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On 5 June 2017, the governments of Saudi Arabia, UAE, Egypt and Bahrain announced that they were cutting diplomatic ties with Qatar, over claims of the latter sponsoring terrorism. Travel bans were put in place such as flight bans and port closures, which will clearly have a highly disruptive effect on destinations, airlines, hotels and tour operators in the GCC and wider Middle East.

The overall size of the Qatari outbound market is relatively small at 2 million departures in 2016 to the rest of the world, however, Qataris spend a lot per trip, with an average outbound spend per trip of USD1,400 and showing a positive upward trajectory. Overall outbound expenditure reached USD2,617 million in 2016.

Departures from Qatar to Saudi Arabia

Source: Euromonitor International – Travel Forecast Model

Dependency levels

The impact of cutting ties with Qatar on inbound tourism to the four countries will vary, based on the level of dependency on Qatar as a source of demand. In the case of the UAE, Egypt and Bahrain, Qatar accounts for a small share of their inbound arrivals, of 1% or less. Whereas, Qatar plays a more important role as a source market for Saudi Arabia, accounting for 7% of all arrivals amounting to 1.3 million trips, and more significantly, 27% of all inbound receipts that Saudi Arabia generates from international tourism.

The most popular destination for Qataris is Saudi Arabia, with 1.3 million trips taken, and holds the majority share of outbound expenditure at USD1 billion. After Saudi Arabia, the UAE is the most popular destination in terms of expenditure for Qataris, followed by the US, UK and Bahrain.

Undermining long term potential

Severing ties with Qatar will act as a drag on tourism spending, especially for Saudi Arabia. Pre the diplomatic dispute, Euromonitor International’s Travel Forecast Model indicated that outbound expenditure from Qatar to Saudi Arabia would grow strongly at 5% per year over 2017-2020. The trend will go into reverse seeing as the flows between the two countries will be stopped, and the severity of the downturn will depend on how long the diplomatic dispute lasts and when relations normalise.

Airlines in brace position

The Middle East is home to the big Three carriers of Emirates, Etihad and Qatar Airways that have expanded rapidly across the globe in the last 15 years or more, thanks to liberalization and open skies, much to the chagrin of many a legacy carrier around the world.

Considering the high spending power of Qatari travellers, they will be a sorely missed source of revenue in the short term.

Qatar Airways, a five star airline, is the smallest of the Big Three, with a 2.6% share of the Middle Eastern airlines market in 2015, amounting to USD1.4 billion. Qatar Airways has a reasonable presence in the UAE market and Saudi Arabia, with 5.7% and 4% respectively. However, it has been losing in the UAE market due to intense price competition from the domestic carriers of Etihad and Emirates.

With flight bans in place and the exposure that the three Middle East carriers have to each-others markets means that it is unlikely that there will be any winners in the short term.

Big Three Middle Eastern Carriers Airlines % Value Shares 2010/2015

Geography

Company Name

2010

2015

Middle East and AfricaEmirates Group Plc7.511.0
 Etihad Airways LLC1.84.4
 Qatar Airways Group Plc2.12.6
Saudi ArabiaEmirates Group Plc6.56.9
 Etihad Airways LLC2.84.6
 Qatar Airways Group Plc3.24.0
United Arab EmiratesEmirates Group Plc38.734.5
 Etihad Airways LLC7.311.7
 Qatar Airways Group Plc8.75.7

Source: Euromonitor International

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