By Neil Halligan
For nearly a decade, Saudi Arabia’s second airline struggled to make money in a market dominated by state-supported Saudia. Until now. CEO Paul Byrne reveals how he remodelled Flynas as a low-cost carrier, a move that has led it to its first ever profit
These are unusual times for Saudi low-cost carrier Flynas.
Celebrating its ninth year of operations, the Riyadh-based carrier expects to record its first ever full-year profit for 2015.
Having struggled for nearly a decade, the carrier now plans to embark on a generation of growth and almost treble its fleet size in the process.
Previously Nas Air, Flynas ditched its long-haul model in favour of a low-cost carrier (LCC) version in 2014, resulting in a leaner company that has produced a spectacular and rapid turnaround.
“What we’re doing is we’re trying to keep it nice and simple,” CEO Paul Byrne says. “I describe the airline as a Saudi low-cost. A lot of people might call us a budget airline. All of our aircraft have eight proper business class seats, so we’re not at the Ryanair level.”
Flynas carried 5.5 million passengers in 2015 and with plans to expand to new destinations this year, Byrne says he expects that figure to rise to more than 6 million this year.
He says staff at the airline have suddenly found themselves in a whole new world.
“There’s a new confidence in the business. We finally found what works for us,” he says.
“The key element for me this year is probably to get our team to deal with success. They have been fire-fighting for years and been staying alive for years, which was fantastic, but now we’re at a stage where they don’t need to do that now, and we can actually start planning.”
With an aviation career stretching back more than 35 years, Byrne has worked with LCCs in his native Ireland, as well as in India, Indonesia, Nigeria, Mexico, Brazil, Philippines, Turkey, Tanzania and South Korea.
He joined Flynas initially as a consultant, which allowed him to identify where the issues were, before being appointed as CEO nearly 18 months ago.
“We tidied up where and when we flew and got a lot smarter with our network planning and put a lot more science into it. There’s been a lot of change of faces at Flynas in the last 12 months. The plan is to bring in people that have experience of the low-cost model and for those people to then pass that on to the Saudi workers. There’s no Saudi low-cost experience. The only aviation experience is Saudia,” he says.
Now at what he calls a ‘critical mass size’ — 26 leased Airbus A320s — Byrne says Flynas is about to use its new-found cash flow and profitability to expand its operations to a fleet of 100 aircraft over the next decade. Ordering planes directly from the manufacturer will allow more control over the specifications, including the interior and layout of the aircraft, he says.
While Airbus would hold a distinct advantage, Byrne insists the deal is open to any manufacturer that offers the right deal.
“Realistically, if you’re looking at this from the outside, you’d say we’d be lunatics to change from Airbus. We’ve got 26 Airbus at the moment, moving up to 28 [with two more to be leased this year]. Realistically, for the next two years, any aircraft that I bring in will be Airbus, so why change and go through all that trauma? Really, what that says to Boeing is ‘you have do a sweetheart deal for us’, and the same for Bombardier. If they can, and beat the Airbus deal, I’d be a fool to ignore it,” he says.
The Saudi airline market is in a state of flux right now, with expansion happening right across the kingdom.
New operators in Saudi Gulf Airlines and the Qatar-backed Al Maha Airways are looming large on the horizon, expected to launch operations anytime now, while the state carrier Saudia, with its current fleet of 160 aircraft, continues to expand at a rapid pace, ordering a further 50 Airbus regional planes at last year’s Paris Airshow.
The competition is growing, but Byrne insists there is plenty of room.
“It’s an interesting market. Nobody knows how big the Saudi market is yet,” he says, with a smile.
In adopting a regional, shorter-haul approach, with strategic codeshares, Flynas has moved a million miles away from the long-haul model of its predecessor Nas Air — which at one stage included an all-first class service.
Istanbul is as far north as Flynas reaches, while Khartoum is its most westerly point, with the Arabian Peninsula marking out the extent of its eastern reach.
“I don’t see that changing,” says Byrne. “I know, and everyone tells me, there’s a huge market in India, Pakistan, Nepal, Bangladesh — huge Muslim markets as well, which suits our destinations. However, the effort and the yield, it’s not really worth it. The marketplace there is very different from our model. What we’re looking for is people who have access to make their own decisions. We do as much of our business as we can on the web, so when you go into a market like Pakistan, Nepal, India, there’s two very distinct markets there. One of them is workers and the other is religious tourism — pilgrims, both of which tend to be very organised.”
He says Flynas has signed a strong codeshare with Abu Dhabi-based Etihad Airways for customers looking to travel beyond its current reach, with two flights daily from Riyadh and Jeddah to the UAE capital.
“These things need to be marketed and planned. So we spent a lot of time with Etihad and asked them what time they wanted us to fly there,” he says.
Flynas’ flights can connect with Etihad’s Indian departures and arrivals, as well as some of the US destinations. Byrne says the carrier hope in time to ramp up frequency to further enhance its connections with Etihad’s Asian and European flights.
“The flights from Abu Dhabi are packed all the time, but we have the advantage in that we are a point-to-point carrier, whereas Etihad is not, so we have the luxury of being able to afford not to fill our flight with the connecting passenger and sell point-to-point weekend traffic into Abu Dhabi, or business travel into Riyadh and Jeddah,” he says.
The majority of Flynas flights are within the kingdom, with the Jeddah-Riyadh service considered to be ‘the gold mine’.
“If you take a ruler [on a map] and draw a line from Jeddah to Dubai, you hit Dammam and Riyadh [in between], and that is probably a ‘golden corridor’ for us. That’s where we make most of our profits,” he says.
The demand in Saudi Arabia appears to be insatiable. Byrne says the only aspect stopping him from adding more services is availability of airplanes.
“It’s literally about being able to get access to newer aircraft,” he says. “I could get plenty of 12-year-old airplanes, there’s lots of old A320s out there, but I don’t really want that as a customer experience for the Flynas guest. We’re trying to make our fleet a little bit younger — it’s averaging about eight and a half years now — but we’re quite aware that the other companies are coming in with new equipment.”
At one end of the ‘golden corridor’ are the three ‘recession proof’ airports of Jeddah, Taif and Madinah that cater to the country’s pilgrimage market. In order to cope with demand during Haj season, when millions of Muslims make their pilgrimage to Makkah, Flynas creates a whole new airline.
“At certain times in the year, you just can’t have enough seats in there,” he says. “For the Haj and Umrah we have a whole different airline, which we leases wide body airplanes for the Haj and brings in A330s, B757s, B767s. We had all kinds of aircraft during the last Haj. We had a record year last year. Year-on-year we doubled our carriage.
“In terms of seat capacity, the airline for the 40-plus days of the Haj is bigger than Flynas. More seats. It’s very concentrated. You bring people in and send the plane back out empty. It’s all directional travel. It’s not something that an airline would get too involved in.”
A constant issue that remains for Flynas is the fare cap imposed by Saudi Arabia’s General Authority of Civil Aviation (GACA). Dating back to when Saudia was the only operator in the country, it was designed to keep fares at a certain level but has only barely been lifted since, despite newcomers and higher costs.
Byrne says Flynas has campaigned heavily to have it removed and to be able to operate in a free market, but it appears set to stay for a number of years, even with more airlines due to enter the kingdom.
“We are quite happy to charge as much as people will pay,” Byrne says. “We have a regulator who is starting to become more and more enlightened and try and open up the market a bit more. Behind them they have a state airline who is used to being spoon-fed. For a long time in the past GACA was the political wing of Saudia. So there’s a lot of ingrained thinking there that needs to ease its way out.”
Byrne says GACA brought in consultants to compare the Turkish, Egyptian and the Saudi domestic markets and found that yields in the kingdom were 65 percent below the other two markets.
“There’s something like 12 airlines operating in the Turkish domestic market alone,” Byrne says.
While he admits the tendency of Saudis to make late bookings is favourable to Flynas’ LCC model, Byrne says Saudia’s fuel subsidy still lends it an advantage.
“I’ve absolutely no issue with Saudia taking a subsidy for their fuel and a fare cap, but I don’t get a subsidy but I do get the fare cap. There’s something wrong with that picture. I’m not asking for a subsidy but I would also prefer not to have a fare cap,” he says.
“You’ll hear the argument that if Flynas was allowed their free hand they would just gouge the market, but if we did that, people wouldn’t buy our seats.”
Byrne says Flynas has never hedged on fuel — “never had the money quite frankly” — but does plan to wait for a while to see how the price pans out.
“For every 10 cents that comes off the annual price of fuel, it’s probably worth $2m a year to me in terms of my costs but it’s a two-edged sword. It’s the lifeblood of Saudi Arabia and the income for the government, a lot of their contracts are slowing down and people have stopped flying,” he says.
In six years’ time, Flynas’ entire fleet is due to be overhauled, with 50 new planes set to arrive, starting this year. The new fleet will allow the airline to expand on its core markets in the Arabian Peninsula, Turkey, Egypt and Sudan.
“We have a very good flight from Riyadh to Cairo, which we’re looking to expand into a double daily. We will keep it within three hours of flying,” he says.
“We’re also close to finalising a deal with Pegasus [Airlines] in Istanbul, looking to go minimum daily into Sabiha Gökçen [Istanbul] from both Riyadh and Jeddah,” he adds, which will give his customers greater access to German, French, Spanish and UK routes.
With over 20 regional airports, Byrne admits that the vast Saudi market offers opportunities for growth outside of the established airports in the kingdom.
“There are several places that we don’t fly to at the moment, north and south of that [golden] corridor. We’re looking to expand if we can. We opened up a base in Dammam in November and put two aircraft in there, and we’re finding that we need more. Those aircraft are high 80 percent load factor for us all the time,” he says.
GACA’s promotion of the northern airports is encouraging for Byrne, who hopes to play a part if a similar operation happens in the south of the country. GACA plans to transform Hail regional airport into an international airport, with Egyptian-Saudi joint venture Nesma Airlines due to use it as their hub.
“That kind of idea will increase the Saudi aviation market. We can fill some gaps that Nesma aren’t filling at the moment. We see that as a positive thing,” he says.
Byrne points to what Flynas has done in Dammam as an example of where he sees the obvious next step for its growth.
“We’re also looking at a few years down the road, well within our five-year plan, of having a southern base somewhere. We’ll start with a two aircraft operation like we did in Dammam, get the market moving, solidify it and add more aircraft. There’s some really good airports in the south.”
From there, it seems the sky is the limit for Flynas.