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National Air Services’ CEO Ed Winter.

Ed Winter, CEO of National Air Services, and Sama's Andrew Cowen on combating rising fuel prices, fare caps and the changing Saudi Arabian market.

Ed Winter, CEO

Nas Air is the low-cost airline that National Air Services started up just over a year ago. For years, Saudia (Saudi Arabian Airlines) had total control within the kingdom until Nas Air finally gained the first low-cost licence last February.

Up until recently we had just been flying internally, serving an extensive domestic network of 21 cities.

But our objective all the way through has been to travel internationally, because we can take our product further and consumers across the region can enjoy our services.

We've recently launched our first international routes to Sharjah and Abu Dhabi in the UAE. We did try and come to Dubai but it's unfortunately full at the moment and we couldn't get rights to fly.

However, we do recognise that the emirates are a key part of the Middle East market. It's an important leisure market for people coming out of the kingdom, as well as an important business market.

In addition, large numbers of people from the emirates visit Saudi Arabia for religious reasons. There's no reason why we shouldn't be serving three different airports in the UAE, and we'd love to come to Dubai as well.

In order to operate these routes, we've purchased several new aircraft. Passengers are quite surprised when they come on a low-cost airline to find we've acquired brand new Airbus A320s to fly to these destinations, with four in operation.

We also have two brand new Embraer 195s, which are slightly smaller aeroplanes with 118 seats as opposed to the 180 on board the A320. We've gone slightly away from the traditional low-cost model of having only one type of aeroplane because we have to operate several domestic routes.

Some of those routes are actually quite thin, so we have small Embraers for these.

In terms of future orders, we have three more dry-leased A320s arriving in the first two months of 2009. And direct from Airbus, starting 2012, we have 20 planes on order.

During the first six months of operations, we were running four or five key domestic routes and on those we were around 70-75% full.

When we began the public service obligation routes, which are a lot thinner, the load factors fell quite considerably to the extent that we had to start looking at bringing in smaller aeroplanes to operate some of those routes.

We're going to try to bring a whole new face to low-cost travel in the region. People will be used to using airlines with some pretty old, unreliable aeroplanes, but our new aircraft are much better.

A new plane is not just comfortable and shiny, it's also reliable and that's the key reason we've invested in brand new equipment. We want something that can fly hard so that we can achieve high punctuality and regularity for our passengers.

The only major problems I envisage are the rising fuel costs and fare caps. The price of fuel is a huge problem and it's eating into everyone's budgets, particularly low-cost carriers.

The budget model is all about competing with other expenditure, rather than other air travel, and what we're trying to do is offer people low fares to stimulate the market.

You can't just pass on the cost of fuel because you'd be breaking down that model. I am concerned that things haven't turned around yet; it is a huge part of our expenditure. One particular issue we do have is that Saudia is still subsidised, so they're paying a much lower rate for fuel than we are.

Fare caps were set some while ago against the background of Saudia, which was receiving and still does, huge fuel subsidies. So at the moment on most domestic routes, if I filled every single seat at the fare cap we would still lose money.

We're working closely with the government and the aviation authority in Saudi Arabia to bring some realism to the regulations there. Fare caps make it impossible to make money if we continue operating in the kingdom alone. The only way the airline is going to work is to expand internationally as rapidly as we can.

Most routes in this area are governed by bi-laterals and government restrictions, so we'll be negotiating hard over the next few months and I hope in the near future we'll be announcing routes into Pakistan, India, Egypt, and Sudan.

Round the region, we're looking to fly into Jordan, Syria and Lebanon and probably other places as well, although they're the key ones on the list at the moment.

We're hoping to add about a dozen to our list this year. Unlike European low-cost carriers, the majority of our bookings are not made online. This is due to internet penetration and familiarity.

First of all, it's people's access to the web and then it comes down to their confidence. In Europe 10 years ago, the actual percentage of people using the internet to purchase was quite low, where as now company's like Easy Jet are selling 99% of their flights online.

Obviously, in an ideal world all of our bookings would be on the internet but you have to adapt to where the market is, so for the moment we have a mixture of internet bookings, telephone call centres and travel agents.

It will come in time but in the interim period we are looking at how people want to make their purchases, and ways to help get access to our flights. Meanwhile, we will also look at moving towards internet booking.

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