Saudi Arabia Delays Decision On Foreign Operator License

 - September 24, 2012, 12:15 PM
Flag carrier Saudi Arabian Airlines should face new competition from whichever foreign airline the country’s government approves for one of the new operating licenses it plans to issue, but the process has taken longer than expected.

Saudi Arabia’s General Authority for Civil Aviation has postponed until next February a long-awaited decision on which foreign airline it will allow to start operating domestic and international services in the country’s highly restrictive air transport market, the agency confirmed last week. Confusingly, GACA spokesman Khalid Al-Khaibary told Arab News the Saudis will grant startup licenses to whatever airline wins within four to six months, even though authorities say they expect flights to begin in April. If, however, they delay the award until February, that four- to six-month window appears at odds with the April target.

The tender process for the new airline license began in January this year and closed in March, attracting 14 bidders. In July GACA shortlisted seven operators, including Qatar Airways, Nesma Holding and Falcon Express Cargo Airlines. Four other consortia involve Saudi partners working with EgyptAir, Gulf Air, Bahrain Air and China’s HNA Group, parent of Hainan Airlines. GACA reportedly is negotiating with Saudi Aramco for a cut in jet-fuel prices to give non-Saudi players further inducement to enter the Kingdom’s market. However, in addition to domestic routes, new players could win the option to fly to regional and international destinations.

Disjointed development of Saudi air transport has seen international and domestic air travel in effect treated as distinct markets, rendering the latter severely under-developed. Delays to airport upgrades, slow government decision-making and a culture of protecting domestic passengers from the harsh realities of international pricing could all help explain the postponement. Sources at several of the foreign airlines bidding for the new Saudi licenses that spoke with AIN under condition of anonymity said authorities haven’t made clear how many licenses they plan to award, and that in addition to major international players, a low-cost carrier or cargo operator could also win traffic rights covering both domestic and international routes.

New entrants to the market, most likely hailing from the Gulf Cooperation Council states, conceivably would inject lifeblood into the sector, which has seen earlier experiments to introduce competitors for incumbent Saudi Arabian Airlines fail. Despite rising demand for domestic travel, efforts by NAS Air and Sama Airlines proved unsuccessful, largely due to government-mandated price subsidies and fuel costs. NAS Air remains in operation but Sama went bankrupt. Saudi Arabia has moved to liberalize civil aviation following the death last November of defense minister Crown Prince Sultan, who removed the sector from military control.