Qatar Airways Announces Record $632 Million Loss

Qatar Airways announced a loss of 2.3 billion Qatari riyals (US$632 million) for the fiscal year ended March 31, for a -4.8% margin. That’s their second straight year of losses and ten times the loss of the prior year.

The airline basically gets a pass on its financial performance while the country is being blockaded by Saudi Arabia, the UAE, Bahrain, and Egypt. That eliminates travel to 20 destinations in the region, and forces the airline to take circuitous flight routes – increasing fuel costs and flight times (and making the carrier’s schedules less desirable for customers).

Some critics will seize on losses as proof of subsidy and an unsustainable business model (although subsidies aren’t prohibited under the U.S. – Qatar Open Skies treaty). However it’s worth remembering that airlines have historically lost money and U.S. airlines in particular have lost huge sums (including shifting those losses onto counterparties).

The economics of Qatar Airways are complicated by their stakes in LATAM, IAG (parent of British Airways, Iberia, Aer Lingus and Vueling), Cathay Pacific and China Southern, as well as the various non-airline businesses they’re involved in.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. The middle east airlines are following the Pan Am business model of high luxury and low fares to fill planes. One or two will fail without government support. US , European, and some (but not all) Asian – Pacific airlines run as businesses. Losses like these would cause (and did) major cut backs in services and additional fees to support the business model.

    With more point to point options, the hubs of the middle east are not attractive to flyers and will be rightsized in the future. Both Boeing and Airbus should be worried about more order cancellations. It was only a matter of time that what other airlines were saying about these “fake” airlines would come true. . .and now it is.

  2. Gary,
    The MAX groundings do not directly translate into bottom line losses which is what Qatar just reported. And even for specific events which translated into bottom line losses, the size of losses is meaningless without also comparing the size of revenues. All of the US airlines you cite are much larger than Qatar in terms of revenue – a statistic you fail to include even once including to provide scale for Qatar Airways.

    You also realize that ALL of the airline pensions you cite were insured by the Pension Benefit Guarantee Corporation, a federally backed program but one that so far has not used any taxpayer dollars? Do you also realize that companies that have pensions insured by the PBGC pay premiums for the coverage? Do you also realize that all of the surviving airlines that turned pensions over to the PBGC gave the PBGC stock in the reorganized company which would be worth far more today than the value of the stock that was given the PBGC?

    Chapter 11 bankruptcy is a court-managed process of restructuring debt into equity. It is not a government handout. Chapter 11 bankruptcy worked as intended for the US airlines you noted above.

    And finally, even the American losses to China you cite did not result in bottom line losses. The only people who “held the bag” for American’s losses are the stockholders. It is precisely because AAL has accountability to its stockholders that it has been forced to suspend routes that it has operated for years and for which it saw no hope of a profit.

    You can define history however you want by pointing out only the negative periods but the US airline industry is currently very profitable. The free market forced airlines out of the marketplace that could not be profitable.

    All anyone expects from any airline that competes in the global free marketplace is for companies that cannot make money on a sustained basis to leave.
    Failed ownership stakes in other airlines, geopolitical issues, and a changing marketplace and competitive environment are issues which every company has to face.

  3. That was the most pathetic piece of journalism I’ve read all day ( and that’s saying a lot these days ). How much did Qatar Airways pay you to make their losses look insignificant?

  4. As others have noted, Gary’s analysis here is so absurd that it LOOKS like he’s being paid by the Middle East airlines to write it. I don’t believe that’s the case: I simply assume that his love of luxury free travel on those airlines clouds his judgment on this matter. I won’t repeat what’s been said above, but I will note that anyone who thinks Qatar “only” lost $632 million last year is smoking something (or, like Gary, is exercising remarkably poor judgment). No one knows for sure, but their real losses — if you used regular American-style accounting standards — would undoubtedly be vastly higher. It’s easy to lose only $632 million on an absurd business plan when the government gives you billions of dollars of stuff for free.

  5. …and Qatar airline has been boasting there’s no major impact on their business from the gulf blockage! Hah!

  6. I just hope they don’t plunder or shut shop before the middle of next year, as I have QSuites booked using AA miles. The Gulf operators are immune to subjecting their true values, profits, losses, etc to the public, as they are funded by govt sources. I don’t really care who funds this airline, but as long as they operate and make do on their promise to carry passengers who paid money, I’m all good with it. Thanks for the post Gary.

  7. @ The Value Traveler — As an individual traveller, I agree with you. You are obviously going to get value for money from a “non-profit” business that is being massively subsidized. You should “take the money.” Of course, Qatar’s competitors rightly feel differently. Business is hard; it’s harder when your competitors are operating with an unfair advantage. Gary’s complete failure to appreciate this reality is what makes his commentary seem like Pravda.

  8. @Mike – it’s appalling that they haven’t had to repay the pensions they shed onto the federal PBGC, and retained tax loss carryforwards while shedding debts in bankruptcy such that they haven’t been paying tax on their profits, huge government subsidies to delta… not to mention the protection from competition and subsidies from foreign ownership restrictions and government-granted flight privileges at airports like New York LaGuardia and JFK.

  9. @Gary Leff
    The only thing that is appalling is that you continue to mischaracterize actual business facts in pursuit of your agenda – for whatever motive – that Qatar is justified in their losses.

    Bankruptcy IS NOT a government subsidized process and it involves the exchange of non-government debt into stock. Legacy US airlines’ stock is worth far more than it was in bankruptcy.

    The PBGC received substantial stock from those airlines including Delta. The value of the Delta stock that the PBGC was given is worth far more today than the pension underfunding at the time that Delta terminated ONE pension plan. No taxpayer dollars have been used to support ANY U.S. airline pension.

    U.S. tax law regarding losses and carry forwards are no different for airlines than any other industry.

    Every major international airport is currently slot-controlled. Delta was not given ANY slots at JFK or LGA but JetBlue was. Delta accumulated its slot portfolio through swaps (with USAirways) or as a result of organic growth when the FAA removed slot controls in the past. ANY airline could have grown during those periods.
    U.S. airports have more low cost carrier competition than any of the largest and richest airports in the world. Delta has a lower share of slots at LGA and JFK than United has at Newark or American has at Washington National, the other currently or previously slot-controlled airports.

    Tell us the percentage of low cost carrier slots at Doha, Gary.

    You are either committed to factual handling of the truth or you are simply writing from a bias.

    Are you committed to the truth or not, Gary? The subsidies that you think the U.S. legacy carriers have received are in your imagination but not reality.

  10. Tim Dunn – 100% false, creditors took major losses but Delta retained their own losses as write downs, and how on earth do you justify government taking over pension liability – yet Delta keeps all its profits going forward?

    I am not saying Qatar isn’t subsidized. On the contrary. Airlines have been subsidized since the beginning (see: the Air Mail Scandal in the U.S. and American’s first big aircraft order receiving financial backing from the Roosevelt administration, a cronyist play if there ever was one American’s CEO was best man in Roosevelt’s son’s wedding). Pan Am was known as “The Chosen Instrument” for how it advanced US foreign policy and the US government policy was to advance Pan Am.

    Qatar is no different, and claims by Delta and American are false with respect to what the Open Skies Treaty says (Qatar has every right to subsidize its airline and fly to the US) and with respect to the notion that Qatar is somehow different than the rest of the work.

    That’s truth and you are either purposely misconstruing what I’m saying or not able to honestly read and assess the argument.

  11. @Gary Leff
    I am glad you replied to my comments.
    FIrst, you simply do not understand chapter 11 bankruptcy if you don’t understand that debt is exchanged for equity in the process of restructuring debt in C11. DAL stock was worth less than $20 when Delta emerged from bankruptcy and is worth just under $60 today. Delta has bought back more than one-fourth of its stock and has also paid dividends meaning that the value of 1 share of DAL stock is worth more than 4X what it was when DAL emerged from bankruptcy. The notion that creditors lost big is true only if they turned around and sold their stock.

    If you don’t like chapter 11 bankruptcy or U.S. tax law, then take up your issue with Congress but the U.S. airlines have done nothing with either process that other U.S. corporations haven’t done – to a far greater extent.

    U.S. business law is different than other countries and there are no equivalents to chapter 11 and some pension programs in other countries but the U.S. economy is far larger, far more efficient, and the U.S. tax burden is far lower than in other industrialized countries. Again, if you believe U.S. tax law is wrong, take it up w/ Congress – or better yet talk to real business experts who can show you why U.S. tax and pension law, while certainly not perfect, has created far stronger business with less government intervention compared to any other country.

    The government did not take over any airline pensions, Gary. The PBGC is a government backed company no different from the FDIC or the FSLIC that charges fees to its members to insure its products. The PBGC has never received a dime of government money to be used for U.S. airline pensions. That is simply factual and if you wish to persist in arguing otherwise, you should be able to provide the amount of that supposed subsidy and the documentation where others can find it.
    The simple fact is that Congress passed the Pension Protection Act to make it more advantageous for Delta, Northwest, and later American to retain their pensions. The largest pension defaults came from United and then USAirways before the PPA was passed. UAL and AAL stock is still worth more than what the PBGC received but DAL stock has been by far the best performing stock the PBGC received and DAL’s single pension plan that was terminated less undervalued compared to the pensions that UAL or USAirways terminated.

    As for Pan Am, it is precisely because they expected to be the chosen instrument that they could never figure out how to be economically viable on their own – and the result was that they were liquidated and economically viable airlines have taken over their routes and/or passengers. That is what has happened to many U.S. airlines and the industry, the government and the traveling public is better off for it.

    Thank you for admitting that Qatar Airways has been subsidized – because they have been along with Emirates and Etihad. Each of those three airlines were used as tools of economic development in their countries and the government paid for significant costs that western airlines have to pay including airport construction, loans and services.

    As for the blockade, you should be asking the question as to why Qatar and its neighbors including the UAE can’t get along, even for common business interests. The blockade is about far more than just airlines but maybe, just maybe, with respect to airlines, the UAE has decided they are no longer interested in subsidizing Etihad and Emirates and do not want them to have to compete with a subsidized competitor in the region. Given there seems little resolution to the blockade, have you asked yourself why it can’t be resolved and also at what point Qatar (the country) has to accept the economic realities of the political and economic decisions it has made?

    and, finally, it should be clear that the U.S. government puts U.S. interests above those of U.S. airlines; given that the U.S. has managed to insert itself into major countries throughout the Middle East, as an American, I can accept that a stable Middle East – which is more likely with the U.S. in multiple countries – than for a few more routes for U.S. airlines.

    The biggest vindication of the U.S. airlines is that they are the most profitable in the world; the UAE and Qatar would love to claim that title. Europe pulled the plug on the A380 precisely because subsidizing a money-losing project as large as a commercial aircraft model or a major global airline can be sustained by very few countries. Given that the A380 was predominantly purchased by the ME3 airlines, there are significant implications when they have to use the same aircraft models that the rest of the world’s airlines use based on real economics and not status supported by subsidies.

    Add in that the U.S. has now become the world’s largest petroleum producer and the economic reality of the Middle East has changed dramatically with implications for the global airline industry.

    Qatar’s (the airline) losses will continue until they run their airline as a business which means that excuses like the continued blockade and trying to point the finger at U.S. airlines may support some journalists today but economic reality and the free market which governs nearly all of the world’s largest airlines will ultimately prevail.

  12. @Tim Dunn you seem not to understand the difference between secured and unsecured creditors, and that equity in the new entity isn’t something debtors are taking voluntary, they’re getting a haircut.

    As for your arguments that creditors lucked out, they wouldn’t have voluntarily taken Delta stock but did well with it… Delta emerged from bankruptcy at the end of April 2007. It lost 3/4ths of its value during the financial crisis. It took six years from bankruptcy emergence to recover its share price to break even. The stock has grown nicely since then! But you have to posit a world where creditors accepted a negative rate of return for years after bankruptcy happening to hold into the future to come out ahead.

    The past six years aside the US airline industry has operated at a net loss. And the industry is heavily subsidized by governments at all levels. It’s utter hypocrisy to complain about Qatar doing the same thing, and if anything we should look at comparative stages of industry development, let’s compare what US subsidies were like in a similar period not current profitability of Delta.

    In any case it is all irrelevant because Qatar Airways has a legal right to fly to the U.S. under a standard template treaty that the US has been pushing as foreign policy for decades. Why abrogate our treaty commitments in order to redistribute money from US consumers to Delta’s shareholders?

  13. Gary,
    Thanks again for the engaging conversation.

    Tell us for what timeframe ANY stock should be held in order to be considered a good investment. The simple fact is that airline creditors were never given any timeframe in which they should hold their stock; if they sold too early, that is hardly DAL or any other airline’s responsibility.
    And again, while you rail at airlines, Chapter 11 reorganization is part of US corporate law and not something that was created just for airlines. Airlines are far down the list by industry of chapter 11 bankruptcies.

    What you fundamentally can’t accept is that the free market DOES eliminate inefficient and poorly-run competitors but government subsidized airlines skew the marketplace. The vast majority of the world’s airlines, Gary, are privately owned and run as for-profit companies. Feel free to post a list of the percent of government ownership in the top 20 international airlines excluding the ME3 and Chinese airlines; while you are at it, post the amount of the subsidies each of those 20 airlines have received. The US doesn’t have Open Skies with Chinese airlines. The vast majority of U.S Open Skies agreements are with countries that have free-market, privately owned airlines.

    Excluding the last six years to argue for lack of profitability while the last six years have been the most profitable period for U.S. airlines is just pure bias.

    I’m also not sure what your point in continuing to argue about the US3/ME3 debate. THAT is not the issue that your readers are raising. I wouldn’t have bothered to write other than to correct your patently false statements about subsidies that you have YET been able to justify with verifiable documentation.

    Your readers, including me, are asking how you can justify the losses of a government subsidized airline that is at greatest risk not because of US airlines but because of competition within the Middle East including by economic and political decisions that Qatar, the country, has made.

    Again, Gary, whatever reason you feel that you need to defend Qatar Airways’ losses makes no sense for those who use actual facts and not bias. The best vindication for those who are committed to free market global aviation is that Emirates and Etihad are now being forced to reduced their capacity even while Qatar continues to grow. The problem w/ subsidies is that someone will always come along w/ deeper pockets and a willingness to lose more money. If you think that the US3 are QR’s greatest problem, then you truly don’t understand what is really at stake.

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