Subsidies hurt Saudi budget aviation, flynas chief says
Saudi Arabia’s aviation sector is being held back by subsidies, according to the chief of the kingdom’s only budget carrier.
Razi Azmi, the chief executive of flynas, said that government price caps on internal routes and subsidised jet fuel subsidies to the national carrier discouraged private carriers from operating domestic routes.
“We are not on a level playing field,” said Mr Azmi. He said fuels costs more in Jeddah and Riyadh than anywhere else in the GCC and other cities around the wider region despite the state-owned carrier Saudi Arabian Airlines receiving what the Center for Asia Pacific Aviation describes as “hefty” fuel subsidies..
“Jet fuel is more expensive there than in Khartoum and Karachi,” he said. “For Saudi Arabian Airlines [also known as Saudia], jet fuel is cheaper than water.”
He did not disclose the price of aviation fuel in the kingdom but said that it was 15 to 20 per cent higher than in Dubai.
The price of jet fuel for airlines stood at US$121 per barrel in the Middle East, according to the International Air Transport Association, who described this level as “well within the high range for the past few years”. Fuel costs compose about 30 per cent of total airline costs, according to the Iata.
“Fuel subsidies to Saudia mean that there is not a level playing field for companies such as flynas and others, said John Strickland, an aviation analyst. “Price caps on domestic air travel do not encourage rational deployment of capacity, as they inhibit viable route economics.”
Government regulations, which fix prices for particular routes, also eat into flynas’s profitability, Mr Azmi said.
Ticket prices are capped at 150 Saudi riyals (Dh147) between Dammam and Riyadh, which makes the route unprofitable for flynas – it is operated exclusively by Saudia.
Flynas has started long-distance flights overseas in a bid to generate more revenue. It already flies to Sudan and Malaysia and last week began long-haul flights to Manchester in the United Kingdom. Most of its passenger traffic flies on routes from Saudi Arabia to Egypt, Turkey and the UAE.
“We are going out more [into foreign markets] to circumvent issues in the domestic market,” Mr Azmi said.
Saudi Arabian Airlines carried 94 per cent of passengers in the kingdom in 2011 – the most recent year for which figures are available, according to the Iata.
Saudi Aramco, which supplies jet fuel to flynas and Saudi Arabian Airlines, declined to comment.
Qatar Airways finalised plans last week to launch Al Maha Airways, a carrier that will cater to Saudi Arabia’s domestic travel market, in November.
Akbar Al Baker, the chief executive of Qatar Airways, said he had received “an undertaking” from the Saudi government that the issues of fuel subsidies and ticket prices would be addressed before the airline’s launch, Reuters reported.
“Consumers would be better served by allowing airlines to truly compete on equal terms, as is seen in other parts of the GCC such as the UAE,” Mr Strickland said.
About 68 million passengers were flown on domestic and international flights in Saudi Arabia last year, according to the country’s general authority of civil aviation.
The aviation sector employs 152,000 people in the country and is worth about 30 billion riyals, according to a report by the Centre for Asia Pacific Aviation.
Sama Airlines, a Saudi budget carrier that launched in 2007, was forced to close in 2010 after it posted a US$266 million loss.
Mr Azmi was optimistic about prospects for Saudi Arabia’s domestic market, despite the lack of liberalisation.
“The domestic market should grow at about 6 per cent per year, Mr Azmi said. “We believe there’s enough market share for everybody.”
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Updated: May 17, 2014 04:00 AM