Saudia's race for change
Khalid Abdullah Almolhem, director general of Saudi Arabian Airlines, is ready for the transformation of the Kingdom’s national carrier. Since taking the helm in 2006, he has known that change was planned for both the airline and the Kingdom’s vast aviation industry. Now, with the process of modernisation and privatisation well underway, Almolhem believes the airline’s time has come.
As part of its reinvention, the airline has readopted the title by which it is more commonly known: ‘Saudia’. The new Saudia also has a new corporate identity designed to emphasise the modernisation of the carrier.
According to the airline, this facelift is not entirely a cosmetic one, although its relative silence has been deliberate. “It has been the right approach for us to concentrate on achievements and adopt only reasonable media publicity,” says Almolhem. “Unlike other regional airlines, we also have to cater to the needs of 27 domestic destinations within the Kingdom; it is a huge national responsibility that we fulfil regardless of profit objectives.”
Comparing itself to higher profile airline contemporaries, the airline alludes to the old adage of the hare and the tortoise. Although the airline has lost ground as an international carrier to other regional airlines, Almolhem is confident that Saudia can win the race for regional domination.
“We intend to make steady progress by going ahead with our privatisation programme and by strengthening our network in the Gulf and Middle East,” he emphasises. “By working hard on a strategic basis, we have made impressive progress. Saudia has now become the largest airline in the Middle East, serving nearly 22 million passengers with an annual increase of one million passengers.”
Bold words from the director general, but can Saudia’s slow and steady approach really win the region’s competitive aviation race? After so many years of focusing on its overhaul programme, the privatisation process for the airline is scheduled for completion next year. But, as Almolhem points out, privatisation is not an easy task in any circumstances, and when it involves a major state-owned organisation with so many units, it becomes a mammoth expedition. “We have appointed well-qualified and well-experienced international experts and consultancy firms to speed up the privatisation process,” he says. “But due to many factors, it will take its own time. I am hopeful that within a year or two the whole process will be completed.”
The privatisation of Saudia would certainly be a landmark in the Kingdom’s long aviation history. It was at the turn of the century in 2000, that HRH Prince Sultan Bin Abdul Aziz signed the contract that paved the way for the airline’s privatisation.
The national carrier clearly needed new direction in order to cope with growing passenger numbers and find its place in an increasingly competitive Middle Eastern market. “We knew that privatisation would bring about a dramatic improvement in Saudia’s performance and strengthen its competitiveness at both regional and international levels,” says Almolhem.
As a result, once the Supreme Economic Council gave the official approval to transform the airline’s strategic units into efficient profit-making companies, Saudia’s journey had begun. “Privatisation is a strategic objective aimed at strengthening the airline and improving our services in order to compete with other providers at national, regional and international levels,” Almolhem explains. “It will enhance our profitability and help to boost the Kingdom’s air transport industry overall.”
As the entire Saudia empire comprised many different units, the task of privatising the airline was always going to be a piece by piece process. Almolhem reports that the privatisation programme is going ahead as scheduled with the catering, cargo and ground services sectors already completed. Next in line is Saudia Aerospace Engineering Industries and the airline’s training sector, the Prince Sultan Aviation Academy.
Saving the biggest and most difficult task until last, a proposal for the privatisation of the core airline unit has now been submitted to the Supreme Economic Council and Almolhem is only too aware that it is this final step which will inevitably determine the fate of Saudia in the future.
“We are making intensive preparations for this by modernising our fleet and developing its technical infrastructure,” he says.
The modernisation of Saudia’s fleet has involved the full-scale acquisition of younger, fuel-efficient aircraft better positioned to compete with the youthful fleets of rival regional airlines. At present, the carrier operates 105 aircraft, of which 54 are new and largely made up of the popular Boeing 777s and Airbus 320s models. In its bid for further fleet expansion, Saudia has signed deals to purchase a staggering 90 new aircraft.
“Fleet modernisation is one of our most important strategic objectives to maintain a leading position in the industry,” Almolhem explains. “The decision on new orders has been taken by experts in our technical and marketing departments after conducting necessary studies and concluding deals with financiers.”
The additional aircraft will be used to feed the expansion of Saudia’s already large network. In the last few years, the carrier has been steadily adding new destinations via agreements with the likes of Kenya and China. Having already launched a new direct flight between Riyadh and Addis Ababa, the airline will also be increasing the number of its flights to the US, Malaysia, Turkey, UAE and Tunisia this summer.
By far the biggest strategic move in its network expansion plans, however, came earlier this year when Saudia became the first member airline from the Middle East to join global alliance SkyTeam as its 16th member.
Traditionally, major carriers in the region have shied away from such allegiances but Saudia feels that the move promises to reap huge benefits for both SkyTeam and the carrier itself. The move brings 51 new destinations (including Islamabad, Colombo and Alexandria) into SkyTeam’s global network.
Joining the alliance demonstrates Saudi Arabia’s desire to shrug off its reputation as an outsider in the aviation world. The inclusion of Saudia in the alliance also opens up the protected Saudi Arabian market to other SkyTeam members.
Recently, in a move that will change the competitive landscape of its aviation industry, the General Authority of Civil Aviation announced plans to open up the internal Saudi market to overseas airlines. This means that, for the first time, foreign airlines would be allowed to bid for both domestic and international licences to operate in the Kingdom.
Almolhem says he welcomes the move. “We have been calling for this for a long time to meet the requirements of the growing number of passengers and to improve local services by encouraging competition among airlines,” he says. “The move will definitely improve services in the domestic sector and contribute to enhancing Saudia’s image. I don’t believe it will have any major negative financial impact on the airline.”
Price caps, however, are a major sticking point and have already caused one Saudi low cost carrier go to the wall.
To make the market attractive for investors, Saudi Arabia’s Supreme Economic Council has indicated that it is likely to raise the price cap on domestic air tickets – clearly a welcome move for the director general. With domestic air fares in Saudi Arabia considerably lower than other Arab countries, the Kingdom’s own carriers have struggled to make a decent profit.
“Yes, we have been incurring losses on the domestic sector due to its subsidised domestic fares,” admits Almolhem. “There should be a substantial increase in domestic fares to avoid future losses and attract foreign airlines.”
The airline believes its initiatives are working. It reported a positive looking set of performance statistics for last year. “Our on-time performance reached a record 87% compared to 82% in 2010,” reports Almolhem proudly. “We operated 158,449 flights in 2011 with an increase of 11,890 flights compared to the previous year and transported 21.5 million passengers.”
The airline has already flown 5.72 million passengers in the first three months of 2012, with the number of domestic passengers up by 25% to 3.46 million. Almolhem says the future can only get better.
As part of the government’s quest to make Saudi Arabia a more accessible global aviation hub, international and domestic airports in the country will be getting a major overhaul, with around US $7.2 billion reportedly earmarked for Jeddah’s King Abdulaziz International Airport alone.
With its strategic location between East and West travel routes, Saudia is in a position to capitalise on growing passenger throughput between continents. With this and its growing network and fleet modernisation programme, the airline believes it can regain some of the traffic lost to its Gulf rivals in the last decade.
Having overseen considerable change during his time as director general, Almolhem is optimistic about the future. He acknowledges that Saudia is part of an air transport industry beset with challenges, whether escalating fuel charges, rising aircraft and maintenance costs or intense competition amongst airlines.
“Being part and parcel of the industry, we also face the same challenges,” he accepts. “But by entering into a strategic alliance with SkyTeam members, we hope we can face the competition. We want to bring about tremendous improvement in our services by reaching world-class standards and increasing our market share and profit.”
“We believe that privatisation will help solve many of Saudia’s problems and realise our dream of becoming a leading airline in the world. I can tell you that this is not a mere dream; we have all the potential to achieve this objective sooner or later.”