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Sat 30 Jan 2016 12:56 AM

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New era for Saudi Arabia's aviation sector

Saudi Arabia’s aviation market has been one of the most highly regulated in the world for seven decades, but recent public appearances by two new airlines indicate a new era is imminent. Neil Halligan reports

New era for Saudi Arabia's aviation sector

SaudiGulf Airlines was doing more than just showing off its new Airbus A320 aircraft at the Bahrain International Airshow. The new carrier’s presence was the surest sign yet that Saudi Arabia’s domestic aviation market is finally about to take off.

The privately-owned airline and soon-to-be rival Al Maha Airways, a subsidiary of Qatar Airways, have been awaiting final approval and their operating licences from the kingdom’s regulator, General Authority of Civil Aviation (GACA) under a historic decision to open up the domestic market. After several delays, both airlines are expected to launch imminently.

“We’re in the final stages of obtaining our AOC [air operator’s certificate]. We provided our main submission of the manuals and all of the systems last year,” SaudiGulf president Samer Majali tells Arabian Business, on the sidelines of the airshow at Sakhir Airbase.

“Part of [the delay] was waiting for the airplane. We got it a month ago. At the beginning of February, we’ll start doing the emergency evacuation simulations and we’ll do the route-proving flights under the supervision of the civil aviation. Hopefully we will finish some time at the end of February-early March, and they will give us the licence.

“We will then commence some soft operations and hopefully we should start commercial operations anywhere between April and June.”

The former head of Bahrain’s state-backed Gulf Air and Royal Jordanian Airlines also blames some of the delay in launching the “boutique airline” — owned by Dammam-based Abdulhadi Al Qahtani Group — on the kingdom’s thorough regulations, which are being implemented for the first time.

“This is the first time that an airline has started up in Saudi Arabia and [had to go] through the entire certification process. We went through the whole certification and it’s a learning process for all of us,” Majali says.

Saudi Arabia has had one of the most highly regulated aviation markets in the world and limited foreign involvement. But rising population and affluence has led to a demand for more services. GACA expects annual passenger traffic to soar from 65 million in 2012 to 100 million by 2020, including almost a doubling of domestic traffic to 28.5 million.

It agreed in 2013 to allow two foreign airlines to operate domestic services only, while it is also part-way through privatising state-owned Saudi Arabian Airlines (Saudia).

 

In another sign of the newcomers’ imminent launch, Al Maha Airways livery also has been added to four planes still being operated by Qatar Airways and staff for the new airline are being trained.

While the regulators have borne much of the blame for delays in the launch of the two new carriers, according to local media, Majali says his Eastern Province-based airline also had been waiting to make an impact by launching with its own aircraft.

“The biggest delay was due to us requiring new airplanes because normally a start-up carrier uses old airplanes by dry leasing [and] starts up within three to six months, and that’s it. We wanted to make an impression within Saudi with a very high quality carrier, full service, and the whole shebang. We bought new airplanes from Airbus according to our spec [specifications] for the inside, and that normally takes 18 months. That was the major part [of the delay],” Majali says.

Curiously, he adds that the carrier has only taken delivery of one of its four aircraft for licensing purposes, with the other three remaining at Airbus’ headquarters in Toulouse, France, “because of the weather”.

“This is the only one required for the AOC process. Once we finish the AOC process, the other three will come,” Majali says.

Initially, the airline plans to launch four routes: Dammam-Riyadh, Dammam-Jeddah, Riyadh-Jeddah, and Dammam-Dubai, with domestic flights offering first class and economy fares, and international flights providing business class and economy class service.

“Then in 2017, which will be our main expansion year, we will increase within Saudi Arabia itself and [we] will increase within the region,” he says.

The expansion will be fuelled by the 16 Bombardier CS300 jets on order, at a cost of $2bn (with an option for a further ten), which Majali says will be delivered in 2017-18.

“It’s an airplane very similar to the A320, slightly smaller — probably ten seats less — but it’s a small, narrow body,” he says.

As a ‘boutique airline’, SaudiGulf will target the luxury market. While there are no plans to explore the business class-only configuration that has previously been unsuccessfully trialled in the kingdom, the model is definitely high spec, and will target the top end of the market.

However, Majali says he will be partly hamstrung by the kingdom’s fare cap.

“[With] the pricing, we are limited to an extent by the current fare cap and the modifications of the fare cap within Saudi Arabia, but obviously we have flexibility with first class and other things,” Majali says.

“But definitely the market in Saudi Arabia is opening up — you now have three airlines, and another one is coming up. Once you open up the market, there is no reason to have a fare cap any more. Hopefully, in the future, you will pay for the services that you get.”

Majali, who left Gulf Air in 2012, says starting the project from scratch allowed the carrier to order the aircraft to its own specifications and introduce the company ethos from the outset.

“Our advantage is that we’re started from the ground up, and so we can build it right from the start. There’s no excess baggage. Obviously a start-up also has lots of challenges but the upside is that as a start-up carrier we can build systems and procedures, employee attitudes and service right from the start,” he says.

Once the initial 20 aircraft are in operation, Majali says the airline will start thinking about expansion, including looking at a possible large, narrow body aircraft capable of serving longer-range markets.

“The plan [in five years] is to be a major player within the Saudi Arabian market domestically, and we expect to be a very strong regional player,” he says. “We’ll start thinking of expanding after that. But initially, with the 20 airplanes, we will doing Saudi Arabia domestic, we will be doing regional and a bit more beyond that — India, Pakistan, probably Turkey, Egypt, all [destinations] within a four or five-hour flying radius from Dammam.”

Al Maha Airways, which had also planned to commence operations in 2015 but was also held up by licensing issues, will initially operate routes to main cities in the kingdom, starting with flights between its hub in Riyadh and the west coast city of Jeddah, before moving to second-tier cities. The airline has already taken delivery of four A320, with plans to add another six by the time it starts operations. According to reports, the carrier will add a further ten to 15 each year until it reaches a total 50 narrow and widebody aircraft.

When they are up and flying, both of the new airlines will face fierce competition from Saudia and Riyadh-based Flynas, the kingdom’s only low-cost airline, which is owned by National Airline Services Holding (63 percent) and HRH Prince Alwaleed Bin Talal Al Saud’s Kingdom Holding.

Flynas CEO Paul Byrne has helped turn around the airline and is expected to report its first ever profit since launching in 2007 when its latest figures are released within months.

“The advantage for me was that when I came to Flynas I went in as a consultant, so I could see from the outside what was working and what wasn’t. Long haul wasn’t. One of the things we were fantastic at was getting an A320 from point to point on time,” he says.

“You start with a strength like that and build upon it. It’s not rocket science, we know what we do well, we know what people want, and we improved pretty dramatically on what they didn’t want. It was costing us a lot of money in 2014, and we took that particular cost out of the system and we’ve increased our A320 flying.”

The airline has plans to expand from 26 Airbus aircraft and to replace its all-leased fleet with up to 100 new aircraft over the next five years.

Byrne, who entered the aviation industry with Ireland’s Aer Lingus and has worked all over the world, says 70 percent of Flynas’ flights are in the kingdom’s domestic market.

“There’s still plenty of room in there for more flying and that’s where we’re concentrating most of our effort,” he says.

Byrne admits that despite there being only two operators in the country, the Saudi market remains “very tough”.

“Look at how long it has taken for any competition to actually get in there. Before us, you had a low-cost carrier called Sama that didn’t survive the rigours of trying to set themselves up. Nasair [the airline’s former name] and Flynas as it is, just barely stayed through that whole set-up period, but now we’ve established ourselves it’s still tough to make money,” he says.

Flynas’ potential profitability also has been limited by the kingdom’s fare cap.

“We’re being restricted on what we can charge on a day-to-day basis on our flights. We don’t receive a subsidy on our fuel, the same way as Saudia. If you want to subsidise an airline and then fare-cap them, I’ve no problem with that, but we get fare-capped [as well, and don’t receive a subsidy]. I don’t know where this equation came from,” he says. “But within ten days of departure, I can increase my prices by up to 80 percent.

“That said, I think GACA are expanding their thinking. They are no longer the political wing of Saudia, so they’re starting to become more and more of a regulator. I think they’re recognising that the kingdom needs to be served better by efficient airlines. We’re one of them. We’re hoping to see more people come in because competition is good; it will be good for us.”

That seems to be the common thinking in Saudi aviation circles — that once more operators come into the market, the regulators will be forced to loosen up and create a more business-friendly attitude.

“There was a heavy hand in the past. It was there for protectionist reasons,” Byrne says. “That is changing, but these attitudes never change overnight, so even though the senior people are changing their thinking, and are focussing on the industry by breaking things up, it’s a big organisation and that has to filter down. It has had 70 years of doing something one way.”

So when SaudiGulf Airlines and Al Maha Airways eventually launch, it will represent the start of not only new services, but a new era in Saudi aviation.

Regeneration of Bahrain’s aviation sector

A generation ago, Bahrain was a key hub in the Middle East, attracting the likes of global logistics company DHL to open its regional base there. For various reasons, the island kingdom’s infrastructure and airline service fell behind its GCC neighbours. But both are being addressed, according to the kingdom’s Ministry of Transport and Telecommunications.

The country’s recent airshow was used to relaunch what has been described by many as a new era for aviation in Bahrain.

The modernisation of the airport, described by the minister as “one of the most important strategic projects for the Kingdom of Bahrain”, will see a $1.1bn new terminal built over the next three years, by which stage national carrier Gulf Air will have taken delivery of the first of its new Airbus A320/A321s and Boeing Dreamliner 787-9s.

While the airline has not yet decided how to deploy the 29 aircraft that make up a $7.6bn order, Acting CEO Maher Salman Al Musallam says the aircraft will enhance the carrier’s offering and create opportunities to expand through the acquisition of longer range aircraft.

Reclaiming home ground

Kuwait Airways is looking to reenergise its operations, with significant additions to its fleet expected in the coming years, including ten Boeing 777-300ERs and 25 Airbus aircraft.

The national carrier’s appearance at the recent Bahrain International Airshow was its first representation at such an event in a generation. Arriving with its new A330, it was a sign the carrier is finally getting its act together.

“In Kuwait, the opportunity that we clearly have and not fully exploited is the fact that we have one of the largest home markets in the area,” says Kuwait Airways chief commercial officer Philip Saunders, speaking at the Bahrain Airshow.

“The truth is that many of our natural customers have preferred to travel with Qatar Airways, or Air Arabia, or many other carriers in the region, but that’s already beginning to change, because we’re putting the right schedules in place; we’re putting our market first.

“We have announced major investments in our fleet and also in our products. From this November, when we receive our Boeing 777, our customers will be in for a surprise, because we will have suites in first class and lie-flat beds in business class, and wonderful product in economy. We’re excited and confident about the future.”

Saunders says Kuwait Airways aims to recover its position as the carrier of first choice in its home market, supported by sixth freedom traffic.

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Mohammad Mohsen 4 years ago

Loosening the tight regulations, removing the fare cap and allowing fare competition are key factors to liberate the Kingdom skies