Qatar Airways boss Akbar Al Baker says the threat of long-haul low-cost carriers has been over stated, despite Emirates president, Tim Clark describing their rise as a “gathering storm”.
Asked about the increasing market share of these rivals, Al Baker said of long-haul LCCs, “It doesn’t work. They will not succeed.”
“Air Asia is struggling,” he said, “Norwegian’s nose is just above the water. Lufthansa tried and withdrew with the Dubai Eurowings flight.”
AL Baker said that Qatar Airways competed by mixing low-cost fares into its own full service airline offering, but that when oil increased in price, low-cost long-haul would struggle.
“Maybe long-haul low-cost will work when the fuel price is 30 dollars a barrel. But once it goes beyond 50 dollars I guarantee it is not feasible. The cost to operate becomes so high that the yield you get from low-cost long-haul will not cover the cost, at time it won’t even cover the DOC. Don’t forget that Laker who started long-haul low-cost failed when oil was only 10 dollars a barrel.”
Airlines such as Norwegian say that its modern fleet – B787 Dreamliners – mean it can compete on efficiency. Al Baker disagreed.
“The newer aircraft you put on, the more red ink will flow over your paper, because you have such a high ownership cost.”
“Once the cost of money goes up, the Fed is planning to increase the base rate and the fuel price goes up, there has to be one serious conflict around the world and the price of oil will go up and there will be big problems among the airlines.
“And this is why we at Qatar Airways are constantly trying to diversify our business so we always get robust cash flow to sustain the airline if things like this happen. The biggest challenge is a 70 per cent increase in oil price compared to a year ago. It reached 27 and it is just under 60 now.”
When asked why British Airways was responding so aggressively to the threat from Norwegian, putting on flights to Fort Lauderdale and Oakland, for instance, Al Baker said:
“That threat is for the near future. I don’t think it will last. It is just to give a message to your competition “we are ready”. It is, “If you do this, we can also do this”. It is a survival of the fittest. And the survival will be BA because it’s a strong network carrier compared with Norwegian.”