Can The Shoura Council Damage Saudi Arabian Airlines’ Potential?

Saudi Arabian Airlines has been positioning its self, and its subsidiary businesses, to be privatized and become profitable.  With business units already being spun off from the airline and succeeding as independent profitable businesses, such as the airline catering division, the primary focus is for the airline division to take center stage for becoming independent of the government and profitable.

 

As Saudi Arabian Airlines has made strides towards being independent of the government through expansion of its fleet, overhauling the interiors of long haul aircraft, setting a schedule to join a major airline alliance and change its relationship, the Saudi Shoura Council may step in the way of the company’s progress.  With a number of domestic airports in Saudi Arabia being served with irregular flight schedules, of no airlines what-so-ever, the Shoura Council has seen fit to ask Saudi Arabian Airlines to step in.   The request from the Shoura Council isn’t for the airline to create a regular flight schedule to these cities, but instead to set up a complete flight operations at these airports.

 

What’s at stake should Saudi Arabian Airlines balk and refuse to establish full operations due to the lack of financial viability in providing these airports with full regular operations?  The looming threat that the Shoura Council will seek to grant Ninth Freedom Rights to airlines in the Gulf Region to provide domestic service within Saudi Arabia.

 

While the Shoura Council does not dictate policy or have the ability to pass laws, their ‘urging’ that Saudi Arabian Airlines begin full service or they’ll get a foreign airline that is willing to provide service is not an empty request or threat they cannot follow through on.  The Shoura Council is an advisory committee of 150 members who are hand picked by The King, The Absolute Monarch of The Kingdom of Saudi Arabia, and as such have a strong influence in interpreting the laws, reviewing annual reports of government ministries and providing advice on economic issues and foreign affairs to. As an advisory council hand selected by The King,

 

Although Saudi Arabian Airlines is moving towards privatization, the airline is still wholly owned by The Kingdom of Saudi Arabia, which leaves the company in a precarious position.  Saudi Arabian Airlines needs to evaluate if it can assert the ability to implement its own route network independently, based on the financial viability of routes, or adhere to the wishes of the Shoura Council and potentially The King.

 

Should Saudi Arabian Airlines decide to not establish full operations as the airports requested by the Shoura Council, the airline runs the risk of foreign competitors being invited to operate domestic routes within their home country.

 

The challenges Saudi Arabian Airlines faces with this situation are significant and place the airline in a potential lose-lose situation.  Hopefully another option will arise, such as the Saudi Government subsidizing service to these cities, a practice very much in place between airlines and governments around the world. Is subsidizing the routes is not an option, the Saudi Government may want to explore a deal with NAS Air, a private low cost Saudi airline with an expanding fleet.

 

No matter what the outcome, it will be interesting to see how Saudi Arabian Airlines handles itself in this situation.

 

Happy Flying!

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  1. The problem lies in the fact that Saudia domestic operations was and still is subsidized. A few months back SAMA an LCC ceased operation one of the reasons is cost. Now there is only NAS AIR an LCC and Saudia. The Saudi market is large 27 airports ad almost 26 million people. However introduction of foreign operators (mainly Gulf airlines, Air Arabia is opposed to the scheme) is not an easy thing there are legal and regulatory hurdles to be overcome. In the meantime it may be easier for the government to look again at what subsidies are given out and restructure them and maybe assist SAMA to restart and encourage investment in additional local airlines.

    Here is a link to my blog on the same issue http://oussamastake.blogspot.com/2011/04/ksa-foreign-airlines-operating-domestic.html

  2. Oussama,

    When Sama shut down in August of 2010 it left Abha, Bisha, Gassim, Gurayat, Ha’il, Jizan, Rafha, Tabuk and Taif with irregular service from Saudia and Madinah with no airline service. I can see why the Shoura Council wants service to become normalized, but this can occur without forcing Saudia into providing a full station to each airport.

    Were subsidies to be on the table, I am sure Saudia’s management would already be working to establish the regular service. However, with no subsides being discussed and the Council having played a role, since 2008, in pushing Saudia to privatize and make decisions based on profitability and independence their pressure for the airline to operate “loser routes” is problematic.

    The Shoura Council should have NAS Air in their sights by they do not, despite the airline rapidly expanding its fleet and training more than 100 new pilots.

    As for Sama, I don’t see them coming back.

    Happy Flying!

    -Fish

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