How's this for transparency? Saudi low-cost start-up Sama has counted the cost of operating some of its domestic routes and decided it's just not worth it. Why? Well how about the fact that it loses the not unprincely sum of 40,000 Saudi Riyals - some $10,600 - per flight on its services between Damman and Riyadh.
Ouch!
The carrier has halved its service on this route and stopped altogether its services from Damman and Riyadh to the holy city of Medina. In a year of flying it lost 40 million Saudi Riyals on this route ($10.6 million) despite a load factor of over 40%, said chief executive Andrew Cowen (we wrote about Sama's plans in detail in Airline Business).
"The serious issue which continues to trouble the Sama business is the performance of Sama's domestic routes," says Cowen. "The combination of the fixed economy fare cap, which was set approximately eight years ago and has not changed since, along with ongoing cost inflation, particularly fuel means that it is impossible for Sama to make money on domestic routes, despite high passenger demand and full aircraft.
"Even though we have adopted the low cost airline business model, flying domestic routes has led to Sama incurring significant losses. This is because Sama cannot pass on the fuel price increases, for which we pay full market rate compared to the subsidized rate that Saudia makes which represent 5 times cost difference."
So Sama will cut back on its domestic services and concentrate on its new international ones, which it says are not doing too badly.
So bad is the situation that management is looking at suspending all domestic flying until money can be made again. "This is not a decision we have taken lightly but we have no choice," says Cowen.
Sama is calling for the removal of the fare cap and for it to be charged the same rate for fuel as flag carrier Saudia.
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