Saudia eyes Asian ventures, low-cost unit under 2020 plan

Saudia is open to forging joint-venture (JV) agreements with unspecified Asian carriers as its five-year turnaround plan moves from a predominantly restructuring phase into growth mode, chief executive Abdul Mohsen Junaid has told Al Arabiya News.

“Imagine if some carriers from the East started to really join hands and work [with Saudia] at the time when we have our proper hub structure,” the airline boss said, when asked about the SkyTeam alliance that Saudia joined in 2012.

“I think serious cooperation could lead to a JV … The scenarios and the possibilities are endless.”

JVs allow airline partners to operate metal-neutral flights on trunk routes between their home nations, building synergies, pooling revenues and capturing the largest market share possible. Existing high-profile JVs in the industry include Emirates and Qantas, and British Airways and American Airlines.

Saudia has already stepped up commercial cooperation on a smaller scale since joining SkyTeam by signing numerous codeshare deals, which allow partner carriers to sell tickets for each other’s flights. “It’s a step-by-step approach,” Junaid said, adding that new codeshare talks are under way with Garuda Indonesia.

Speaking during the annual meeting of the Arab Air Carriers Organisation in Jeddah, the chief executive also confirmed that Saudia is looking at launching a low-cost subsidiary. “It’s something we’re considering,” he said, while stressing that no decision has been taken. “It’s part of the transformation plan. We have to look at every avenue to really improve this airline, gain efficiency, better customer service, better awareness of what is going on around us.”

Fleet expansion plan

Under its ‘Flight 2020’ plan, Saudia is aiming for a fleet of 200 aircraft by the end of the decade. However, Junaid dismissed media reports about an order for Airbus A380s, insisting that evaluations are ongoing and “everything is on the table” when it comes to aircraft types.

The flag-carrier currently deploys 144 mainline passenger jets, along with 25 aircraft operated by its freighter and VIP subsidiaries. At least 31 units within the passenger fleet have already been earmarked for retirement (16 747-400s and 15 Embraer E170s), while another 23 777-200ERs may also be phased out. Boeing and Airbus have disclosed orders from Saudia for 60 aircraft, putting it on-track for 200 jets at Group-level only given retirements.

Junaid said that three 787s will join the fleet in January and February, followed by the induction of another 26 units of various types beginning in October. “So, for 2016, we’re not really thinking about different models of aeroplanes,” he insisted.

“The biggest challenge now is to actually integrate what we have [already ordered].”

Without giving a timeframe for completing the second tranche of 26 deliveries, the chief executive also confirmed orders for a “significant number” of new-build 777s beyond the two units presently disclosed by Boeing. Saudia’s regenerated 777 fleet will be configured in three different layouts.

“Our five-year transformation plan is all about transforming Saudia into a sustainable, profitable, competitive airline,” he continued, pointing to upgrades to the airline’s IT systems, optimisation of capacity management, and realignment of its traffic flows through the hubs in Jeddah and Riyadh. “We’ve taken a lot of serious measures in this direction … Now what we are doing is we just keep adding capacity.”

Although Saudia’s finances are improving, Junaid acknowledged that it is “nowhere close to break-even on domestic routes”. He blamed, in part, the kingdom’s fare cap, which places a ceiling on domestic ticket prices.

Civil aviation authority GACA has already pledged to loosen the fare cap in-step with the kingdom’s liberalisation programme – which should see two new carriers, SaudiGulf and Al Maha Airways, launch services next year – and Junaid welcomed the shift to deregulated pricing.

At present Saudia has an 80% market share in the domestic sector, with Flynas providing the only alternative for travellers.

Dying for competition

“We’re dying to see competition. We’re being judged all the time on the basis that [people say], ‘We have no choice but to fly with Saudia’,” Junaid explained. “For a number of years now we have been working very hard to position Saudia in a safe, central location on the map, to get ready for this day when other national carriers emerge … We have been well-positioned to face the competition, and I think it will be a very healthy thing, extremely good for the kingdom.”

Studies show that the local market is under-served by up to 2.5 million seats per year, resulting in average seat occupancy rates of 90% on domestic flights. The chief executive wants to bring those load factors down to 75-80%.

“We need to keep that space available for the public to enjoy the basic ability to move around the kingdom,” he affirmed. “Part of the dissatisfaction of the domestic public with Saudia is due to the fact that they can’t find a seat whenever they want.”

Expansion of the domestic sector should also bring wider benefits to the Saudi economy.

“In the case of Saudia, we are thinking about contribution to GDP, we’re thinking about job creation,” Junaid concluded. “The aviation sector is a creator of quality jobs. These jobs are very, very appealing to the Saudi youth. They want to be pilots, they want to be engineers, they want to be specialists, analysts, electricians. So we’re all for competition.”