Tuesday, April 17, 2012

The Liberalisation of Saudi Aviation

Earlier this year, GACA (Saudi Arabia's aviation regulator) announced its intention to allow foreign carriers, mostly from the GCC, to invest in and operate domestic routes and within the scope of existing bilaterals allow them some international flights. April 2012 is supposed to be the month when all conditions and interested parties will be announced.

So far very little real interest, other than press releases has been expressed by airlines. Emirates, who said that they are interested in investing outside the UAE, are not interested in Saudi Arabia mainly because of the cap on domestic airfares. This makes it very hard to compete. Several airlines including domestic carriers have requested a review of airfares to offset losses and make it more attractive to new entrants.

SAMA's failure and bankruptcy in 2010 was attributed to the cap on airfares.

April 2012 is proving to be still an important milestone. It is reported that GACA recommended to the government to raise the airfares cap, citing that ticket prices in the kingdom are 50% less than those in other Arab Countries. They also felt that the raising of the cap would attract local and foreign investors.

The extent of the increase is still unknown, but it reflects a more realistic view to airline economics in the Kingdom and that subsidies to the national carrier to maintain artificially low ticket prices is unsustainable.

Definitely a step in the right direction.

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