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Sun 3 Feb 2008 04:00 AM

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Sama looks set to soar

HRH Prince Bandar bin Khalid al Faisal, founder and chairman of Saudi Arabian low-fares carrier Sama, discusses the challenges of running the business with ATN's Gemma Greenwood.

HRH Prince Bandar bin Khalid al Faisal, founder and chairman of Saudi Arabian low-fares carrier Sama, discusses the challenges of running the business with ATN's Gemma Greenwood.

It would be fair to say that HRH Prince Bandar bin Khalid al Faisal was born to fly.

Our goal is to be the most relevant airline in Saudi Arabia.

His favourite pastime is flying gliders - sometimes for seven hours at a stretch - he has a commercial pilot license, and is also the managing director of the Saudi Aviation Club.

HRH's long list of titles and responsibilities doesn't end there, but it's his passion for sky-high pursuits that saw him found a pioneering airline two years ago.

Sama, which in Arabic is a verb that means to rise (high), to soar, tower up, go up, to be or to become elevated, high, exalted or sublime, is one of two of the Kingdom's first privately-owned low-cost carriers (LCCs) to take to the Saudi Arabian skies (the other is NASair) in a bid to harness pent-up demand for value-for-money flights both domestically and across the Middle East.

As the chairman of Investment Enterprises, HRH Prince Bandar, with the initial backing of 30 major Saudi Arabian private and institutional investors, set up the airline with the support of Mango Aviation Partners, a UK firm specialising in low fare airline start-ups.

It's been a bumpy ride getting the airline up-and-running - the carrier was at the mercy of the government when it came to dishing out licenses to do so - but now the skies seem a lot clearer for Sama, which in addition to its burgeoning domestic network, recently started charter services to seven international destinations.

"But things have changed quite a bit since we first wrote the business plan two years ago," concedes HRH Prince Bandar, who spoke to Arabian Travel News exclusively during a recent visit to Dubai.

"The grand plan back then was to reach a point of 35 aircraft by 2010. We still think this is achievable provided that things from today onwards go as we hope, but when we first started out we planned that a certain number of flights would be domestic and a certain number international - that hasn't happened. We only started to fly internationally a few weeks ago."

His majesty says the "regulatory environment inside of Saudi Arabia" has somewhat altered the initial flight plan for Sama, because the country's Civil Aviation Authority wanted to limit the carrier's route network to domestic destinations only.

They had several reasons for this; they wanted to introduce competition without a major disruption to the market and its existing players, while there was a certain amount of re-negotiating bi-lateral agreements [required], which they were not willing to do," he explains.

HRH also concedes that "from the very start, the climate has been impossible for making a profit" in that running a domestic airline in Saudi Arabia is "between four and seven percent more expensive than operating domestically in anywhere else in the world".

The reason, he says, is simple: "Fuel is more expensive, and we don't exactly know why".

As baffling as it may sound, given Saudi Arabia's status as an oil-producing giant - oil accounts for around 90% of the country's exports - HRH explains that "part of it is that well established airlines can get good deals from oil companies, whereas we are new to the market and we are not getting the same treatment as those who have operated in the market for decades".
He is not the only one - National Air Services (NAS) president Taher Agueel recently revealed that both NAS and Sama fork out more than US $2 a gallon for fuel, compared to the $0.06 a gallon that national flag carrier Saudia pays.

Overall, the costs of operating domestically, including airport charges, are 6-7% more expensive [than anywhere else in the world], adds HRH Prince Bandar.

In addition, flying domestically has restricted Sama's flexible pricing strategy due to the airfare cap the KSA government imposes.

This means that even though Sama is a low-fares airline, when demand is strong and seats are limited - an economic environment that in a free market pushes up the price - the airline has not been allowed to exceed the imposed fare cap.

"You see a dramatic reduction in revenue when you operate domestically [in light of this situation]," says HRH.

As a result, Sama has been forced to re-think its route network strategy and therefore its business model and its growth plan, as until fare cap and fuel price issues are ironed out, growth and profits will be generated from operating to international destinations, he concedes.

The next step, he says, is to seek permission from Saudi Arabia's Civil Aviation Authority to run international services on a scheduled basis, rather than chartering flights, as is the current situation.

"We are hoping this will change in 2008; we will make sure of that," he asserts.

"We had hoped that by now, we would be running between eight and ten aircraft, but we are running six at the moment. We will hopefully resume our growth at the end of the first quarter, provided the environment changes."

Sama will receive five additional aircraft in 2008, he adds.

Despite the hurdles Sama has encountered, HRH is confident that the future is bright for the carrier.

"There is a growing demand in the market, so there is definitely room for expansion," he says. "We will be creating more services because it's good for the consumer.

Sama's focus is to fly to destinations that warrant no more than a three-and-a-half hour flight time, meaning that key Gulf cities, as well as several destinations in North Africa, the Levant, Turkey, Iran and Pakistan are on the airline's radar.
And when we see the next-generation aircraft coming through, both India and Southern European destinations could be potential markets for us," HRH reveals.

One of the key roles that LCCs play is to create new markets, he notes.

"It means that a passenger who used to fly three times a year can fly six times a year, or in some cases, we are making travel possible for those who could never afford to fly before," he says.

Add the growing demand from KSA's youthful population for more competitive air services into the mix - at least 48% of the population is aged between 16 and 24 - and the growth possibilities for budget airlines are exponential.

According to the Prince, Sama's current passenger profile is varied, but 65% is VFR and religious (Hajj and Umrah) traffic. The remainder is businessmen and students.

He reveals that 45% of bookings are made online - dispelling the myth that the Saudi Arabian population has not embraced the internet - and he expects this figure to jump to 60% by the end of the year.

"Booking online gives people independence, especially for women in Saudi Arabia, as well as young people who would rather book on the net than go to a sales shop," he says.

"Having said that, travel agents remain an integral part of our distribution strategy and we want to work more closely with them.

Sama can now be booked on Galileo, according to HRH, while the Sama website features a travel agent portal.

"We continue to cultivate around 10% of our sales through travel agents, although we would like to see that increase as they are a key growth factor," he says.

HRH acknowledges that both travel agents and the public need further educating about LCCs and he is clear about what the message Sama portrays should be.

"Our goal is to be the most relevant airline in Saudi Arabia," he says. "What relevant means is providing a reliable product and service, a safe environment and competitive prices.

His hope is that governments and decision makers worldwide will free-up bi-laterals to stimulate business that will not only benefit Sama, but the entire aviation industry.

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