Essay: SaudiGulf Airlines' Rise: Factors Shaping Growth in Saudi Aviation

Background of the Saudi Arabian Aviation Industry

“SaudiGulf Airlines will be the new national carrier, raising the Saudi Arabian flag high up on the global aviation stage. The airline will inspire businesses and businessmen alike in the kingdom to develop similar initiatives to better serve the citizens and residents of the nation, with the support of the government of the Kingdom of Saudi Arabia.”1

“Saudi Arabia is not a sought-after tourist destination like the UAE is, so SaudiGulf will be battling at the fringes to capture low yield traffic away from the likes of flynas and Saudia – that will put pressure on revenues and the capacity to expand.”3   

Geographically the largest country in the Gulf6 and the biggest economy in the Arab world, the Kingdom of Saudi Arabia (Kingdom, Saudi Arabia) was the world’s largest exporter of oil7 making it the world’s 19th largest global economy.8 However, relative to its geographic size and economic standing, the Kingdom had the smallest domestic airline network in the region during the mid-2000s. With just one domestic airline operating in the region – national carrier Saudi Arabian Airlines (Saudia)9 , foreign airline companies only had permission to fly in and out of the country, but not within. 1

In 2007, the country underwent liberalization to boost the capacity of its aviation industry which finally ended the monopoly of Saudia and brought in private Saudi-based Low-Cost Carriers (LCCs)11 such as flynas –operated by National Air Services Company (NAS)12 – and Sama Airlines13. According to the Kingdom’s General Authority for Civil Aviation (GACA), 14 post-liberalization passenger traffic grew at an average of 7.7 percent annually, almost double the average growth rate of the past five years, with heavy rise in traffic along various domestic routes. 15 (Annexure I) Saudia, for instance, used Boeing 777s16 for the 90-minute flight between Riyadh and Jeddah operating 12 flights per day on the route at usually full capacity. 17 With the national carriers’ often failing to keep up with the demand from the Saudi Arabian domestic market, consequently, the Saudi Arabian aviation market began to suffer from poor services, primarily due to flight overbooking.18 Eventually, to vent their frustrations most Saudi passengers took to social media to comment on the poor quality of domestic air travel, and recounted instances of waiting in queue for hours and being shuffled out of line to make way for VIPs. Nearly every customer talked about the poor interiors of the domestic planes, characterized by jaded seat covers, broken armrests and non-functional entertainment systems

Despite the liberalization, Saudia continued to hold monopoly over the Saudi Arabian aviation sector by handling the bulk of domestic air travel in the country (around 94%) while flying to over 80 cities in Asia, Europe, Africa and North America from its hubs in Saudi Arabia.20 With several factors stacked in favor of Saudia which included receiving financial and regulatory support from the government, primarily in the form of subsidized aviation fuel, industry observers believed that Saudia was provided with an unfair advantage.21

1. Consider the current growth of SaudiGulf Airlines in Saudi and evaluate the key political, economic, social, technological, legal and environmental conditions responsible for its growth is Saudi, now and in the future. (MAX 500 words)

2. Examine the entry strategies SaudiGulf used to carve its own niche amidst the big, established airlines.

3. What do you think should be the ‘value proposition’ for SaudiGulf to maintain a long-term competitive advantage? Focus is critical to developing your recommendations.