JEDDAH, 12 November 2006 — Khaled Al-Mulhim, director general of Saudi Arabian Airlines, yesterday announced his airline’s plan to operate low-cost flights for the benefit of low-income travelers.
The move was made after seeing the success of low-budget airlines in the Gulf. Two new Saudi private airlines, which are to be licensed soon, have also expressed their readiness to start low-cost services.
“There is a possibility to develop this sector in Saudi Arabia to cater to the needs of low-income groups, especially expatriate workers,” Mulhim told Asharq Al-Awsat Arabic daily, a sister publication of Arab News. By offering the new service, Saudia is targeting some four to five million expatriate workers who earn low salaries and cannot afford to pay their tickets to their home countries except once in two years.
“If we can market this service properly offering good price we can easily get an extra eight to 10 million passengers in two years,” he pointed out.
In his wide-ranging interview with Asharq Al-Awsat, Mulhim also spoke about the airline’s privatization plan, move to have a separate division for Haj and Umrah services and new marketing programs.
Saudis and expatriates have welcomed Saudia’s plan to operate low-cost services. “It’s time Saudia gets involved with society. Many smaller companies have done much more to support people having low income,” said Saleh Al-Obaid, a Saudi government employee.
Naif Mutlaq, a college student from Jeddah, welcomed the move as a good gesture from Saudia and wondered whether the service would be available for domestic and international flights.
Samiya Omar, a housewife, said Saudia was late in its move to offer lower prices for those who purchase their tickets early. “Many international airlines stared this service a long time ago,” she said. However, she pointed out that it would definitely change the habit of Saudi families who make their bookings at the last minute. “The low-cost service will help improve social relations as people will be able to visit their relatives in other parts of the country more often,” she added.
According to Abdullah Rahaimy, president of the General Authority for Civil Aviation (GACA), most of the Saudi investors who have applied for licenses to operate private airlines in the Kingdom have opted for low-budget airlines.
GACA would license two airline companies from the six applicants to operate domestic flights, Ruhaimy said.
One of the two would be based at the King Khaled International Airport in Riyadh. King Abdul Aziz Airport in Jeddah will be the main center of Saudi Arabian Airlines, he added.
Rahaimy is optimistic about the new private airlines and said they would improve aviation services, providing lower fares, operating more flights, facilitating travel procedures and adopting modern technology.
He also pointed out that the licensing of the two private airlines was in its final stages.
Low-budget airlines is a relatively new phenomenon in Saudi Arabia. The Sharjah-based Air Arabia, the first low-budget airline to operate in the Kingdom, started its flights to Riyadh, Jeddah and Dammam recently. Air Arabia’s success story, however, has encouraged new private airlines to enter the promising market.
The arrival of low-budget airlines is significant at a time when the industry is faced with economic challenges with rising costs and competition as more and more countries are adopting an open sky policy. Experts say low-cost airlines are the answer to the challenges faced by regional airlines.
There are many factors that make Saudi Arabia a promising market for budget airlines. Saudis love to travel and spend nearly SR60 billion ($16 billion) annually on domestic and international travel and tourism.
About 75 percent of the country’s expatriate workers earn low salaries of around SR2,000 ($533) a month and would probably opt for low-cost flights to their home countries.
The Saudia chief did not say when his airline would operate low-cost flights. He said Saudia was not facing any competition from other airlines in the region. On the other hand, the airline was facing a shortage of aircraft to meet the growing demand, he added.
Mulhim announced plans to privatize the airline’s catering section in February 2007. “We’ll start the privatization process with catering to become the first Saudia sector to be floated in the capital market.” He said Saudia has drawn out a 10-year plan for privatization.
“Aircraft, systems and equipment are long-term assets and this demands long-term planning. We can have separate companies for catering, ground services, cargo, maintenance and baggage services.”
He claimed that all Saudia sectors were economically viable. He estimated the annual sales of Saudia Catering at SR700 million and profits at SR140 million. Cargo has a sale of SR1.3 billion and profit of SR250 million.
He said about 70 companies and investors have expressed their desire to invest in catering. Among them 17 have qualified. “We expect that within the next three months we can sell the sector to a strategic partner and later float part of its shares in an initial public offering.”
He hoped that the privatization process would be completed by 2009. “But we are rushed to finish the job within the next 18 to 24 months,” he added.
Referring to restructuring of fares, he said they would be based on the time when passengers purchase tickets. He expected the number of Haj and Umrah passengers to increase from 3.5 million to 20 million annually in the next 10 years. “About 90 percent of increase in this sector happens without any effort from Saudia,” he pointed out.
He said the company would rent aircraft to operate more flights. “We last purchased aircraft some 10 years ago when we received new Boeing 777s, 747s and MD90s. But in the meantime many aircraft had been withdrawn from service due to aging. TriStars, 737s and Airbuses will go out of service this year and 747-100s, 747-300s next year.
