Sama bemoans domestic fare cap as shareholders inject capital

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Shareholders are to inject further capital into Saudi Arabian budget carrier Sama, but the airline is dismayed over the kingdom’s domestic fare cap which, it claims, is preventing its domestic services from turning a profit.

Sama is to receive another SR200 million ($53.3 million) to support its expansion and development, on top of the SR300 million put into the company during its start-up phase.

The carrier has generated a 250% rise in revenues over the first half of this year – although this has to be viewed in context of the carrier’s not starting operations until March 2007 – and it claims its relatively-young international routes are already profitable, despite the rise in fuel costs.

But Sama chief executive Andrew Cowen says the carrier’s domestic services are “chronically unprofitable”, partly because of fuel prices but also because the Saudi domestic cap on economy fares has not been raised in several years.

Cowen claims Sama’s predicament contrasts with the experience of flag-carrier Saudi Arabian Airlines which, he says, benefits from a subsidised fuel rate.

“We are continuing to work very closely with [the Saudi civil aviation administration] to alleviate this situation, enabling us to invest further in Saudi domestic routes,” he says.

Despite the difficulties, Cowen says the carrier’s performance has been promising, adding: “Sama has seen very strong bookings on international routes, clearly demonstrating the huge demand for quality, low-fare regional travel between Saudi Arabia and the Middle East.”

Around 1 million passengers booked flights with the airline during its first year. Its network covers 12 domestic and 10 international destinations.

Sama’s shareholders have been very encouraged by the progress Sama has made in the past year since launch,” says chairman Prince Bandar bin Khalid al Faisal, adding that the stockholders have “decided to strengthen” the financial position of the company.

“Of particular importance to shareholders in making this further financing available is our success in gaining early access to international routes.”