Can a new Saudi national airline succeed? | Business and Economy


Saudi Arabia has announced plans to develop a second national airline to compete directly with premium flag carriers Emirates and Qatar Airways and turn Saudi Arabia into a Middle East logistical hub. While we do not yet know the new carrier’s name or when it will be launched, it does give a clear signal of the Saudis’ ambitions for the region.

As an economic strategy devised by the kingdom’s de-facto leader, Crown Prince Mohammed bin Salman (MBS), it makes coherent sense.

With oil and gas counting for half of Saudi Arabia’s gross domestic product (GDP), there is a need to reduce dependency on this sector as nations across the world wean themselves off fossil fuels. To diversify the economy and improve connections with the rest of the world, MBS has pledged to increase flight routes from 80 to 250 destinations and to double air cargo capacity to more than 4.5 million tonnes per year. In return, Saudi Arabia hopes to tap into new jobs and opportunities, marrying the ambitious airline service expansion with a tourism strategy to create 260,000 more jobs in the hospitality sector in the next three years, including opening up 38 new tourist sites.

In many ways, Saudi Arabia is well placed to succeed, sitting as it does at a central point in the world between the West and the East. The kingdom is willing to spend big to accelerate the modernisation of infrastructure, is hosting increasingly large sporting events and enjoys strong relations with Western powers. Under United States President Donald Trump, relations hit new heights, with new investment and arms deals: President Joe Biden has maintained good relations, even if he is more conciliatory towards its arch rival, Iran. The national carrier would also be part of a broader transport strategy that includes plans for a new major airport within this decade.

Saudi Arabia also has sufficient resources to emulate the United Arab Emirates and Qatar and go it alone with state funding, unlike many countries launching new carriers. Nigeria, for example, is relaunching its national airline, Nigeria Air, but it will be run by a privately financed consortium, with the Nigerian government holding no more than a five percent share. Meanwhile, Ghana is partnering with Egypt Air to assist with its own new airline’s funding, hardware and logistics. Saudi Arabia’s approach will give the government more control over its launch and guarantee pre-eminence in Saudi Arabia’s local market.

The new Saudi flagship will still face a formidable task to compete within the struggling global airline industry. Accelerated by the pandemic, an average of 50 airlines go bankrupt every year. It also starts from a low base, with Saudi Arabia’s airline scene currently consisting of just the fully state-owned Saudia, its no-frills subsidiary flyadeal, and the tiny budget airline Flynas, mostly catering to its domestic 35 million population only. According to AirHelp, an air passenger ranking service, Saudia was ranked a poor 49th out of 72 global airlines for “passenger experience” in 2019. In contrast, Qatar Airways is ranked number one in the world, with Emirates also in the top 10.

The need for a new carrier is an admission that Saudia is unable to attract upmarket international travellers in the same way as Qatar Airways and Emirates. While a new brand will allow marketing to be more segmented, with Saudia focusing on domestic and religious travel, and the new airline pitched towards visitors outside of MENA, it will have to hit the ground running – providing top-level, consistent service. This, alongside an aggressive marketing campaign, will require a lot of money to take on local juggernauts Qatar Airways and Emirates as well as other global carriers favoured by business people such as Cathay Pacific, Lufthansa and American Airlines. In a crowded space, Saudi Arabia cannot just emulate its neighbours’ business models; it will have to innovate and carve out its own market in a post-COVID world.

The Middle East market, for now, is still too small for several major carriers without years of financial loss for a newcomer. Saudi Arabia will need to play its part to widen the customer base and make it more attractive for visitors to come to the Gulf region. Other regional airlines have struggled financially with both COVID-19 and the intense competition from Emirates and Qatar Airways. Last year, Royal Jordanian, a formerly state-owned but now privatised airline, with its small fleet and lack of deep financial pockets, was forced to reschedule debt payments as the pandemic further crushed revenues.

MBS recognises that a national carrier can act as a proxy for a country’s prestige, and is therefore making it a top priority. However, therein also lies a risk, given that the carrier’s service, performance and perceived safety would be intrinsically linked to the reputation and brand of the country. The outside perception of Saudi Arabia continues to be mixed. Its global image was particularly damaged by the globally condemned assassination of US-based Saudi journalist Jamal Khashoggi at the Saudi consulate in Istanbul in 2018, as well as by ongoing regional tensions, such as the Saudi-Iran proxy war in Yemen which has caused hundreds of thousands of deaths.

Saudi Arabia is also still ill-equipped to draw in international visitors compared to its nearest neighbours. While it did attract more than 20 million visitors in 2019, the second-highest number in the MENA region according to the World Bank, that figure is boosted by the two million visitors who come for the Hajj pilgrimage. Despite that, it was still second to the much smaller UAE which had 21.5 million international visitors without the benefit of a holy pilgrimage site. Saudi Arabia will also be overshadowed next year by its peninsular neighbour, Qatar, as it prepares to host the 2022 Qatar World Cup and all the visitors who will come with it.

If Saudi Arabia’s new airline is to succeed, it can only do so as part of a wider success story within the Gulf region. For now, the kingdom continues to antagonise its neighbours for short-term wins – for example recently introducing protectionist policies to challenge the UAE’s free trade zones and slapping on tariffs for Gulf businesses not employing enough Saudi locals. The hope would be that Saudi Arabia’s growing taste for free trade will encourage the kingdom to become better protectors of regional stability and cooperation that economic growth will rely on. This, alongside introducing more competition to the airline industry, can improve consumer choice, standards and service all round, which would surely be a win for both Saudi Arabia and the whole of the Gulf, if done correctly.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.





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