After much speculation, two private airline licenses have been awarded, heralding the beginning of a new era for aviation in Saudi Arabia.
The Supreme Economic Council, which is personally headed by King Abdullah and steers the kingdom’s economic development, decided in 2005 to liberalize the sector and allow private operators to set up and compete with the state-owned Saudi Arabian Airlines.
There were six applicants for the licenses last year, which the General Authority of Civil Aviation (GACA) whittled down to two. The successful bidders were Sama Airlines and National Air Services (NAS) both winning on a mandate to offer low cost services across the kingdom with a view to expanding outside in the future.
Riyadh-based NAS is one of the best known regional private aviation operators in the kingdom, which has one of the highest appetites for private air travel in the world. Ali al-Naqbi, Chairman of the Middle East Business Aviation Association, recently said that the business aviation sector in Saudi Arabia accounted for 50% of the total for the whole region—a market he estimated would be worth $800 million by 2012.
NAS has developed NetJets, a fractional ownership and leasing program in the kingdom and also operates evacuation services for oil companies operating in remote locations, along with other bespoke services.
Founded in 1999 and focussing on top-end private aviation, NAS’s board announced last April at a shareholders’ meeting that it intended to increase the paid up capital to $266.7 million through a 30% equity sale to Abraaj Nas Investment Co, a subsidiary of Prince Alwaleed Bin Talal’s Kingdom Holding Co. It was said at the time that this was meant to facilitate new strategic directions, which would now appear to be towards budget travel and acquiring a civil aviation license.
Getting into the low-cost market
Mohammed al-Zeer, the president of the company, recently explained to the press that the decision to break away from the top-end of the sector and enter into the low-cost carrier (LCC) market had been made after careful consideration and consultation with companies such as the British-based budget airline EasyJet. Subsequently EasyJet has announced that it has entered talks regarding franchising its brand to NAS.
The company will start its LCC services with a fleet of five single aisle planes. In December, the company announced its intention to purchase additional craft as part of a $2 billion expansion program, which would increase its entire fleet to 100 by 2010.
The other licensee Sama is similarly aiming to develop services geared towards the low cost market. Founded by Prince Bandar bin Khalid al-Faisal, who owns Investment Enterprises, it has a paid-up capital of $53 million. Other shareholders in the enterprise include some of the largest names in Saudi business such as the Dallah and Olayan Group and some wealthy individual investors.
Sama intends to begin operations flying between Dammam, where it will be based, Jeddah and Riyadh, before pushing further afield and regionally when it receives licensing from neighboring jurisdictions.
With targets similarly ambitious to those of rival NAS, Sama’s CEO, Andrew Cowen, explained to the international press, “We plan to grow our fleet from the existing four committed aircraft to around 35 by 2010.” He declined to specify the leasing company they were in talks with, but did say that the terms would be between five and seven years.
Takeoffs as yet delayed, however
It is not as yet clear when either airline will commence full operations but they are set to compete not only between themselves but also with the state incumbent, Saudi Arabian Airlines. The national carrier is undergoing a slow and reputedly painful process of privatization. One Riyadh analyst said, referring to the reported bloated bureaucracy and over-staffing, that it should benefit from the competition in the long run—whether or not this will speed up the lackluster path to privatization remains to be seen.
What is clear though is that the consumer is set to benefit with the arrival of two new operators. With 33 million passengers passing through Saudi Arabia’s 27 airports in 2006, the market is large and all indications point to further growth. International Transport Association figures released in November 2006 indicate that regional carriers experienced a 15.4% increase during the first nine months of the year.
The GACA is spending $8 billion expanding and developing the existing airports in Jeddah, Madinah and Tabuk to bring them up to international standards. There is also an additional international airport on the drawing board as part of the enormous King Abdullah Economic City development in Rabigh, on the Red Sea coast, north of Jeddah.
