Saudi Arabia's Domestic Market, The Final Stretch.

When everyone almost forgot about the two operating licenses that GACA awarded to Qatar Airways and Gulf Air-Abdel Hadi Al-Qahtani and Sons Co in late 2012. 

During the Dubai 2013 Qatar Airways announced it will launch Al Maha Airways in the first half of 2014 using aircraft from Qatar Airways. However, the management of Al Maha Airways will be independent from the airline and staff will be directly hired.

Similarly, Al Qahtani Group announced the launch of Saudi Gulf Airlines based in Dammam. Gulf Air denied that it has applied for or was awarded an operating license by GACA. Gulf Air is a consultant to the new airline assisting it in obtaining GACA approvals. The airline will start operating in Winter 2014. To date Saudi Gulf Airlines have not indicated the type of equipment it will be operating.

Both airlines will start operating to major cities (Riyadh and Jeddah), second tier cities, regional and international route as they develop.

How much coordination, and there will be some, between Al Maha Airways and its owner Qatar Airways is something to look for in the near future. 

As we await developments of the new airlines; Nasair the low cost carrier has followed in the footsteps of flydubai and will introduce business class on some of its routes, primarily for religious tourism and eventually for corporate clients.

2013, The Fun Begins

Barely a week into the new year and developments in the GCC and MENA have already started.

It was only yesterday 7 January 2013 that I blogged about 2013 A Game Changer , only to read today 8 January 2013 reports regarding Etihad, possibily buying an equity stake in Alitalia SpA from Air France-KLM who own 25% of the Italian carrier. Nothing unusual about that, Etihad expands through acquiring equity stakes in airlines, except for the fact that Etihad and Air France-KLM have recently signed a code share agreement. How accurate this is remains to be seen!

Similarly, competition and choice in the Saudi Arabia market is on the rise with Flydubai starting  a twice weekly service to Ha'il next February, Qatar Airways already launched yesterday a four weekly service to Gassim and finally Emirates added a third A380 service to Jeddah, for four days in January, in support of the Dubai Shopping Festival.

2013 A Year of Transformation In KSA

As 2012 winds down, good news from the region continue, with Etihad passing the ten (10) Millions passengers carried mark.

However, the most exciting news are GACA in Kingdom of Saudi Arabia (KSA) awarding two (2) operating licenses not one (1) to Gulf Air and Qatar Airways.

KSA is the biggest market in the region with a population of 28 millions and 27 airports and boasts the largest domestic market in the region. The operating license will authorize both domestic and international destinations. Recently, GACA also looked at fuel prices and it is expected that airlines will be allowed to raise fares by 10%.

The market is currently dominated by Saudia (government owned) and NAS AIR a low cost carrier. The government wants to privatize Saudia and has been selling parts of some of the airline divisions like Cargo and Catering.

2013 should see the transformation of the aviation market in KSA with the entry of Qatar Airways and Gulf Air, both with extensive networks, very competitive, with immense resources and very experienced. Both Saudia and NAS AIR will face competitive pressures in terms of levels of services, passenger feeds and pricing. Competition will not be only on the domestic routes but will spill over into international markets as the new entrants are awarded international routes from their KSA hubs and they integrate their KSA networks with their own, providing massive passenger feeds in both directions.

A Happy and Prosperous New Year to you and your loved ones,"live long and prosper".

Kingdom of Saudi Arabia, The Third Operating License

GACA, having indicated that the third AOC in the Kingdom will be offered to a foreign operator from the GCC, has short listed seven (7) out of the fourteen (14) proposals it has received earlier.

The seven finalists are:

Qatar Airways, Falcon Express Cargo Airlines, Nesma Holding Co, and the following consortia Bahrain Air - Saudia Private Aviation,  IDB - AlMasria Universal Airlines, Gulf Air - Abdel Hadi Al-Qahtani and Sons Co,, Chinese HNA Group (Hainan Airlines) - Saudi Mazaya Al Shabab Co.

It is expected that the winner of the air carrier license will be announced in September or October 2012, with a target for starting operations in the first quarter of 2013.

So far GACA is meeting its planned milestones (give or take a few months) and it will be interesting to see how this will pan out. 

Read full story here.

 

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.

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.