Qatar Airways: Skift Global Forum Preview

0:00Jay Shabat: Hello and welcome to the Airline Weekly Lounge. I'm your host Gordon Smith and I'm joined as usual by co-host Jay Shabat. In this week's show we're continuing our Skift Global Forum preview with an update on Kater Airways.

0:28Hi Jay, how's it going? All right, Gordon, how's your end of summer? We're getting close to autumn and I don't like that.

0:36Jay Shabat: I am still in Scotland at the moment. I was here for a few days and I've got a wedding in Wales, actually later in the week. So doing a bit of a UK tour. So I would say probably Scotland's not the best place if you want to stretch your summer out a little bit, believe it or not, by this time next month, SGF, the SCIF Global Forum, will be wrapping up in New York City. And as anyone that listened to the show last week will know, we started to run through some of the aviation highlights and we were in such great conversation jay we didn't get through them all and we didn't importantly get to kata airways uh we've got hamad al-kata the new ceo of kata is joining us on uh stage in new york i am really really excited to speak to hamad at the event anyone that's been following kata airways fairly closely or even more casually, I would argue, knows that there have been some changes at the top.

1:26Jay Shabat: You heard Akbar Obecker, who was with the airline for more than two decades, almost 25 years. And he basically became the de facto face of Qatar. He's very controversial at times. Some outspoken comments, colorful comments, fantastic from a journalistic point of view, never shy of sharing his mind. And then there was a leadership change, and that didn't last too long. And now we have another new CEO, Hamad al-Khata, who is going to be joining us in a few weeks' time. And this will be, as I understand it, his first onstage interview, certainly overseas. So really, really excited. So many areas that we will discuss, not least what has been a really turbulent year for the Gulf Airlines with the Iran war, but then also the subsequent fuel challenges and just so many elements that airlines right around the world have been contending with, plus everything compounded by the fact that the conflict is on their doorstep.

2:31Jay Shabat: And there have been situations that have been localized to the Gulf, to Qatar, to the UAE and others. So, so much that we will unpack over our 25 minutes or so on stage, Jay. But if anyone who's listening watching us today needs a bit of a scene setter around cataroways fill them in what what's your latest assessment of the of the airline its health and where it's going yeah

2:56Gordon Smith: thanks gordon i will try to set the scene for you i'll go back to their uh their most recent annual report and you know full uh surgeon general's warning here this is not an airline that reports their results quarterly. And even when they report annually, there's no accompanying conference call with investors. It is 100 % state-owned company. And so it's a little bit of a different animal, so to speak, in terms of what we can understand about it as analysts from looking in from the outside. They also, important to note, in addition, is that the company is more than just an airline. It's almost, you can almost think about it as a government, I don't want to say the word office, but like a government department or something like that.

3:52Gordon Smith: It handles a lot more than just, it manages the airport. It has all sorts of different businesses that are in part designed to make money, but in part designed as a tool for economic development. And so, again, just a different type of, you know, don't be comparing apples to apples here. But just so everybody understands what the numbers that they're putting out is. So for the 12 months that ended in March of this year, that's the most recent financial data we have. They had a 9%, a positive 9 % operating margin. Now, that does include about one month of the conflict. I guess the conflict started in late February.

4:37So that, you know, that March fell in that fiscal year. So most of that 9 % happened before the Iran conflict began. So another thing just to keep in the back of your head for context there.

4:51Gordon Smith: Now, importantly, cargo is about 20 % of their traffic revenues. When I say traffic, I'm not including the revenue that they get from the many other businesses. whether it be running hotels, the airport management. They have duty-free liquor stores. I mean, just a lot of different businesses. The duty-free alcohol sales, by the way, they have monopoly on that in the state of Qatar. And that alone is something like 5 % of total traffic revenues or equivalent to about 5%. So just a huge amount of money there. And then, yeah, all these other businesses. Obviously, as you explained well, they're suffering a lot of market challenges right now, whether it be the fact that a lot of people are visiting the Gulf because of the conflict.

5:49Gordon Smith: There's a lot of economic impact to Qatar. You know, Qatar, besides being a major aviation player, you know, the biggest driver of its economy is that it exports energy, specifically liquefied natural gas. So they actually, you know, it used to be natural gas is, you know, if you find it in Texas, great. You can sell it domestically. You could pipe it around. You find it in Russia, great. You can pipe it to Europe. But it wasn't a global commodity. then over the course of the past few decades you know you developed a way to ship it by uh you know to freeze it liquefy it and then send it by ship and cutter has become basically the i don't know if they're bigger than the united states or whatever but those you know couple of big giant exporters of liquefied natural gas they're one of them and a major player major major player if not the number one and perhaps the number one.

6:43And of course, right now they're not completely down to zero, but they're having a lot of difficulties exporting that because the straight of Hormuz is blocked. That's how they get the commodity out. So big, big issue for, for the government. So, you know, one thing I would be, you know, just, just really want to know in, in, in speaking with,

7:06Gordon Smith: with chief executive there is uh you know to what extent is the economy uh holding up are people still connecting that's another very important thing to understand about qatar airways is that they depend a lot more than dubai for example than emirates uh on connecting traffic there's the doha market is just a lot smaller of a local market than dubai is so they really depend a lot connecting traffic are they still seeing that connecting traffic um maybe people feel more comfortable uh if they're going from you know europe to australia they're happy to connect maybe more comfortable that than they they would actually be visiting the gulf region itself so you know a lot a lot of questions right now because there's so much uncertainty a lot going

7:56Jay Shabat: on for sure jay uh and definitely some things that we will pick up with uh hamad when he joins is in New York. Also this summer, we obviously were following the Iran war very, very closely. It's still a live issue. It sometimes feels like by the time we record the podcast, you almost know it's going to be out of date by the time that people listen to it. It is a very, very rapidly changing situation. For the better and the worse, it just doesn't quite seem to be calming down in the way that some thought it would much earlier in the year. But also this summer, you also had the football world cup in north america canada mexico and the u.s and right behind president trump and the fifa president um and the spanish winning team at the final were catorade's cabin crew and you know they are obviously a very very large sponsor of various global events football teams soccer teams if you will uh right around the world but no sponsor had their crew their sort of their staff, their brand more accurately, so front and center at the final as Qatar Airways.

9:00Jay Shabat: So that's going to be a theme that, time permitting, I would love to get into with Al-Qaeda. Just the ROI around the number of high-profile corporate sponsorships and the payoff. The only other thing I wanted to say, I think we can't talk about Qatar Airways without just talking about what an important uh importer it is of aircraft uh and particularly boeing i mean

9:27Gordon Smith: i'm looking now at syrium fleet data and they have 320 planes on order uh 90 triple seven nines wow yeah another 34 triple seven eight freighters they have a bunch of i won't even give you the number bunch of seven eight seven tens seven eight seven nines and uh looks like airbus has some business with them as well more more a little bit less with airbus they have a few more a351 thousands on order and they have a bunch of a321 narrow bodies but you can see you know boeing this is a really big customer for boeing boeing is the largest exporter of the united states so you know they they have uh a lot of significance in just knowing that tells you how significant they are.

10:16Gordon Smith: I just wanted to add, it's a point I make often when I'm talking about the Gulf carriers. These are airlines that are owned by governments with very large surpluses because of the energy exports. Obviously, that's changing to some extent now, although, yes, they're exporting less, but the price of what they're exporting is up a lot. So you have to wonder, like take Saudi Arabia, you know, they're getting a lot of their oil out through pipelines and whatnot. And you have to wonder, yes, they're exporting less, but are they still earning more revenue because the oil price is so much higher than it was a year ago?

10:55Gordon Smith: I don't know the answer, but as an aside, that was just an aside to saying that most of these energy exporting countries of the Middle East earn such high surpluses that that they're always looking for productive ways to reinvest that capital, to reinvest those earnings. And I think they've learned from past episodes of oil booms and commodity booms from not just in the Middle East, but elsewhere around the world. Some of that in past errors in other countries, sometimes commodity windfalls have been wasted. uh sometimes they've been uh you know parked in banks in london and you know not not so i think what they really want to these countries really want to make their capital work uh productively and aviation is just a very big part of that so they're not really so concerned you know is is the at the end of the day after we do all our fancy accounting are we making an operating margin of 5 % or 6%.

12:00Gordon Smith: It's more, yeah, we just have this surplus. Do we want to invest it in this or do we want to invest it in that? And aviation sounds like a good idea to me to invest in aviation. And it just creates a lot of good jobs. It creates a lot of just think about what buying all those Boeing planes means for your international relations with Washington. So there are so many reasons why they would invest so heavily in these aircraft beyond just making X percent profit margin at the end of the day. So, yeah, I just wanted to add that point in. I'm not sure that would necessarily be relevant to any questions you might ask, but something for anyone who's listening or watching to think about.

12:45Jay Shabat: Yeah, great point, Jay. and not just the aircraft themselves, but also what's inside it. Because Cadre Airways, going back a decade plus, has been known as being fairly innovative, particularly around the business class space. The Q Suite has swept the board on almost every major award. And you have the Q Suite 2.0. For anyone that's not familiar, this is basically a very high spec business class product. And it's got that famous quad. So if you do have the right number of passengers with you, You can basically make it almost a sort of living room in the sky. You can all face each other. And if you look at the marketing materials, I'm not sure how practical it is in practice, but you could have a sort of a four-way dining experience.

13:24Jay Shabat: It is very, very impressive. But even if you're traveling on your own or with a couple, it's a very, very comfortable and very competitive product. And you almost get a feeling a little bit, people have compared it with iPhones and mobile phone technology, cell phone technology more broadly, is that we've almost reached a plateau in that every cell phone starts to look the same because you can only kind of optimize it so much before it starts to get one leap from one generation to the next. Canada isn't that visible anymore. You're not going from a flip phone to a touchscreen, et cetera. So the parallels with configurations, with cabin products, with soft products, with hard products, maybe if we have time, I would love to get a little bit of insight around innovation and what that means to him, particularly under this new leadership that we have.

14:08Jay Shabat: Can Katerobe still be a true innovator So when some critics, some cynics would argue at an industry level, there isn't that much innovation still to be done. Having said that, at the Farnborough Air Show just last month, we did have an opportunity to try the new, it's almost like a U headrest that comes down from Emirates. It's on their A350 and it's completely flushed. And I can't remember the brand name or whatever they're calling it. But this was genuine innovation in the economy, Kevin. it's like built in it's like a bit like those plush neck pillows that you sometimes see at airport shops overpriced like 50 bucks you know some someone who's like desperate they're going to sit on a long-haul flight for 17 hours and they like grab this yeah any sort of crumb of comfort um but yeah it's built into the seat and it comes down and for anyone that's just listening and not watching um i am basically doing some sort of motion with a sort of a u-shape coming down over my neck and it sits there and i got to try it for myself it is incredibly comfortable and it's incredible it's incredibly simple no no no and i you know sometimes you have wings that kind of come out of the seat even in economy uh but this is a whole next level so that's obviously emirates keeping uh economy fresh i would love to see if there's any uh innovations up the sleeve of the caterer always team uh bearing in mind that they have been known going back a few years for pushing the boundaries, pushing the envelope around what is possible on all their aircraft.

15:37Jay Shabat: But no premium economy. So maybe that will change. We did see, I was speaking to the new chairman of Turkish Airlines, IATA, back in May, and he exclusively revealed to us that premium economy is on the way. So maybe, Qatar has always been one of the last holdouts after Turkish Airlines. And maybe, maybe, maybe we'll get some insight around premium economy. Or he might just say absolutely not. So who knows? So many things to unpack. I smell an exclusive here. Another one. I should clarify. I have absolutely no idea what Katarao is his latest thinking is on premium economy. But I will be asking him either offstage or on stage what the latest thinking is there.

16:21Jay Shabat: Because I did think it was notable when even Turkish Airlines, who have obviously got a very complex fleet and a huge network, as we discussed on the program last week, when even they are saying, okay, yes, it's going to create a few headaches in the short term, but this is a long-term profit center. When even they say it's time to get on board, I think that may have been reason for the other holdouts to think again. So anyway, we will watch that closely, Jay. And a quick reminder, if you are not already familiar, live.skiff.com for the Skiff Global Forum, there is a price increase. The final price rise is coming on September 4th.

16:57Jay Shabat: that's september 4th uh full details around that price increase at live.skiff.com that's also where you can secure your ticket at the best available price and also see the full list of speakers because we're obviously focusing on the aviation speakers for the purposes of the airline weekly lounge as you might expect but whoa it is a big list from right across the travel industry the ceos of uber airbnb hilton a call bookman.com expedio the list goes on and on and on um secure tickets it's at the north javits center in new york city september 22nd through 24th and it's not just uh skiff global forum there are associated events right throughout that week uh so check out the website for the full details there and not to be confused with the skiff aviation forum which is happening also in new york albeit at the twa hotel at a jfk uh that's happening in november um but we will uh no doubt do a little preview of that closer to the time jay um in part two we're going to take a look at some middle east carriers in a bit more detail aside from catcher airways but before that a quick reminder to send any questions or comments that you might have for us to podcasts at skiff.com that's podcasts with an s at the end and please don't forget to follow or subscribe to the podcast wherever you're listening or watching and if you are enjoying the show please rate us five stars or leave us a positive review so we can continue to spread the word about the airline weekly launch don't go anywhere we'll be right back hello and welcome back to the airline weekly launch i'm gordon smith joined as usual by co-host Jay Shabbat.

18:19Jay Shabat: Part one, we were discussing Qatar Airways, a quick scene setter there, because we do have the relatively new CEO, group CEO, I should say, of Qatar Airways joining us, Hamad Ali Al-Qata at the Skiff Global Forum in just a few weeks time. We are going to pivot across now to a broader discussion around the Middle East. Jay, I know there's a couple of airlines that you want to focus in on a bit of detail there. What are they and why?

18:42Gordon Smith: Yeah, well, there's one in particular, Jazira Airways of Kuwait, it's a low cost carrier. Yeah, relatively small. So not a whole lot to, you know, you don't want to extrapolate too much from an airline of that size. But what makes them interesting to us as observers is that they do report quarterly. They publish their financial results and they do host quarterly conference calls that are open to the public. So and they're always very insightful and, you know, they're they're analysts on the call and they ask questions and the management team is always very forthright, I find. So I just wanted to share a little bit about what's going on in Kuwait with this airline, because, you know, as we as we discussed in our last segment, that is there's so much going on there.

19:36Gordon Smith: uh so they actually are you ready for this gordon they are uh of all the airlines that have reported so far their financial results for the second quarter it's the April to June quarter uh

19:48Jay Shabat: Jazair Airways is number one on the list it's a little bit a Q80 based airline is number one

19:57Gordon Smith: on the list as it currently stands as it currently they earned a 17 operating margin And don't worry, I'm going to explain for those of you that are, you know, adjusting their speakers. They didn't hear me correctly. It's, yeah, they're actually, so there's, and most airlines have reported already. There's a few. The major Chinese airlines haven't reported. You know, I can name a few others. AG and Airways of Greece, et cetera. But most are reported already. And then Jazira is number one, 17%. What's going on there? Well, a few things. is they actually, Jazira operated about 40 % less capacity, less C capacity this second quarter than last, yet they were able to increase their revenues about 50%.

20:41Gordon Smith: So 40 % less capacity, 50 % more revenue, which sounds kind of crazy. It is kind of crazy. And again, these are not huge numbers, but were you going to say something?

20:53Jay Shabat: No, I was like, the math ain't mathin'.

20:55Gordon Smith: The math ain't mathin', yeah, yeah. Well, I'm going to try to math it up here if I can. So yeah, a few things going on. So do remember that they did have to cut capacity last spring. There was a 12-day Iran conflict last spring as well, where they had to cut capacity. And I think revenue-wise, that was almost worse than this year. So what happened this time around is pricing just went up pretty dramatically. And we know that from airlines around the world. I suspect that Jazira has some routes where they were able to just command very, very strong yield premiums for people that just had to travel.

21:39You know, it's just to think there's always, you know, I'm a doctor and I have to get an emergency. I have to get somewhere. That's just one example. But I think there's a lot of that.

21:50Gordon Smith: They did open two. Well, I think one new route is already open. Another one is starting. uh they now are they now operate or soon will operate three routes to syria which they weren't able to fly for many years because of political changes they're able to go in now they say that that those routes are doing phenomenally well so i think again these are just very i need to get to syria uh i've got a big investment project there um i'll just i'll pay anything or you know just people who haven't been back to visit their families in many years. And, you know, they're just willing to pay a higher price.

22:28Gordon Smith: So I think there's some of that. And of course, I'm just, you know, take this off, reading between the lines to some extent. They didn't necessarily say all of this. They did say Syria, though, was very, very strong market. In fact, they probably want to do more. A couple of Saudi airlines are trying to do more in Syria as well. So there's that. They said that the labor demand is still very strong. When I say labor demand, it's people from india people from bangladesh people from nepal pakistan that are working in kuwait they're still coming uh so they're you know those those routes are doing just just fine um religious pilgrimage markets they said doing doing fine uh the local kuwait population traveling abroad for leisure that's holding up pretty well um so i think you know there's a there's a lot of routes that they're not able to fly because of airspace restrictions, et cetera.

23:19Gordon Smith: I think some of their Russian stuff, which that's an important market for them, that is no longer functional or no longer operational, at least temporarily. Maybe some stuff further into Africa, et cetera. I have a feeling, though, some of their better, you know, higher performing, higher margin routes are the ones that are still kind of intact. Keep in mind also, we talked a little bit about this with Qatar Airways, Jazira does have a lot of non-airline businesses. They actually own and operate one of the airport terminals in Kuwait, Terminal 5. They're actually expanding it. They're planning another terminal.

23:59Gordon Smith: So despite what's going on, they still are very enthusiastic about growth. they uh even mentioned in their call that maybe we don't have enough aircraft on order because they're thinking about expanding in saudi arabia as well with a joint venture there so there's that um so they also they made some changes to their fare structure they said that's been really uh helpful towards boosting ancillary revenues their ancillary revenues are really way up a lot um so you know i gave you a few different reasons of why they were still able to be profitable despite losing access to some routes, despite, I'm sure, losing some demand to the conflict, despite fuel prices going up a lot.

24:46Gordon Smith: They were able to cut a lot of non-fuel costs as well. I think they worked hard on that. So yeah, they wound up, again, it's small. This is not an airline the size of British Airways or anything, but for what it's worth, they are currently the number one on the leaderboard for profit margins for the second quarter.

25:06Jay Shabat: Well, well done to them. And I think it's important to say that there's no winners in war, but that is showing resilience in very, very trying circumstances. And we have seen this across conflicts around the world. I'm thinking maybe with Israel and ELAO, that there can sometimes be an opportunity there. And I use the word opportunity carefully. This is not always circumstances that an airline would particularly wish themselves upon. However, they are making the best of them. And a cynic may argue that they're capitalizing on people's limited choices or on other operators not coming in in the same way that they would.

25:46Jay Shabat: And supply and demand economics dictate that prices do sometimes rise. But one thing I want to just stress is the more you speak to people in the industry based in the region, Jane, it's quite easy to sit here in Scotland and you in the US and think that everyone must be in the Middle East and the Gulf, sort of just frozen with fear. But actually, no, you speak to them on the ground, and like you said, with T5, QA, and Jazeera Airways there, and the plans for expansion and so on, there is an enormous amount of resilience in that part of the world. And it is not accurate to say that things are on ice and that there isn't anything going on, certainly in terms of strategic moves and other areas.

26:29Jay Shabat: So I would say to anyone that thinks that this is sort of just treading water almost and sort of waiting for the crisis to pass before these airlines come back to life, no. A quick look at the schedules and even looking at some of the load factor data would suggest that the situation is fluid, yes, but there is a huge amount of resilience in the industry, both from a sort of state-backed airline point of view, but also the privately run airlines. But I do wonder, Jay, just how much of Jazira Airways' strength has been underpinned by the fact that the state-owned carrier, Kuwait Airways, is a little lackluster, certainly compared to some of its regional flag-carrying rivals.

27:10Jay Shabat: And it's traditionally got an older fleet, maybe not quite as competitive onboard product, even compared to Gulf Air and their brand-new 787s and the 321 Neos and obviously the big three and others that we've discussed, not to mention Saudi and others. So I do feel like if you were looking to fly, certainly within the region, that Jazira Airways would be a pretty competitive option when you have got a slightly clunky, old-fashioned flag carrier in Kuwait Airways. There was serious talk at one point, I don't know if it was 10 years ago, maybe a little longer, for Jazira to actually purchase Airways and run them.

27:47Never happened, but yeah, that's a good point. I mean, the success of Jazir Airways to an extent over, not necessarily right now specifically, but over the course of its history is definitely related to the troubles that Kuwait Airways has experienced for sure. So Jazir has stepped in with a kind of more modern business model, more have better capitalized, more business friendly, all that. So, yeah, that's true.

28:15Gordon Smith: I did want to go back to, you know, just just be very clear that I'm not making any implication that anyone is war profiteering or anything like that. think about what you just to be able to operate in a situation when your fuel growth your fuel prices are up you know perhaps double and your um you know just just just think of all the costs associated with managing and navigating all these airspace restrictions i didn't mention it um and i i want to leave some for suspense because we're going to have a lot more uh about jazira in and it's, you know, what's going on in its region in the upcoming issue of Airline Weekly.

28:58But I, you know, without, you know, divulging too much here, one thing that they were able to do is so the Kuwait airport was closed for, I think, like a month and a half, just completely shut down.

29:09Gordon Smith: They were able to actually move their base of operations across the border into Saudi Arabia. So, you know, again, think about all the costs associated with that. So it's only normal that they would have to increase fares rather significantly. You know, it's yes, they're earning these very high profit margins. We don't know exactly where that's coming from. That could be from, you know, their other businesses. And like I said, you know, there are markets like Syria that I'm sure they command a hefty price premium, fare premium for. But again, that's also, it's not a market that's easy to serve or inexpensive to serve.

29:50I mean, there's probably the infrastructure there after so many years of war, you know, lacking. So there's probably a lot of money that it put into it.

29:57Gordon Smith: So, you know, all that keep in mind. But like you said, it is encouraging to see the resilience among some of these airlines

30:06Jay Shabat: in that region, for sure. And you mentioned, Jay, the Next Airline Weekly issue. Regular subscribers, we've had our midsummer break, as they will know, but can confirm firm. 31st of August, Monday, 31st of August, the new issue will be landing in your inboxes. And Jay, we're already working on that issue. Any teasers, highlights? You mentioned Jazeera Airways there.

30:24Gordon Smith: Yeah, we got a lot. The issue that we published coming back from our summer break is always an action-packed one.

30:31Jay Shabat: If you're not already subscribing, go to airlineweekly.com forward slash subscribe. And a reminder that as an airline weekly subscriber, you get access to all the airline news on skift.com plus Skift Research's airline reports. Thank you, Jay. Is there anybody that's left that doesn't subscribe to Airline Weekly? What are they thinking? What are you thinking? But consider this a judgment-free amnesty. If your subscription is lapsed, we will turn a blind eye. AirlineWeekly.com forward slash subscribed. You know what to do. Yes. We welcome you back in with open arms. Great. Thanks for that discussion, Jay.

31:07Jay Shabat: I appreciated that running through the latest and greatest at Cater Airways and then also going into a bit of a deep dive there on Q8's Jazira Airways. Thanks also to our producers, Jean, Monica, Kelsey, and Will. And wherever you are in the world, thanks for listening and we'll catch you next time. Bye for now. Whether you're listening to us on Spotify, Apple, or wherever you get your podcasts, please remember to subscribe, rate us five stars, or leave us a positive review. This really helps us get the word out about the airline weekly launch so we can continue to bring you this podcast every week, absolutely free of charge.

31:38Jay Shabat: And if you're watching us on YouTube, be sure to subscribe to the Skiff channel and hit the notification bell to find out whenever a new video drops.