Saudi Arabia starts to embrace liberalisation: local LCCs respond enthusiastically

Saudi Arabia has yet to become a tourist destination like the UAE but it is planning some major tourist infrastructure including a mile-high tower in Jeddah almost twice as tall as the soon to be completed Burj Dubai Tower.

Covering over two million square kilometres Saudi Arabia is the largest country in the Middle East – around four times the size of France. But its population of around 27 million means that its density is one of the lowest in the world at just 12 people per square kilometre (similar to Norway).

Around one-third of the country live in just two cities, Jeddah and Riyadh, which not surprisingly have the two busiest airports, along with Dammam. Traffic growth at the three major international airports in recent years has been steady rather than spectacular rising from just over 21 million passengers in 1995 to slightly less than 30 million in 2006.

Source: GACA

Emerging domestic competition

Gradual liberalisation of the domestic air market has resulted in the emergence of two local LCCs, Nas Air and Sama both of which began commercial flights in early 2007 (and which both, coincidentally, have CEOs who used to work for Go and before that British Airways). In 2006 Saudi Arabia’s airports handled around 21.7 million domestic passengers, up just 1.5% on the previous year. Figures for 2007 are not yet publicly available from the GACA.

Source: GACA

Paradoxically libralisation requires Sama to operate some pretty thin Public Service Obligation Routes which it does with a Jetstream – the smallest low cost aircraft in the world?

Traffic between the top two airports of Riyadh and Jeddah amounted to some 2.4 million passengers in 2006 representing nearly 35% of Riyadh’s domestic traffic and 40% at Jeddah. This April Saudi Arabian Airlines operates over 110 weekly departures between the two main airports though Sama (with 22 weekly flights) and Nas Air (with 28 weekly flights) are finally providing customers with a choice.

Part of the domestic liberalisation process obliged Nas Air and Sama to operate a number of Public Service Obligation (PSO) routes. Rather than use a 737 on such routes where demand is low, Sama has leased a Jetstream 41 making it possibly one of the smallest aircraft operated by an LCC anywhere in the world.

Saudi Arabian has 40% share of international markets

While Saudi Arabia has yet to become a tourist destination in the way that its neighbours in the UAE have achieved, the country is aware of the potential and is planning some major tourist infrastructure along its western coastline. It has also outlined plans to build a mile-high tower in Jeddah that would be almost twice as tall as the soon to be completed Burj Dubai Tower which only recently became the tallest man-made structure in the world.

For the moment the main source of inbound leisure travel are religious pilgrims planning to visit either Mecca or Medina the two most holy Islamic sites.

Airline	Frequency share	Capacity share	International Routes
Saudi Arabian Airlines	36.1%	39.4%	98
Egyptair	7.9%	7.8%	10
Gulf Air	4.7%	4.8%	4
Etihad	3.1%	4.4%	3
PIA	3.4%	4.1%	11
Air India	3.7%	4.0%	14
Sama	4.9%	3.3%	19
Emirates	1.9%	2.8%	3
Source: OAG Max Online for w/c 7 April 2008

On international routes Saudi Arabian has around a 40% share of traffic with only Egyptair having more than 5% of capacity. In total 49 airlines currently operate scheduled service into and out of Saudi Arabia. Despite some regulatory hurdles Sama has already started operating 19 international routes from the three main airports to Egypt, Jordan, the Lebanon, Syria and the UAE. Several of these routes operate just once or twice per week.

Source: GACA

Near neighbours the UAE and Egypt account for around one-third of all international capacity while Pakistan and India account for a further one-sixth. The leading European country market is the UK with 18 weekly flights shared between Saudi Arabian Airlines and bmi British Midland. France and Germany are served by 15 and 11 weekly flights respectively while the US is served directly by just four weekly flights, two each to Washington and New York JFK.