By Günter Endres in London
The air transport landscape in Saudi Arabia is changing. The monopolistic position of flag-carrier Saudi Arabian Airlines is slowly being dismantled as the government moves towards liberalising its hitherto highly regulated market
One airline determined to take advantage of this environment is start-up Sama, whose name appropriately means ‘high flying’. Chairman HRH Prince Bandar bin Khalid Al Faisal has assembled an experienced UK management team with a solid grounding in the operation of low-fare airlines. Chief executive Andrew Cowen (pictured left with Prince Bandar bin Khalid Al-Faisal) was formerly with British Airways and Go, as were several of his colleagues. While the full business plan is still being hammered out, Cowen outlines the parameters of the new operation, which aims to open up domestic routes to more people, and to provide essential links to other Gulf Co-operation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) countries. “Sama has an international dimension to its business plan,” says Cowen, “but the domestic market will be the heart of the operation.”
The domestic market is the first to be deregulated and all the indications are that many more than the present seven million people travelling by air will be tempted away from the limited rail network and long and tiring dusty roads through endless desert. “The population is ready for change,” Cowen says, “and our low fares will encourage uptake.” Cowen and chief commercial officer Sudeep Ghai outline the reasons for this confident prediction, insisting there is a pent-up demand for air travel in a country which, with 26 million people, accounts for 70% of the GCC population and has the highest GDP. Growth in per capita income – 45% of the population fall into middle class grades A, B and C1 says Cowen – and a large government surplus from the high price of oil, are the economic drivers that underpin this new development. “We must not underestimate the enormous impact of the rise in the oil price,” he says.
Domestic fares have until now been capped at what are probably the lowest domestic fares in the world, and at a level at which the flag-carrier was unable to make a profit. However, Cowen believes that these are still too high, preventing many, especially pilgrims during the Haj and year-round Umrah journeys to the country’s holy sites, from taking to the air. Cowen says that with an average number of six people in a Saudi household, all of whom will travel to Mecca and Medina at least once, taking a long road journey has been the only option. The airline will initially link some 10 of Saudi Arabia’s main towns and cities, planning to offer fares below the artificial cap imposed by regulation. Unlike Saudi Arabian Airlines, which has lost heavily on domestic routes, Cowen says Sama’s low-cost structure and aircraft better matched to the market will enable it to operate profitably. He is also encouraged by the government’s determination to increase the number of visitors to this desert kingdom, as well as the recent separation of the regulatory authority from airport management, which, Cowen says, will give airports the freedom to offer incentives to new airlines.
Sama has opted for second-hand Boeing 737-300s as an entry into the market. Negotiations are in hand with several lessors and Cowen hopes to have a fleet of seven by the end of the year. The better lease rates available, and previous experience in the operation of this type in the low-fare segment, will enable Sama to keep domestic prices low, he says, but he does not rule out graduating to new aircraft once Sama is up and running. The aircraft will be configured in a single class, but Cowen says this does not mean a no-frills service. Operations will start this coming summer and details of domestic routes will be announced soon.
Cowen is aware of the competition posed by United Aviation Services, also with strong government connections, which is the only other company likely to be licensed in the first phase, but believes there is room for both. The intention of Saudi Arabian Airlines is less clear and will depend on how its proposed privatisation proceeds. The conditions are right for both newcomers to prosper, and with only seven million people travelling on domestic routes at present, there is plenty of scope for growth.
On the international front, Sama will be limited to charter flights until full deregulation, which, Cowen says could come into effect as early as 2007. The airline will focus on linking Saudi Arabia with the GCC countries, because, he observes, “70% of outbound trips end up in the GCC market.”
The GCC is moving towards a common market and Sama will be there to share in the expected success, Cowen concludes.
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