Photo: Qatar Airways

DOHA – As Airways first reported Sunday night, Qatar Airways has lost access to the airspace of Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt and all flights from Doha to those countries; all of them have been canceled. Subsequently, those countries have been joined by Libya, Yemen, and the Maldives.

The loss of access is part of a broader cessation of diplomatic ties between those four states and Qatar due to concerns over purported Qatari sponsoring of terrorism and other issues.

This is a developing situation, and by the time you read this, the situation may have changed. But as things stand at the time of writing (the morning of Wednesday, June 7), diplomatic ties remain broken, and this analysis will treat them as such.

Understanding the geopolitics at play

We’ll get to the aviation aspects of this in a second, but it’s helpful to understand the context of why this action was taken by the seven nations in question. Ostensibly, the claim is that these countries are unhappy with Qatar’s sponsoring of supposed terrorist activity, most notably Palestinian group Hamas and the Muslim Brotherhood. But there is clearly more at play.

As this Vox article points out, there are also tensions surrounding Qatar’s partially state-owned news agency Al Jazeera, and over Qatar’s relatively warm ties with the newly resurgent Iranian regime.

That last point speaks to what many consider to be the real driver behind this move—Saudi Arabia and the other Sunni nations fear an upset of the existing balance of power where Saudi Arabia is the regional leader of Sunni Islam and the de-factor regional kingpin of the Middle East.

Freed from sanctions by President Obama’s nuclear deal, the Shia Iranians are making a major push to get a seat at the table under the (relatively) reformist government of Hassan Rouhani. Saudi Arabia at least partially fears Iran’s rise and wants to bring Qatar more in line with other states in the region.

None of this has direct links to the aviation aspects per se, but it does suggest that even if Qatar gives in to some of Saudi Arabia’s demands such as cutting ties with Hamas and the Muslim Brotherhood, and shutting down Al Jazeera, it is not a given that Qatar will once again be given free reign in the airspace of its neighboring countries.

The aviation impact is varied

First off, the shutdowns affect about 55 daily flights from Qatar Airways’ Doha hub, more than 10% of the total.

This is broken down as 25 flights to the UAE (across four destinations including Sharjah and Ras Al Khaimah), 20 flights to Saudi Arabia (across ten destinations), six flights to Bahrain, and five flights to Egypt (across three destinations).

Even if the number of seats isn’t quite 10% of Qatar Airways’ total traffic, these four spoke markets (particularly the UAE and Saudi Arabia) represent a non-trivial proportion of feed into Qatar Airways’ Doha hub. And there are certainly a few marginal routes whose business case will be impacted by not having this feed anymore.

The direct impact here is that 17 routes are being terminated, but the indirect impact on connectivity could kill another 10-15 or wipe out Qatar Airways’ profitability, forcing them to dip into the sovereign wealth fund to subsidize the airline.

The airspace impact for the moment is tangible but manageable so long as Bahrain continues to allow the one route through its airspace. The odd routings required by this airspace configuration add anywhere from fifty to several hundred miles to Qatar Airways’ flight paths, and that is a non-trivial cost impact (at first glance our estimate is $50-75 million on an annualized basis).

In the long run, this would also constrain Qatar Airways’ growth as that one pathway through Bahraini airspace is already bursting at the seams at Qatar Airways’ current level of operations.

Things get really crazy, however, if Bahrain blocks off that one pathway as well, thereby cutting Qatar off aerially from the rest of the world (remember the airspace ban also applies to other carriers operating in Qatar). At that point, Qatar Airways would have to shut down, or (more likely) its government would capitulate.

The impact (of either) would reshape global aviation

Now with the caveat (as with the laptop ban) that this could all be moot and resolved within 36 hours or so (and certainly within a couple of weeks), either of the two scenarios would have a pretty massive impact on the shape of global aviation.

Let’s start with the extreme scenario first, as that is less likely to persist for long.

The traffic that currently flies Qatar Airways (26.6 million passengers) would be broken up and dispersed amongst the airline’s rivals in the Middle East (Emirates, Etihad, and Turkish Airlines) as well as back to home country carriers (Saudia, Air India, etc.).

Qatar Airways currently has 217 passenger aircraft on order (including 171 wide-bodies) and thus represents a nontrivial portion of Airbus and Boeing’s backlogs by aircraft value. The biggest adverse impact would be on the 777X (it has 60 on order or a fifth of that program’s backlog) and the A350-1000 (about a sixth of the program’s backlog). To a lesser extent, the Airbus A380 and Boeing 777-300ER would also be affected, and those companies would lose at least hundreds of millions of dollars if not billions of dollars in market cap.

Even the less aggressive scenario of no service to the four feeder countries will likely trigger a series of deferrals and maybe the cancellation of 10% of the backlog (along with either the A320neo family or 737 MAX family order).

Here the major systemic risk is to the A380 and especially the 777X as the A350, and 787 have enough demand to fill deferred slots with other customers. On the airline side, the same effect would occur regarding traffic being redistributed to Middle Eastern rivals and to home country carriers (in this case Saudia and Egyptair are the “big” winners.)

Once again that caveat is that this could all be resolved within a few days. But if things develop adversely, this has the potential to change the contours of global aviation.