Financials also Show that Marked-Up Duty Free Sales Drove Large Share of Profits

WASHINGTON, DC (June 27, 2017) – According to a new analysis conducted by forensic accountants on behalf of the Partnership for Open & Fair Skies, Qatar Airways received at least $491 million in additional government subsidies in fiscal year 2017, a violation of a key international agreement with the United States. Despite this massive cash infusion, Qatar Airways suffered a $703 million operating loss in fiscal year 2017, a significant deterioration from its $358 million operating loss in the previous fiscal year.

In its annual financial report, Qatar Airways claimed that it generated profits of approximately $540 million during the fiscal year, which ended on March 31, 2017. However, a closer review of its financial statements reveals that the airline suffered substantial operating losses. Its report includes the following sources of profit received from the Qatar government and unrelated to the airline:

• The government granted a subsidy to the airline in the form of monopoly rights to operate a duty free and liquor sales business, for which the airline reported $298 million in net profit.
• The airline reported $37 million related to hotel operations, also granted by the government.
• And, it included $591 million in gains from the sales of property, plant and equipment. Because these transactions are thinly disclosed in the financial reports, the sources and parties to the transactions are unknown, but most likely include the government.

Without these sources of income attributed to Qatar Airways by the government and after appropriately reflecting general and administrative expenses as a cost of operations, the airline generated a $703 million operating loss in its fiscal year ended 2017. The reports indicate similar sources of profit were also made available to Qatar Airways by the government in the prior year. In addition, the airline realized approximately $135 million in current year profits, net of expenses, resulting from related party transactions as well as debt costs that appear to be significantly lower than market or commercial rates.

In its coverage of Qatar Airways’ supposed profits, Airline Weekly notes ‘these figures are misleading’ and explains ‘the larger point here is that Qatar Airways itself – the airline, in other words – almost assuredly did not make money last year.’ (Airline Weekly, June 19, 2017). The report makes clear that Qatar Airways has negative operating margins that would not sustain a viable operation absent government support. The same report also indicates Qatar Airways had the 4th worst financial performance in the entire global airline industry.

“No investor in their right mind would give money to a company that regularly loses hundreds of millions of dollars,” said Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies. “Even with nearly half-a-billion dollars in new subsidies and marked-up alcohol and duty free sales, Qatar Airways remains one of the worst performing global airlines, on par with failing carriers like Air Berlin and Alitalia.”

Following the release of the fiscal year 2017 annual report, Qatar Airways Group Chief Executive Akbar Al Baker cited his expansion and growth strategy as a key factor for the airline’s alleged profits. In reality, the financial reports show a significant operating loss on Qatar Airways’ equal to 7 percent of total revenues. In fiscal year 2016, the comparable loss was 4 percent of revenues, indicating a pattern of increasing losses for the subsidized carrier. The consistent flow of cash from Qatar’s government to Qatar Airways allows the airline to continue expanding its network and flying money-losing routes in spite of these losses. This represents the clearest evidence to date that Qatar Airways uses its subsidies to dump airline seats on the market at artificially low rates.

The latest $491 million cash infusion is further proof of massive, market-distorting subsidies – a violation of the Open Skies agreement between the U.S. and Qatar. Open Skies agreements seek to promote international aviation and to “ensure that competition is fair and the playing field is level by eliminating marketplace distortions, such as government subsidies.” Since 2004, Qatar Airways has received approximately $26 billion in subsidies, the most among the three Gulf carriers. As Qatar Airways states in its 2017 consolidated financial statements, “The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of the Group’s own reserves, funds from the Government of Qatar and bank facilities.”

The continued subsidization of the Gulf carriers has prompted a strong response from the rest of the world. Earlier this month, the European Union proposed new rules to enable member countries and European airlines to challenge the subsidies provided by the UAE and Qatar. The rule-breaking behavior of the Gulf carriers threatens over 1.2 million American jobs that rely on a strong domestic aviation industry.