Saudi Arabia plans to open its skies gradually, phasing in new airlines to avoid an abrupt crowding of the sector, according to a senior official at the kingdom’s top aviation authority. The Middle East’s biggest economy is in the process of vetting applications for new airline licenses to operate out of the country, as it looks to shore up its under-developed transport sector to meet growing demand.
The kingdom earlier this year said it received applications for licenses from 14 companies including Gulf and Chinese consortia.
Even if all the current applicants are ultimately given the nod, “not all 14 will get approval” to operate at once, Faisal Al Sugair, vice-president at the General Authority of Civil Aviation, told Zawya Dow Jones in a recent interview.
“We have a constraint that you can’t give too many licenses at the same time,” Al Sugair said, while noting: “They will just ruin the market and kill each other.”
Saudi Arabia currently has two main domestic airlines in operation, flag carrier Saudi Arabian Airlines and low-cost National Air Services, which serve a fast-growing domestic market as the world’s largest oil exporter spends billions of dollars at home to boost economic activity.
The aviation authority expects to complete the pre-qualification of firms bidding for a new airline license by the end of June, Al Sugair said, adding that even “100 per cent foreign-owned” airlines could qualify as long as they establish and operate from a domestic base here.
GACA in March had said it would complete the pre-qualification process by the end of April, but officials at the authority this week said they have pushed back the decision to allow for more time to review, and to consider adding features that would help better investment opportunities.
The authority is expected to issue licenses by the end of September, officials have previously said.
Competition “is good for everyone”, including passengers, who will benefit from more choices on more routes, Al Sugair said.
But the new airlines won’t get the fuel subsidies given to the flag carrier, and at the time will have to comply with the price ceilings on economy-class flights as the existing airlines.
The aviation authority however said it will work to avoid what happened to another low-cost Saudi carrier, the privately owned Sama Air, which went out of business in 2010 after suffering heavy losses.
“We can provide the environment and incentives and open communication to ensure that doesn’t happen again,” Al Sugair said, adding “I can assure we will do everything in our power to help everyone succeed.”
GACA is also leading the kingdom’s aviation infrastructure development plans and may tap the debt market again to finance these projects.
The authority raised 15 billion Saudi riyals (Dh14.69 billion) earlier this year through a government-backed Islamic bond, or sukuk, sale in the local currency to part finance a new 27.1 billion Saudi riyals terminal at Jeddah airport.
It plans to raise another 12 billion Saudi riyals by early 2013 to complete the funding for the Jeddah airport project, and sell more debt next year to finance the expansion of the airport at Riyadh-to boost its handling capacity from 12 million passengers annually to 25 million.
The expansion plan is slated for completion in 2015 or 2016, Al Sugair said, in time to allow for the planned opening up of the country’s aviation industry. “There is demand and a lot of airlines want to come to Riyadh. We’re constrained now because of our capacity issues.”
GACA is also looking at possibly building two new airports, Al Sugair said, adding these are likely to be located in Fursan island in the south and Qunfudah in the west.