Thursday, April 7, 2011

KSA: Foreign Airlines Operating Domestic Routes

The Secretary of Saudi Arabia's Executive Council in February 2011 and later on 5 April 2011 the Assistant Minister of Defense and Aviation (click for full story) suggested that foreign airlines specifically from the Gulf enter the Saudi Domestic market to increase competition and stabilize prices to better serve the consumer. In the past Gulf carriers like Bahrain Air, Emirates, Etihad and Qatar Airways have shown  interest in entering the domestic market, Air Arabia (click for full story) defended the Saudi Government stance of keeping foreign airlines out of the Saudi Market.

The Saudi domestic market is a large market with an estimated population as of mid July 2010 of 25.7 millions of which 5.6 millions are expatriates and 27 airports. This market is currently served by the national carrier SAUDIA and NASAIR a Low Cost Carrier. So, in principle increased competition will benefit consumers by providing alternatives and lowering ticket prices.

Opening up the domestic market to local and/or foreign airlines is easier said than done, there are several legal and regulatory measures that have to be put in place or resolved:

  1. The most important is to remove all subsidies that SAUDIA enjoys. Last August 2010, SAMA ceased operation citing high operating costs and inability to compete.
  2. There are legal and regulatory issues to be resolved:
    1. The Criteria of selecting and qualifying the foreign airlines;
    2. The mechanism of awarding routes;
    3. The required legal status of these airlines in KSA. Are they required to register as Saudi companies? or will they be allowed to actually operate as a foreign entity?;
    4. Aircraft basing issues related to countries of registry and regulatory oversight, including AOCs.
The idea maybe exemplary, but unless the airline domestic market is restructured to allow home grown airlines  like SAMA to compete and prosper, it will be very difficult for foreign airlines to do the same.


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