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SAUDIA

Winds of change
The chief executive of Saudi Arabias national airline speaks
to The Gulf about legacy and regulatory challenges, as well as
the carriers latest strategic plan which includes an exciting
fleet renewal programme and, possibly, privatisation

by Martin Rivers
thegulf@tradearabia.net

iscussions about Gulf

aviation invariably focus
on the so-called big three
carriers in the region:
Dubais Emirates Airline,
Abu Dhabis Etihad Airways and Qatar
Airways. Saudia, the flag-carrier of
Saudi Arabia, rarely gets a mention despite deploying more aircraft than
Etihad, and boasting a history that
stretches back decades before the
launch of the new breed of Gulf superconnectors.
Saudias absence from the global
limelight is partly down to its focus
on domestic flying, with two-thirds of
the airlines seating capacity deployed
inside the kingdom. It is also a reflection of the conservative values of its
government owner. The big three Gulf
carriers, by contrast, have designed
their businesses around intercontinental transfer traffic, forcing them
to invest heavily in global marketing
campaigns and high-profile sponsor-

ship deals. Saudia neither wants nor

needs to make as much noise.
Despite its low profile, the Saudi
aviation sector is growing at a pace
worthy of being shouted about. Footfall
increased 9.7 per cent last year to reach
74 million passengers - more than
double the figure recorded a decade
ago. Several factors are fuelling the
growth: a large land mass, a well-off
population, and a relentless influx of
religious traffic for the Hajj and Umrah
pilgrimages. According to IATA, an
industry trade group, demand for air
travel in the kingdom will continue
rising by an average of 4.6 per cent per
year over the next two decades.
This bullish outlook should, by
rights, be good news for Saudia, which
operates 79 per cent of domestic flights
within the kingdom. Its only competition comes from hybrid low-cost
carrier Flynas. Yet according to Abdul
Mohsen Junaid, the flag-carriers chief
executive, Saudia is nowhere close to
break-even on domestic routes.
Speaking to The Gulf during a meeting
of the Arab Air Carriers Organisation

In the old
days we flew
[Boeing] 747s
between
Jeddah and
Abha. [Flights lasting] 50
minutes! Imagine the cost.
Of course, each era has
its own circumstances.
But we understand our
circumstances now
Abdul Mohsen Junaid, Saudia

in November, Junaid admitted that

mismanagement has historically held
the company back. In the old days
we flew [Boeing] 747s between Jeddah
and Abha. [Flights lasting] 50 minutes!
Imagine the cost, he says incredulously, referring to the inefficiency
of deploying four-engine, widebody
aircraft on short sectors. Of course,

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The A330 Regional could

change the dynamic of
fleeting. I keep telling
Airbus, If you stand behind
your words youre onto
the next game-changer

8 each era has its own circumstances,

and I dont pre-judge who was taking
the decisions. But we understand our
circumstances now.
Insisting that Saudia is turning the
corner with its five-year transformation plan, Flight 2020, Junaid says the
biggest hurdles are now on the regulatory side. Civil aviation authority GACA
imposes a fare cap that blocks airlines
from lifting domestic ticket prices above
a maximum level. In principle, the
intervention is designed to ensure that
flying remains affordable for everyone.
In practice, it excludes Saudia from
the dynamic pricing models that most
airlines use to match supply with
demand - and ultimately to stay in the
black.
The
domestic
operation
has
improved a lot, but the returns still do
not cover the costs, the chief executive
sighs, making clear that he thinks the
ceiling price is set too low for Saudia
to operate on a commercial basis. Its
been the subject of studies by GACA
To give an example: if you take a taxi
from Dammam Airport to Dammam
city centre, its about 150 riyals. You can
fly Riyadh-Dammam for 180 riyals!
Bottlenecks in demand are another
unintended consequence of the fare
cap, with entire flights often selling out
in minutes during peak periods. Part
of the dissatisfaction of the domestic
public with Saudia is due to the fact
that they cant find a seat whenever
they want, Junaid says, estimating
that the market is under-served by as
much as 2.5 million seats per year. To
do this you have to maintain a load
factor [seat occupancy rate] that is not
beyond 75 to 80 per cent We fly at
an average of 90 per cent load factor.
We even have routes running at 93 per
cent sold year around.
The authorities hope that two
upcoming capacity hikes will ease
the pain for travellers. Saudia itself is
targeting a fleet of 200 aircraft by 2020
- up from between 145 and 170 today,
depending on whether you include the
flag-carriers freighter and VIP subsidiaries. Elsewhere, GACA has promised
a gradual loosening of the fare cap
as it boosts competition with two new
domestic operators: SaudiGulf, owned
by Al Qahtani Group; and Al Maha,

Abdul Mohsen Junaid

Were dying to see

competition. Were being
judged all the time on
the basis that [people
say], We have no choice
but to fly with Saudia
Abdul Mohsen Junaid

owned by Qatar Airways.

Efforts to open up the domestic
market have moved slowly since being
announced in 2012, with both startups missing successive launch dates
(see sidebar overleaf). The liberalisation drive follows an earlier influx of
competition in 2007, when Flynas and
the now-defunct Sama first watered

Among a raft of strategic changes planned at Saudia is a massive fleet expansion

down Saudias monopoly. Though

competition brings risks, Junaid
believes that open markets are exactly
what the flag-carrier needs.
Were dying to see competition. Were
being judged all the time on the basis
that [people say], We have no choice
but to fly with Saudia, he argues. For
a number of years now we have been
working very hard to position Saudia
in a safe, central location on the map,
to get ready for this day when other
national carriers emerge I think it
will be a very healthy thing, extremely
good for the kingdom.
The chief executive highlights two
strategic overhauls that have put
Saudia on a better footing. On the
network side, the airline has moved

away from the connecting-flight model

that formerly saw many international
routes stop in both of the kingdoms
main hubs. We used to fly everything
Jeddah-Riyadh-Europe [or] RiyadhJeddah-Far East because of lack of basic
load factor, he recalls. After the latest
restructuring we basically detached the
two hubs. On the IT side, Saudia in
2008 opted to throw away its existing
platform and replace it with a state-ofthe-art Amadeus revenue management
system.
Both measures in turn facilitated
Saudias ascension to the SkyTeam
airline alliance in 2012. Described by
Junaid as a private club and a think
tank for network development, the

alliance has dramatically increased

the flag-carriers non-organic revenue
streams. Codeshare agreements with
SkyTeam members like Air France
and Korean Air allow the company
to connect passengers beyond its
own network, as well as deepening
its domestic and regional footprint
by carrying the customers of partner
airlines.
In a nutshell, we used to lack a lot
of the basics that give us the ability to
compete, Junaid says candidly. Were
improving everything around us. Were
creating the success factor Better
capacity [management], better timing,
better utilisation of resources, all of
this.

Further integration with SkyTeam is a

key theme in the Flight 2020 roadmap.
Although transfer traffic will never be
Saudias primary focus, Junaid believes
the airline can scale up connecting
flows to the region once Jeddahs new
King Abdulaziz International Airport
has opened in 2017. Imagine if some
carriers from the East started to really
join hands and work [with Saudia]
at the time when we have our proper
hub structure, he says, promising
a step-by-step approach towards
deep-rooted commercial partnerships.
After codeshares, then you can only
grow to a joint venture.
Honouring Saudias big promise to
the country also means expanding the
fleet, and to this end the airline took
delivery of nine new aircraft in 2015.
Another 59 commitments have been
disclosed by Boeing and Airbus, though
with up to 54 planes earmarked for
retirement more orders are needed if
Saudia is to reach its target of 200 jets
by the end of the decade.
Among the airlines publicly acknowledged order-book - comprising 30
Airbus A320s, 20 A330 Regionals, eight
787-9 Dreamliners and one 777-300ER Junaid confirms that three Dreamliners
will arrive in January and February,
before deliveries of 26 mixed units
resume in October. He reveals that
undisclosed orders for additional
777-300ERs have already been signed,
with the type due to be configured in
three different seating layouts so it can
be tailored for individual markets.
The aircraft that Junaid is really
excited about, however, is the A330
Regional - a variant of the popular
widebody that aims to cut fuel and
maintenance costs by 26 per cent on
short sectors. Saudia will be the launch
customer for the new type, which has

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SAUDIGULF

Waiting in the wings

Two start-up airlines in Saudi Arabia remain grounded, though executives are
putting a brave face on the bureaucratic delays
Saudi Arabian civil
aviation authority GACA
confirmed in November
what most pundits had
guessed long ago: both of
the start-up airlines selected
by the kingdom in 2012 are
still waiting for clearance
to begin flying. That makes
2015 the third consecutive
year in which Al Qahtani
Group-owned SaudiGulf
and Qatar Airways-owned Al
Maha Airways have missed
their launch dates.
For SaudiGulf president
Samer Majali, a veteran
aviation boss who formerly
headed up Gulf Air and
Royal Jordanian Airlines, the
regulatory hold-up must
surely be taking a toll. But he
betrayed no hint of frustration in an interview with
The Gulf, insisting that the
launch programme remains
on-track.
The reason its taken

so long is because
SaudiGulf took the decision
to introduce brand new
aeroplanes in a very, very
high specification, Majali
says, explaining that the
process for approving
on-board configurations
can take about 18 months.
The airline is now preparing
to conduct route-proving
flights and emergency
evacuation exercises, he
notes, adding: Thats the
final stage of the GACA
[licencing] process, and that
is indeterminate [length]. We
dont know how long that
will take. Things might come
up.
Despite seeming resigned
to the likelihood of further
delays, Majali nonetheless
believes that SaudiGulf could
undergo a soft launch in the
first quarter of 2016. Then,
hopefully, the idea is to start
our full schedule before the

been modified to fly at a lower weight

with a reduced range. This aircraft
could change the dynamic of fleeting.
You have a widebody aircraft that is
suited for short missions, he enthuses.
I keep telling Airbus, If you stand
behind your words youre onto the next
game-changer. I really hope that they
can deliver.
As Saudia evolves into a sustainable, profitable company and the local
market opens up to competition, the
end-game for the flag-carrier is privatisation. That will be no mean feat given
its ongoing losses, but several subsidiaries have already made the transition
into private hands.
Four of six strategic business
18

The reason
its taken
so long is
because
SaudiGulf
took the decision to
introduce brand new
aeroplanes in a very,
very high specification
Samer Majali, SaudiGulf

second quarter, he affirms.

This is the plan, but its a
plan because obviously its
subject to the authorities
doing whatever is necessary
for them to do.
When eventually given
the green light, SaudiGulf
will launch services from its
home base of Dammam to
Jeddah and Riyadh with a
fleet of four Airbus A320s.
Dubai is the front-runner
for its first regional link, while

units have been spun off since the

groups privatisation process was
kick-started in 2006. The catering and
ground-handling divisions have both
undergone partial IPOs, while strategic
investors have bought stakes in the
catering, cargo and maintenance units.
A cargo IPO is expected within months.
Business jet subsidiary Saudia Private
Aviation - not one of the groups six
core units - has also been partially
divested, leaving just the passenger
airline and its training subsidiary to
take the plunge.
The standing mandate is to privatise
all units, but when and how is the
issue, Junaid says of the complex,
politically sensitive programme. Flight

further domestic points

will be introduced as 16
Bombardier CS300s begin
arriving in 2017. Majali hopes
to deploy ten aircraft in the
second year of operations
and 20 in the third year.
Given the carriers shorthaul focus, he is also on
the look-out for a suitable
partner that covers
our long-range international operation through
codeshare agreements.
The arrival of SaudiGulfs
first A320 in November
brought management a step
closer to their vision, but
GACAs relentless stonewalling means that all plans must
be taken with a pinch of salt.
The outlook is even hazier for
Al Maha Airways, which has
been silent since receiving
four A320s in April. Parent
company Qatar Airways is
currently deploying those
aircraft on its own network.

2020 is the stepping stone towards

privatisation of the [mainline passenger] airline. Thats the first crucial
step.
Confirming that the group is also
evaluating a possible low-cost subsidiary, the chief executive emphasises
that every avenue will be considered along the path to profitability. He
declines, however, to provide details
on the low-cost project, insisting that
management are still putting numbers
together to see what makes sense.
Having spent seven decades out of the
public eye, Saudia is keeping its cards
close to its chest as the kingdom works
to reassert itself in the crowded Gulf
aviation market. <
January 2016 | the gulf