There is an adage that goes ‘numbers don’t lie’, and Saudi Arabian Airlines’ figures, (since Prince Fahd bin Abdullah, president of the country’s General Authority of Civil Aviation, publicly called on the airline and its subsidiaries to essentially pull up their socks almost two years ago), show the carrier to be on the right track.
Saudi Arabian Airlines (Saudia) reported an 11 percent increase in passengers in the first half of the 2014, carrying 14,082,198 passengers compared to the 12,677,839 carried in the same period in 2013. More remarkably, aviation data monitoring firm FlightStats reported that the carrier achieved above 90 percent on-time performance, well above those of GCC rivals Emirates, Etihad and Qatar.
Yet, when one talks about the big GCC carriers, Saudia is added as an afterthought after the afore-mentioned big three. So why is Saudi Arabian Airlines lagging behind? Ignoring the shockingly bad Saudi public relations department, we put this question to the experts.
The former director general of Saudi Arabian Airlines, Khaled Al-Molhem, believes that Saudi Arabian Airlines needs foreign carriers to share some of its load on domestic routes, to allow it to cash in on more lucrative international markets.
He told Aviation Business earlier this year that the airline’s domestic operations were hindering the carrier’s growth.
“There are 27 domestic airports that we serve almost independently in Saudi,” said Al Molhem. “We carried 15 million passengers on those routes. This provides a lot of challenges with short duration flights [20 minutes on average] in a rough environment – and we do it on prices fixed by the government. These challenges in the local market hinder our ability to grow internationally.”
Al Molhem reveals that because the airline was injecting resources into the domestic market, other Gulf carriers were cashing in on the huge international traffic coming out of Saudi Arabia.
According to Al Molhem, 80% of passengers flying out of Saudi Arabia on Gulf carriers were travelling outside the GCC – passengers that Saudia are keen on targeting in the future. “We have 50 planes operating on domestic routes; (putting) assets here takes away our ability to grow internationally and we lose out on potential traffic. We know our neighbours are taking advantage of the connectivity between East and West,” he added.
Saudi Arabia has issued “licences” to two airlines for domestic operations in September 2012, but the drawn-out bureaucratic process of getting Qatar Airways-backed Al Maha and Al Qahtani-backed Saudi Gulf into the air seems to be still dragging on. Saudi Gulf is predicting a first quarter 2015 start, while Qatar Airways’ CEO Akbar Al Baker has been saying (since February) that Al Maha will start “soon”.
However, it is not only the neighbouring gulf airlines that have taken advantage of the situation. European carriers such as British Airways have also identified the potential for growth. BA increased capacity on its Riyadh routes and improved the schedule in 2013; it also upgraded its Jeddah services with a new Boeing 777.
“The Middle East, and KSA in particular, is an extremely important region for British Airways, with point-to-point travel to London remaining strong,” says Paolo De Renzis, British Airways’ Commercial Manager for the Middle East and Central Asia. “We are seeing increased demand from the region on our North Atlantic routes from both business and leisure travellers’ point of view, and we are continually monitoring our network to see where and when we can increase our routes, capacity and flying schedule.
“The launch of our first Boeing 777 on our Jeddah route is part of our ongoing investment and commitment to our Saudi routes, and our wider Middle East offering. We introduced the new 777 to meet the changing and evolving demands of our customers in Saudi Arabia.”
And what are those evolving demands from Saudi customers? “Premium travel is constantly rising in the Middle East inclusive of KSA and many airlines are investing in this - we see strong demand for high-quality services and top-class products, with passengers here knowing what they want and expecting high standards,” he says.
“Additionally, SME’s are a growing segment in the Middle East - we are witnessing double digit growth in the region including the KSA market. This we believe is a result of our competitive and generous product offerings that SME’s are offered through our On Business programme,” he adds.
While Emirates, Etihad, Qatar, and even Oman and Gulf Air, regularly win awards for their innovative premium class offerings, Saudi Arabian Airlines appears to be falling behind. To catch up will take time. As will the arrival of any new planes it orders.
Airbus Middle East managing director Fouad Attar told us that due to the backlog of plane orders, any airline ordering an aircraft now will only get it in seven or eight years. And even though the carrier has received 74 of the 90 orders it had placed with Boeing and Airbus, Attar predicts Saudia will need another 200 aircraft to meet the growing demand in the country over the next 10 to 15 years.
John Strickland director of UK based aviation consultancy JLS Consulting says that Saudi Arabia has perfect examples to follow within the GCC. “There are lessons to be learned from the approach of other states, particularly the UAE, where the aviation industry is flourishing in a competitive, liberal market, and consumers are seeing the benefits,” he says.
In a nutshell, Strickland says, in order for Saudia to flourish, “the company will need to improve its efficiency, focus on cost efficiency, and deliver a good customer experience in an increasingly competitive market.”
In a rare public speech, the newly appointed director general of the airline, Saleh bin Nasser Al Jasser, who took over in August, revealed that he was aware of these criteria when he promised to tackle the airline’s customer service issues, amongst other things: “We will encourage a spirit of initiative and innovation to improve the level of performance and customer services,” he was quoted as saying by Saudi Arabia’s Arab News print daily. “We will give top priority to customers in order to maximise satisfaction.
“We should set out plans to increase and diversify revenues, rationalise expenditures and boost operational efficiency. We should strengthen the airline’s competitive position and all affiliated companies should work as a single team,” added Al Jasser.
One analyst that has been following the Saudi Arabian Airlines story closely for the past 10 years is Leonard Favre, managing director at 1BlueHorizon Group. He is of the opinion that people are overlooking the complexity of the changes currently taking place within Saudi aviation, and given some time, we will be talking about a Middle East Big Four.
He points to the current privatisation process of Saudi Arabian Airlines as an example of something that will need to be concluded before we see the full potential of the aviation industry in the Kingdom.
Saudia’s privatisation includes six units: catering, which was privatised last year; cargo; ground services; maintenance; its aviation academy; and the airline. It also plans to sell off its Real Estate Development Company and a 400-bed hospital it is running.
“Saudi Arabian Airlines is a major state-owned organisation involved with many activities and from the beginning the time frame was not a secret: ‘the privatization will take its own time’ as per the leadership, and the deadline was ‘flexible’. Indeed, such privatization is not an easy task with delays being quite natural, partially due to the size and complexity of its operations and the need to thoroughly modernise itself,” says Leonard Favre.
“Privatisation is the first objective from Kingdom’s Supreme Economic Council to improve the capacity of the national economy and enhance its competitive ability to meet the challenges of regional and international competition. Enhancing competitiveness is closely linked to the general strategy of developing the private sector in Saudi Arabia. Important measures taken so far to create a suitable climate for investment, such as developing the capital and labour markets, will help achieve this objective. It is important that all enterprises in a single sector be required to operate under the same circumstances of competition,” he adds.
Leonard Favre stresses that the privatisation issue is holding up further development and the awarding of further airline licences. “I would highlight the fact that any privatization process is complex and Saudia privatisation is a prerequisite to any further development or licences award. Furthermore, it is important to clarify the market rules and to remove any subsidies provided to existing Saudi airlines, to grant permission for airlines to raise their fares under certain circumstances, and to review fuel prices at Saudi airports to ensure fairer competition,” he adds.
It is only fair, then, to conclude that one of the main reasons that Saudia appears to be lagging behind its GCC competitors is due to their working on a different time-scale altogether. And most experts, such as Leonard Favre, believe that with time Saudia will be a power to be reckoned with.
“For sure, the Kingdom’s aviation industry is an awakening Middle East giant and it is important not to underestimate it,” he says. “Overall, Saudia is the third largest carrier in the Middle East behind Emirates and Qatar Airways, and one of the few airlines in the region that has an extensive domestic market.
“As part of its privatisation process, there are plans to expand its fleet to meet pent-up demand in the kingdom, and the Saudi national carrier is being upgraded. Clearly Saudia will continue to implement its plan in a very discreet manner, without marketing presence worldwide, with its vision to serve the country’s indigenous population first. The rebuilding of its fleet is also rebuilding the carrier’s market share, particularly in the Middle East – Africa regional market.
“The privatisation of the national carrier Saudia will definitely mark another milestone in the process of liberalisation in the Saudi aviation industry. With the partial privatisation of its airports and the end of Saudia’s transport monopoly, the national aviation market is slowly beginning to open up to competition and private enterprise,” he concludes.For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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