existing building to allow Qatar Airways to grow rapidly. I have drawn up plans myself and implemented them with different companies. In February 2001 the excavators arrived and at the end of August we had brand new departures, check-in and transit areas. The arrivals area will then be redesigned, starting early in May, and this should be complete by September 2002. In parallel to this, we are planning a completely new airport with terminal and runway on the other side, parallel to the present runway.

FLUG REVUE: What is the timescale for this and what part is Qatar Airways playing in it?

Al Baker: Work on the new airport will begin later this year. The new airport will open at the beginning of 2006, in time for the Asian Games in Qatar, the biggest sporting event in the world after the Olympic Games. The present facilities will then be used only by the Air Force. The new development is a huge project, and at present it is being managed by the Ministry of Urban Development. We are not involved in the project now apart from over the planning. AS a first step, a new runway is to be built, running out into the sea. After 2010 a parallel runway is planned to allow us to grow further.

FLUG REVUE: What role does the Airbus A380 play in the plans?

Al Baker: In any case the terminals are designed so that it will be possible to embark and disembark simultaneously into the main and upper decks, an option that only very few airports will be able to offer. Our two A380's will not arrive until after the Asian Games at the end of 2007. Other airlines will have them in service earlier and will face the task of getting to grips with any teething problems. We plan to wait until the aircraft has been perfected. We also have another two options, which we can order either as passenger or cargo versions.

FLUG REVUE: But that means you have not yet signed the final purchase contracts for the A380.

Al Baker: Yes, that is correct, we have paid a very high deposit and signed a Memorandum of Understanding, but the actual contracts have not yet been signed. The aircraft has not yet been finally defined, and one cannot sign a contract until the precise design has been fixed. Other launch customers have not yet signed either. But there is absolutely no doubt that we shall be ordering these planes in the near future.

FLUG REVUE: You have already announced that you want to offer a very luxurious product on board the A380. What will it look like?

Al Baker: So far we have only fixed the number of seats. At 468, this will be significantly fewer than most other A380 operators are planning to install. We have thus already decided on the cabin layout, but the product has not yet been finalised, and there could still be a lot to do in this area in five years' time. In around 2005 we will make our final decisions. We have already decided on the floor plan, i.e. how many square feet a First Class passenger will be allocated. The seat pitch has also been fixed, at 34 inches (86.3 cm) in Economy and 60 inches (152.4 cm) in Business Class, where there will be proper reclining seats and seat pitch will be 5 inches (12 cm) bigger than on our new A330's. We will also have a lounge and a bar on the A380, a shopping area and a lending library for First and Business Class passengers, in other words an extremely luxurious configuration.

FLUG REVUE: Other airlines like Emirates say they would go bust if they were actually to implement all the luxury fittings offered by Airbus.

Al Baker: Qatar Airways wants to be a premium carrier with very high standards. And naturally we are not planning to operate our A380 services on a cheap fare basis. People who fly with Qatar Airways will be paying for a particular product.

FLUG REVUE: But the Germans in particular like flying to Kathmandu or the Maldive Islands with Qatar Airways precisely because the tickets are so cheap.

Al Baker: Unfortunately there will always be price wars. We have to go along with them, otherwise we would be left behind in the competition. But we don't always get involved in price wars. Thus, for example, British Airways and Gulf Air recently stepped up their London-Doha service and offered tickets at cheap prices. We did not get involved. Even so, our revenue only fell by 7% on the route. People are prepared to pay for quality and favourable departure times.

Al Baker was talking to Andreas Spaeth.

Last updated 2 May 2002

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