Issue No. 807
Qatar Airways' Pandemic Lessons
How Does a Global Super-Connector Manage Through the Shutdown of Intercontinental Travel?
Pushing Back: Inside This Issue
How does a global super-connector handle the near absence of international travel? We asked Qatar Airways Chief Commercial Officer Thierry Antinori this very question, and he attributed the carrier's relative success to its fleet mix, its cargo capacity, and, above all, its agility in finding new markets and capturing what traffic it could find. Read the interview in this week's Feature Story, which also includes a link to the unedited audio from the discussion.
Elsewhere in this issue, U.S. airline CEOs are feeling pretty confident that vaccines will usher in a recovery in air travel. Lessors report they are hearing the same thing. New York is planning to link one of its airports to its subway system. And a group of former Norwegian Air executives decide there's still life in the low-cost longhaul model. Meanwhile, airlines the world over are adding routes and destinations in an effort to grab traffic where they can.
"The democratization of air transportation will always be our trademark and it drives us to broaden continuously our horizons."Gol CEO Paulo Kakinoff on the company's 20th anniversary.
The Airline Weekly Lounge Podcast
New episodes drop every week and are available wherever you get your podcasts and on AirlineWeekly.com. In the latest podcast, Edward "Ned" Russell and Madhu Unnikrishnan discuss whether the confidence U.S. airline CEOs have in the recovery is misplaced. When will people really start to travel again? Listen to the episode.
Travel demand in the U.S. may finally have turned the corner. Alaska Airlines, Delta Air Lines and United Airlines all anticipate either breaking even or generating positive cash flow in March after a year of daily losses. They, and others, are eagerly looking ahead to possibly strong leisure demand this summer.
“Assuming the current bookings trajectory continues, we’d expect core cash burn to be positive going forward,” United CEO Scott Kirby said at the J.P. Morgan Industrials Conference last week. However, he added that there is “still a lot of hard work” ahead, not least in turning positive cash flow into profits. United lost $8.8 billion before taxes in 2020.
Kirby failed to point how this achievement — while undoubtedly a sign of positive progress — comes as United and other U.S. carriers continue to benefit from billions of dollars in federal relief covering the majority of their labor costs. The latest $1.9 trillion coronavirus stimulus measure includes $14 billion in payroll support for the industry.
A booking inflection point — something airline executives waxed on about in January — seems to have occurred in recent weeks. The driving factors appear to be falling Covid-19 case counts and a steadily increasing number of vaccinated Americans. At the end of last week, more than 23 percent of the U.S. population, or more than 77 million people, had at least one inoculation against the virus, according to Centers for Disease Control and Prevention data.
Delta CEO Ed Bastian pegged the shift in bookings to five or six weeks ago, or early February. The airline’s revenues took a “big step up” improving by 40 percent from February to March on the back of the rise in bookings, he said.
Both executives’ comments come as Transportation Security Administration screening numbers are regularly coming in above a million people a day.
“This pandemic was very much a yellow flag — everyone needed to slow down and get a pit stop … [Now] we’re very close to the green flag dropping,” American Airlines CEO Doug Parker said at the same J.P. Morgan event employing an auto racing metaphor to describe the recovery.
Vacationers to domestic and near-international destinations — the Caribbean and Mexico primarily — are “definitely coming back,” he said. However, the lucrative business travel and long-haul international segments have yet to come back in any notable way.
Those latter prognoses were true across U.S. airlines. Even as the industry looks forward to eager Americans returning to the skies to fill their unrequited wanderlust this summer, visiting family and taking an overdue holiday represents only a partial recovery. Corporate road warriors and long-haul international travel must return for a full recovery, something Airlines for America (A4A) does not expect until around 2024.
“It’s going to take a while for the business travel to come back, and it may never get back to pre-pandemic levels — there’s just no way to know that right now,” Southwest Airlines CEO Gary Kelly said at a Washington Post Live event last week. He cited the five-year recoveries in corporate travel after past economic crises as a base timeline but added that, with how Covid-19 has changed how we work, it could take much longer.
Business travel is down roughly 90 percent from normal levels at Dallas-based Southwest, Kelly said.
An international recovery is more a function of when governments are willing to reopen their borders or, at least, lessen travel restrictions. Executives across the industry are pushing for the adoption of Covid testing or vaccination verification regimes to replace mandatory quarantines as a first step to restarting long-haul international flying.
One thing is clear: every U.S. airline benefitted enormously from the government’s financial assistance during the crisis. The initial CARES Act in March 2020 included $25 billion in both payroll assistance and $25 billion in direct aid to the industry as both loans and grants. Congress provided an additional $15 billion in payroll aid in December before the $1.9 trillion package earlier in March. Altogether, the government will have foot the bill for the majority of airlines’ labor costs — their largest expense alongside fuel — for nearly a year-and-a-half.
“One of the things that has allowed the U.S. industry to emerge from this crisis bruised but relatively strong is the support of Congress,” Bastian said on Monday.
Of course, once travelers do come back and airlines’ return to profitability they face their next challenge: repaying all the government loans and other debt that they took on to weather Covid-19. But that concern is for another day.
Gol Cuts Capacity as Virus Resurges in Brazil
A resurgent virus in Brazil is squashing Gol’s recovery. The company reported good fourth-quarter performance, all things being relative, but the first few months of this year have seen much of those gains reversed.
Gol’s fourth-quarter capacity was down 42 percent compared with the same period in 2019, but it was 93 percent higher than in the third quarter. At the end of the year, Brazil’s airlines were bullish on the recovery, and conventional wisdom held that the country’s airline market would be well on the road to recovery in the first half of this year.
But Brazil is enduring a fresh wave of the virus, forcing the cancellation of this year’s Carnival holiday. Capacity in February was down 37 percent from January, and March capacity is expected to be even lower, CEO Paulo Kakinoff told investors during the company’s fourth-quarter 2020 earnings call last week. The carrier has the flexibility to adjust capacity up and down by 10 percent quickly, he added.
Still, Gol remains confident that the recovery is in the offing. It won’t be “linear,” Kakinoff noted, but it is coming, as more people get vaccinated. Demand for travel can return quickly when Covid cases fall, he said.
The carrier will end the year with 129 aircraft after taking delivery of 10 Boeing 737 Max aircraft and returning 737 NGs. Gol ended 2020 with 127 aircraft, including seven Maxes.
Gol’s fourth-quarter 2020 revenue was down 50 percent compared with 2019. Capacity fell by 42 percent, as did traffic, the company reported. The company will hold an investor meeting later this month on the integration of the airline with its loyalty program, Smiles.
Former Norwegian Air Executives Go Back to the Low-Cost Longhaul Well
If at first you don’t succeed, try, try again. That seems to be the mantra informing a group of former Norwegian Air executives and investors in the Scandinavian country to launch a new low-cost, longhaul airline, Norse Atlantic Airways.
Former Norwegian Air CEO Bjorn Kjos, who left the airline last year, and Bjorn Kise, who stepped down as chairman last year, are teaming up with a third Bjorn – Bjorn Tore Larsen — on the endeavor, which aims to launch transatlantic flights in December. Larsen currently heads aviation crew agency OSM Aviation, which previously had sourced crews for Norwegian.
Norse Atlantic Airways plans to launch with a fleet of leased Boeing 787s, some of which will have been offloaded by Norwegian, which recently abandoned its longhaul operations to focus on shorthaul and European flights. Initial routes will focus on popular leisure destinations, like New York, Miami, and Paris, and Norwegian Air is expected to provide feed for the routes.
The low-cost longhaul model has come under considerable criticism in the wake of Wow Air’s bankruptcy in 2019 and Norwegian’s retrenchment. Last week, Aircastle CEO Mike Inglese said the company would more closely scrutinize potential lessees’ business models after the failure of those two airlines in the low-cost longhaul market. United CEO Scott Kirby was more blunt, saying the business model is a failure, but the two airlines “caused a lot of damage” while they operated.
The investors have raised $24 million and intend to list the company on the Oslo Stock Exchange.
In Other News
- All that online shopping we’re doing is paying off for FedEx. The company reported record-setting profits in its most recent quarter and sees nothing but good times ahead. FedEx shipped an astonishing 500 million packages over the year-end holiday period, also a record, the company said. “I’m exceedingly optimistic about the future of FedEx,” CEO Fred Smith said to underscore the point during the company’s quarterly earnings call. FedEx reported quarterly revenue of $21.5 billion, up from $17.5 billion the year prior. Net income reached $892 million, up from $315 million, and the company generated an operating profit of 5 percent, up from 2 percent in fiscal 2020. This post has been updated to reflect that FedEx’s net income was $892 million.
- Clarification: A story in the March 15 issue should have stated that the Latam-Delta joint venture has been approved by regulators in Brazil and Uruguay.
— Madhu Unnikrishnan
- IAG raised €1.2 billion ($1.4 billion) in a senior unsecured bond issue last week. The debt was split between a €500 million series A with an interest rate of 2.75 percent due in 2025, and a €700 million series B with a rate of 3.75 percent due in 2029. Proceeds will allow the group to weather a prolonged travel slowdown, and give it the flexibility to rapidly take advantage of a travel upturn. IAG, which owns Aer Lingus, British Airways, Iberia and Vueling, had €10.3 billion in liquidity at the end of 2020.
- Spirit Airlines has upsized its secured credit facility from Citi by $180 million to $240 million. In addition, the maturity was extended by two years to March 2024. Proceeds from the facility can be used for general corporate purposes. The debt is backed by Spirit’s slots at New York’s LaGuardia airport plus certain spare engines and parts.
- Stock in Sun Country Airlines debuted above expectations at $24 per share on the Nasdaq last week. The IPO netted the Minneapolis-based carrier $218 million, or more than $250 million if the banks managing the sale exercise their options. Proceeds will pay off the airline’s $45 million CARES Act loan and fund expansion, including the possibility of new Boeing 737 Max jets.
For the first time since the pandemic began, airlines in the U.S., Europe, and Asia are extending leases and adding aircraft to their contracts, signs that the industry believes the recent uptick in passenger demand could be more enduring than the demand spikes last summer and over the year-end holiday period.
These were among the most positive developments Air Lease Corp. (ALC) Executive Chairman Steven Udvar-Hazy had seen in “nine to 10 months,” he told investors at a J.P. Morgan Chase conference last week. Fewer airlines are asking for deferrals or relief on their lease rates, he added, noting that although these are anecdotes, they are informing ALC’s thinking.
Airline CEOs at the conference echoed this sentiment, predicting that they would reach cash-flow positive by the end of this month or by April. Leisure demand is widely expected to return in Europe and North America by the summer. In fact, throughput at U.S. airports already is regularly exceeding 1 million passengers per day.
But if this trend holds remains to be seen. Much is riding on the deployment of vaccines and whether the Covid pandemic can be brought to heel. Fresh outbreaks, as occurred in China during the Lunar New Year recently, could stymie airline chief executives’ hopes for a more normal summer. Acknowledging this, executives tempered expectations by saying this year will be one of transition.
One thing everyone seems to agree on is that longhaul international travel will remain depressed for at least a couple of years. Lessors acknowledge this and are putting fewer resources into twin-aisle widebodies. Aircastle CEO Michael Inglese said his company has no widebodies on order and its fleet is 89 percent narrowbody now. “Domestic market demand and LCCS will lead the recovery,” Inglese told investors last week.
Norwegian Air’s retrenchment from longhaul and the failure of Wow brought airlines’ business models to the forefront of Aircastle’s thinking, Inglese said. “Many of us took leaps of faith for Norwegian, Wow, and AirAsia X.” The company also is more closely examining the business models of carriers once thought to be stable. Just because a carrier is state-owned doesn’t mean it will succeed or grow in the long term, he said, pointing to the example of South African Airways.
Current-generation narrowbodies will continue to operate and be in demand for some time, but Aircastle is tempering its investments in both the Airbus A320 Ceo and the Boeing 737 NG. “No one wants to pay up for last-off-the-line technology,” Inglese said. Aircastle has not yet bought 737 Max aircraft, “but we will,” he said.
ALC, too, is investing in new narrowbodies, in its case the Airbus A220, which fills a niche below the Airbus A320 Neo and the Boeing 737-8. These aircraft likely will replace A319 Neos and are a better size than the 737-7, Udvar-Hazy said.
Environmental and sustainability goals are becoming increasingly important to lessors, both Inglese and Udvar-Hazy said. Boeing’s production issues and Airbus’ supplier problems have taken the OEMs’ eyes off the ball of developing a new, clean-sheet aircraft. Demand for one will rise as airlines emerge from the crisis, in 2-3 years. But the next design will have to focus on sustainability, within the realm of the possible, given propulsion technology.
- Building on the strong recovery in domestic China air travel, Air China has purchased 18 new Airbus A320 Neo jets from lessor GECAS. The deal is valued at $2.2 billion at list prices with the aircraft, split between 5 A320 Neos and 13 A321 Neos, due for delivery by 2022. The jets will support Air China’s growth in both Beijing and Chengdu.
- To capitalize on ever-growing cargo demand, ANA is adding Boeing 777 freighters on routes between Japan and Los Angeles. The carrier operates 2 777Fs, in addition to its nine Boeing 767Fs. The 777Fs have about twice the cargo capacity of the 767Fs, at 100 tons, ANA said. The carrier is adding the aircraft to the route on April 23 and says demand from the U.S. for Japanese auto parts and demand in Japan and Asia for perishables from the U.S. informed its decision. ANA has operated 2,349 cargo flights so far this month, a record for the airline.
- Embraer reported fourth-quarter revenues of $1.8 billion, down 12 percent from the year before, and fiscal-year revenues of $3.8 billion, down 31 percent from a year ago. The Brazilian airframer said its fourth-quarter losses were $12.5 million, and $464 million for the full year. In the last quarter, Embraer delivered 28 commercial aircraft.
- After filling the gap left by the 2008 bankruptcy of Aloha Airlines for more than a decade, Alaska Airlines is throwing in the towel on service to Hawaii from Oakland, Calif. The carrier has dropped plans to resume flights between the Bay Area airport and Honolulu, Kahului, Kona and Lihue on May 21, and discontinued all service on the routes. The move comes two years after Southwest Airlines picked Oakland as its jumping off point to serve Hawaii, beginning with flights to Honolulu in March 2019 and now including service on the four routes dropped by Alaska.
But Alaska is not sitting back as competitors move on its core Pacific Northwest and namesake state marker. The airline plans seasonal weekend service between Anchorage and Minneapolis/St. Paul from June 19 to August 15 — the same time as Minneapolis-hub carrier Delta Air Lines plans four new routes to Alaska (see below).
- American Airlines is trying something new in Southern California. The carrier will connect Ontario in the Inland Empire and long one of the region’s lesser served airports to its Charlotte hub from May 6. Flights will operate seasonally though the summer.
- London Heathrow will gain new budget flights to Bulgaria in May. Romanian Blue Air plans thrice-weekly service between Heathrow and Iasi in eastern Bulgaria from May 18. The route complements Blue’s existing service between Iasi and its Bucharest Otopeni hub.
- Delta is eyeing U.S. travelers eager to explore the last frontier this summer. The carrier will add four new routes to Alaska: Anchorage to Detroit, Los Angeles and New York JFK from May 28 through September, and Fairbanks to Salt Lake City from May 5. The expansion will solidify Delta’s status as the second largest airline to Alaska but, as noted above, is already facing pushback from the state’s namesake carrier.
Elsewhere, Delta plans 10 new routes targeting leisure flyers to smaller destinations around the U.S. Bozeman and Kalispell in Montana; Fresno, Calif.; Hilton Head, S.C.; Jackson Hole, Wyo.; Rapid City, S.D.; Reno-Tahoe; and Traverse City, Mich., all gain a new route to one of the airline’s hubs this summer. In addition, new nonstops between Bangor near Maine’s Acadia National Park and both Atlanta and Boston begin in May.
- Americans aren’t the only holidaygoers eager for outdoors destinations. Qantas added Australian external territory Norfolk Island — located about 435 miles east of the continent in the Pacific Ocean — to its map last week. The airline will offer three-weekly flights to the island from both Brisbane and Sydney for three months, though reports indicate that service could be extended.
- Ryanair is living up to its promise to “take as much market share as we can” coming out of the crisis. The Irish discounter has unveiled plans for dozens of new routes this summer, including a nine-route expansion in Spain. New Spanish routes include: Alicante to Ibiza, Lanzarote and Menorca; Fuerteventura to Valencia; Mallorca to Santander, Tenerife Norte and Zaragoza; Menorca to Malaga and Seville all from July 1.
Ryanair is also giving Brits more options to get away come July. The airline will also add flights between Birmingham and Poznan, Poland; Liverpool and Kaunas, Lithuania; and London Stansted and Preveza, Santorini and Zakynthos in Greece.
But that’s not all. Ryanair is also planning at least 27 other new routes between points throughout Europe. Many connect northern cities with warmer locales to the south.
- Transavia France is the latest to jump on the replace-Norwegian Air bandwagon in Europe. The Air France-KLM budget arm will offer weekly service between Montpellier in Southern France and Stockholm from June 11 to August 18, its first route to Sweden. Norwegian flew the route until August 2019, according to Cirium schedules.
- Copa Airlines‘ budget arm Wingo plans to beat Viva Air to Cancun’s beaches. Wingo begins twice-weekly Medellín-Cancun flights on March 28, two months before Viva launches the route. What happens in Cancun stays in Cancun?
The FAA is nearing D:0 on construction of a new AirTrain connection to New York’s LaGuardia airport. Last week, the agency issued its final environmental report on the project that will connect the last of the city’s three main airports to its rail network. Final sign off could come in as little as 30 days with construction slated to begin in June.
The automated people mover would connect LaGuardia’s two new terminals — one being built by Delta Air Lines — to the city’s subway and commuter rail system at the Mets-Willets Point station in Queens. Officials promise as little as a 30-minute train ride between the airport and Midtown Manhattan with the project.
But the LaGuardia AirTrain plans do not come without controversy. Many object to the lines’ orientation connecting the airport to a train station to its east while Manhattan — and most of the city’s population — lives to south and west. An alignment connecting LaGuardia to a subway station west of the airport was rejected early in the process.
Connecting LaGuardia to New York’s rail network has long been a dream of city officials. Plans for a subway extension to the airport in the 1990s died amid community objections to an elevated line running through residential neighborhoods. The Willets Point plans avoided this fate by following a highway right-of-way largely away from residences.
- The list of airlines planning to use Los Angeles International Airport’s new Midfield Satellite Concourse is emerging. Operator Los Angeles World Airports will provide Aer Lingus, Allegiant Air, Frontier Airlines, Sun Country Airlines and Viva Aerobus with incentives to relocate ticket counters to the new Terminal 1.5 and operate flights from the satellite concourse. While these carriers will be among the first to use the brand new space, Terminal 1.5 is connected to the Midfield facility by a bus — likely prompting the need for incentives. LAX plans to begin a phased opening of the concourse at the end of April.
- Fraport’s 2020 losses reached €690 million ($821 million) last year, as traffic at all its airports in Europe and China fell by between 30-70 percent. Traffic at its flagship Frankfurt airport fell by 73 percent for the year to 19 million. The group cut costs by, among other measures, cutting headcount. About 80 percent of its staff are participating in Germany’s “kurzarbeit” hours-reduction program. This year, Fraport expects a modest recovery with traffic at Frankfurt reaching between 20-25 million passengers.
Until now, countries have played nice with each other to ensure that air cargo and commercial airline service continued during the pandemic. But one year in, geopolitics, particularly deep tensions between the U.S. and China on trade, are threatening what had been surprising cooperation in the crisis.
The U.S. Transportation Department (DOT) has ordered all Hong Kong-based airlines to file their flight schedules to the U.S. seven days in advance for the agency to review. The order applies to all passenger and cargo flights operated by Cathay Pacific, Hong Kong Airlines, and Hong Kong Express. Although the U.S. and Hong Kong do not have an open skies deal, the 1997 air services agreement liberalized air service between the U.S. and what was then a U.K. colony and does not require airlines from either side to get approval for flight schedules.
At issue is a new Hong Kong rule that mandates two- or three-week quarantines for flight crews that enter the territory from any other country. Notably, Hong Kong provided an exception for crews that operate flights between Anchorage and Hong Kong, a route Cathay Pacific flies. “This carve out effectively provides Cathay Pacific with the ability to continue those operations without impact from the new crew quarantine requirements,” DOT said in its order.
FedEx, however, maintained a crew base in Hong Kong for intra-Asia flights. Those crew members would have been subject to the quarantine, which FedEx said would essentially have ground its Asia flights to a halt. FedEx has petitioned the Hong Kong government to provide a similar carve out for its intra-Asia flights, but the government has thus far refused. The carrier has temporarily relocated its Hong Kong crew base to San Francisco.
“We hope that the action taken by the U.S. Department of Transportation on March 16 will aid in resolving this matter,” a FedEx spokesperson told Airline Weekly. “Hong Kong is an important market for FedEx, and we continue to operate and serve our customers there with the safety and well-being of our team members as our top priority.”
Hong Kong’s ruling effectively disadvantages U.S. carriers and abrogates the air service agreement’s clause requiring fair and equitable treatment of airlines from both countries. “We find that Hong Kong has, over the objections of the U.S. Government, impaired the operating rights of U.S. carriers,” DOT said.
“The Hong Kong government’s exception for Cathay Pacific’s Anchorage, Alaska, cargo operation from those quarantine requirements puts U.S. carriers at a significant disadvantage,” Air Line Pilots Association (ALPA) President Joe DePete said in a statement. “ALPA applauds the DOT for their quick action on this very important issue and their efforts to restore a level playing field in the U.S.-Hong Kong market.”
Chinese state news media struck back against DOT’s order, calling U.S. allegations “unfounded,” “baseless,” and said it does “not serve the public interest.” How the Chinese government may retaliate remains unclear.
The row is the latest example of escalating trade and political tensions between the two largest economies in the world. Hong Kong has become a flashpoint in the row, as the U.S. has criticized a new Chinese security law that applies to the nominally self-governing territory and to changes to the way the local legislature is elected.
- WestJet‘s cabin crew ratified their first-ever collective bargaining agreement with the Canadian carrier. The deal is retroactive to March 1 and is in force through the end of 2025. The agreement ends two years of talks between WestJet and the Canadian Union of Public Employees, which represents the airline’s cabin crew employees.
Q&A With Qatar Airways Chief Commercial Officer Thierry Antinori
How does a global super-connector with no domestic market survive when a pandemic essentially grounds international travel? Airline Weekly Editor Madhu Unnikrishnan asked Qatar Airways Chief Commercial Officer Thierry Antinori this question in a recent video interview. Antinori stressed that any success Qatar Airways had since the beginning of the pandemic was due to its cargo capacity, fleet mix, and ability to sniff out new markets (such as seafarers) helped it manage the crisis, while many of its rivals struggled. This interview has been edited and condensed for clarity. A link to the full, unedited interview audio follows below.
Airline Weekly: Let’s look back on last year and how the pandemic affected Qatar Airways’ planning.
Thierry Antinori: We took some time to let it sink in and not to overreact or react too fast. The first parameter was to be there for people if they need to fly. We never forget the customer, notwithstanding the demand drop. The second thing is we observed the world that some countries were open, and some airports were open. The third thing, less aircraft will fly, so there will be less cargo supply. After assessing our fleet, we decided to continue to fly.
First, we combined cargo and passenger forecast and mapping at once. In the past, the cargo people were looking at the forecasts for the freighter fleet and putting some cargo on the passenger fleet depending on the pure network planning for passenger flows. We had a fleet that enabled us with good operating costs, good cargo capacity, and not too big passenger capacity (like the A350 and B777). We were able to manage to have more cities than our main competitors, with more frequencies.
Second, the way we managed our network. What we decided to look at the cash generation versus the operating costs. We decided also to combine scheduled business with charter, because we had repatriation flights – people from the mining industry, seafarers, that had to go to points that were not in our scheduled network. We had to be very agile.
We had in our DNA our customer mission, plus operational resilience that we learned during the blockade imposed by neighboring countries (since lifted). This enabled us to fly, mainly with A350s and B787s. That gave us three advantages. First, to always be in contact with our trade partners. They were able to give us information to assess the market. The second thing, we were ahead in terms of biosafety. Third, being ahead with the fleet we had allowed us to rebound faster than any other global connector in the industry.
In the Middle East, today we have 100 destinations and 1,000 weekly flights. Our direct competitor in the Middle East has approximately 20 destinations less than us and flies 30 percent less flights than us. That’s our business story, agility, flexibility, cargo integration, being ahead. We had a lot less losses than we would have done if we had grounded the airline.
AW: What lessons were learned during the blockade that are applicable to the current situation?
TA: First of all, the blockade brought very strong esprit de corps within the Qatar Airways team. The company had been tested in a real, live difficult situation. The pandemic is much more complicated to manage because it’s longer and the horizon has been moving almost every day. The rules of the blockade were known. Second, the company has been extremely flexible, to adapt flight patterns, rotations, corridors – these things were exactly what we needed in the pandemic. Third, we lost overnight 18 destinations in June 2017, and it was a big chunk of passengers and revenues that went off overnight. But by February 2020, we had 30 openings since June 2017.
There are more than 7 billion people living on the planet, and the geographical location of the Middle East enables you to have a 360 degree approach because one-third of the world’s population is within four hours of flight from the Middle East and two-thirds is within eight hours. And last but not least, during the blockade, Qatar Airways was essential as a lifeline for supplying the country. More freighters have joined the fleet, and as the pandemic occurred, we became the largest operator of freighters in the world.
AW: The countries that have come back, and the airlines that have recovered more quickly are ones with large domestic networks. Qatar, like KLM and Emirates, does not have a domestic network. How has Qatar Airways pivoted to this new reality, when international traffic has almost evaporated?
TA: When you look at airlines in China and the U.S., we are at a very serious competitive disadvantage. And the country has been closed to any visitors. In the beginning of the pandemic, we did not have much short- and medium-haul, because Saudi Arabia, Egypt, Bahrain were not served. We had everything as headwinds. But based on the DNA we had, based on the fleet we had, the energy we had, the leadership, and the energy around product and airports, we have not been panicking. If we understand the market and detect the pockets of business better than the others, then we’ll take a higher share of a smaller pie and we will survive and generate cash. We did better than our expectations.
It was about detecting repatriation first – many people had to repatriate, tourists, business people, but also people wanted to go back home. After that, we detected other segments that the competition was not really focused on. The first was seafarers. We had a strong approach on where are the seafarers, where are they needed, where are the rotations on the ships? We got about 50-60 percent of this market, and it was 30 percent of our revenue, compared with 2 percent of our revenues in normal times. We also identified the VFR segment. People continued to travel to see their families. We got 60-70 percent of flows from [nearby countries]. And we also saw that students would start to travel again.
AW: Before the pandemic, there was a lot of chatter in the airline industry that the super-connecting hubs, like in Doha, were being passed over by airlines and customers that preferred more point-to-point service. There is now some chatter that after the pandemic the role of hubs will be diminished. Qatar Airways’ whole business is predicated on connecting people all over the world. Do you believe this speculation has any merit, and how are you preparing for the way the airline industry might recover?
TA: We had a this thought at the beginning of the pandemic, that maybe people will fly differently. It may happen that there will be a preference for more nonstop flights. But the flows are so diversified, and the diasporas are so spread that the business model of a hub will definitely continue with the same strength as today. If you look today our biggest travel flows are the flows between Great Britain and Pakistan. In Pakistan, we fly to Karachi, to Lahore, to Islamabad, to Sialkot, and Peshawar. You would not have nonstop flights from Sialkot to places like Manchester – maybe to London, but not to the U.S. or Canada, etc. For VFR, it is not very relevant. It is similar with our network in Iran. People look for an efficient way to travel, but they very often do not have the choice to avoid a hub. The difference will be a competitive hub and competitive airlines will gain share versus the others.
The second observation is our partnership with American Airlines. Today, our flights from Dallas and Doha are very strong. We operated daily between the hubs throughout the crisis. And now we increase our production from seven weeklies to 10 weekly flights, and we connect 212 cities in the U.S. with American mainly via Dallas, but also via Chicago and Miami. The business is coming from Oklahoma City, from Albuquerque, from Nashville, from Portland, etc. A well-organized hub and system with good integration and good reliability for the customer will be strong.
AW: [CEO Akbar] al Baker has said the Airbus A380s won’t be coming back anytime soon.
TA: We decided for a mix of reasons, first of all for economic reasons, but also for sustainability not to fly the A380s for two years. Not in 2020, 2021 and probably not in 2022. In 2020, you do not need a Nobel Prize in aviation planning to see they weren’t working, because the passenger demand was low, and it is not a good aircraft for cargo.
The A350 is not only economical and young, it’s also in terms of sustainability a better product. An A380 generates 80 percent more CO2 on the same route than a A350. Knowing that an A380 was empty or even half-full doesn’t represent a full A350 – it’s not a good story. We fly every day to most of the points we serve, whereas our competitors fly two or three times a week. It is not a reliable and predictable product.
AW: Are there any fleet changes this pandemic has engendered?
TA: What changed? The opportunity to have a fleet simplification, to exit some aircraft types or to ground some aircraft types. The A380s are grounded. The A330s are grounded and probably won’t all come back to service. The others are not changing – we have a lot of orders and we have the right aircraft. It was an acceleration of exiting some subfleets and exiting older aircraft, more than changing the aircraft. Some people say the A380 is adapted for the rebound, but they are very few. The future will tell. Even if they are right, the aircraft will still be unsustainable and not very good for cargo.
AW: Before the pandemic, Qatar Airways was very active in investing in other airlines (IAG, Air Italy). Will this strategy grow after the pandemic and are you eyeing more opportunities?
TA: The shareholdings that Mr. al Baker developed in the last years is balanced. We have one in [the] Americas: That’s Latam. One in Europe, IAG, one in Asia, Cathay Pacific. We will not go to new shareholdings, except one, which is already known, RwandAir. We see a big opportunity in Africa. It’s a continent with more than 1 billion in population and a lot of resources, underexploited in terms of aviation and air services. Qatar Airways will invest and build an airport in Kigali. We will invest 48 percent in RwandAir. The transaction is in its final steps.
Mr. al Baker decided to go deeper into our relationship with a North American partner – American Airlines, where we redefined completely the relationship from February 2020, and it’s a big driver in our crisis management. Secondly, continuing to have a strong relationship with JetBlue. And now, leveraging our new relationship with Alaska Airlines, which is joining Oneworld on April 1. That’s why we opened a flight to Seattle on Jan. 29. And we have a new partnership with Air Canada, because Canada is important to us strategically.
AW: A few years ago, Qatar Airways tried to make an investment in American Airlines, which was rebuffed due to the trade dispute at the time. Is there a plan to go beyond the strategic partnership now to a financial partnership?
TA: It is Mr. al Baker’s decision, but to the best of my knowledge, no. Now, the relationship with American Airlines is very professional and fruitful and is a big driver in the strategies of both airlines. We have been very proud at Qatar Airways that in the last investor call of American, they mentioned the partnerships they have developed with JetBlue and Alaska. The only international partnership they mentioned was with Qatar Airways. Things change.