Flyadeal marks one step forward, two steps back for Saudi aviation
Even in a wealthy country like Saudi Arabia, most customers are willing to accept less legroom and less on-board service
Saudia made good on plans to establish a low-cost carrier last month when it unveiled the branding and tentative launch date for new subsidiary Flyadeal.
The flag-carrier believes that entering the low-cost market will help it pare back losses on its all-important domestic network. Low-cost carriers put cost-discipline at the heart of their business models, removing complimentary perks from ticket prices and maximizing operational efficiency.
That contrasts with the business model of traditional full-service carriers like Saudia, which focus on high-yielding customers by offering premium products and building slack into their schedules.
But while a dual-brand strategy could lift the state-owned carrier’s fortunes, some analysts are beginning to doubt the kingdom’s longstanding commitment to private-sector reforms.
Civil aviation authority GACA is now three years behind schedule on its promise to liberalize the existing duopoly between Saudia and Flynas, Saudi Arabia’s only private-sector airline. Despite granting licenses to start-ups Al-Maha Airways and SaudiGulf Airlines in late 2012, neither company has yet been cleared to launch.
Qatar Airways, the owner of Al-Maha, confirmed last month that it is still waiting for regulatory approval to begin flights, despite taking delivery of the first four Al-Maha aircraft more than a year ago. “Unfortunately, we are still in the process of certification,” Akbar Al Baker, Qatar Airways chief executive, told reporters at the Arabian Travel Market.
SaudiGulf has meanwhile kept a low profile since December, when President Samer Majali told Al Arabiya that he was aiming to begin “soft operations” in the first quarter.
With Saudia, Flyadeal and Flynas all now planning rapid fleet expansion, the fear is that GACA’s appetite for injecting capacity through the private sector could be waning.
Saleh al-Jasser, Saudia’s director general, has said that Flyadeal plans to operate its first flight in mid-2017.
The low-cost carrier will initially ply domestic trunk routes before expanding into international markets. Its aircraft will be configured in an all-Economy layout, sacrificing Business Class cabins in favor of maximum seating capacity.
“The airline is focused on delivering value for money to cost-conscious customers,” al-Jasser said during its launch, noting that an independent management team will be appointed.
There is no doubt that the dual-brand strategy has potential. Numerous other flag-carriers across the globe have already established low-cost subsidiaries in a bid to capture price-sensitive traffic.
In Asia Pacific, Qantas has Jetstar; Japan Airlines has Peach; and Korean Air has Jin Air. In Europe, Air France-KLM has Transavia; and Lufthansa has Eurowings. In Africa, South African Airways has Mango. Dual-branding is a tried-and-tested formula with clear benefits to flag-carriers, provided that steps are taken not to cannibalize traffic.
The advantages of diversifying with an low-cost carriers are particularly pronounced in short-haul sectors, where full-service products have limited appeal owing to brief flight durations.
Even in a country like Saudi Arabia – one of the richest on the planet – most customers are willing to accept a little less legroom and a reduced on-board service during perfunctory one-or-two-hour flights.
However, Saudia’s move to launch a low-cost carrier appears to be unique for one unsettling reason.
Most of the other flag-carriers that have adopted a dual-brand strategy did so out of competitive necessity. The rise of cut-throat low-cost carriers – Ryanair in Europe, for example, or AirAsia in Asia – forced them to re-think short-haul flying norms, tightening their belts and streamlining their operations in a battle for market share.
That is not the case in Saudi Arabia. Saudia still provides 77% of capacity in the domestic market, and although Flynas is nominally a low-cost carrier its product is in truth half-way to being full-service (passengers receive a complimentary checked baggage allowance, among other perks).
Whereas most international flag-carriers have created low-cost carrier brands in response to market pressures, Saudia is doing so in order to pre-empt those pressures.
Putting the cart before the horse in this way may not serve Flyadeal’s best interests. In the absence of true competitive headwinds, the subsidiary has little impetus to take tough decisions on costings and could end up becoming ‘Saudia Lite’ – a stripped-down version of the flag-carrier which retains its inefficiencies and legacy cost-structures.
The fact that Mark Breen, the former chief operating officer of Al-Maha, is now heading up Saudia’s transformation program speaks volumes about the apparently shifting priorities in the kingdom’s aviation sector.
In fairness, no-one can criticize the Saudi government for wanting its flag-carrier to be as healthy as possible before opening the floodgates to competition.
Saudia’s ‘Flight 2020’ turnaround plan is designed to do just that, putting the airline on the best footing possible to ensure its sustainability, profitability and competitiveness. Flyadeal will rightly be a crucial component of that transformation.
However, having been held in limbo for three years, the time has surely come to give Al-Maha and SaudiGulf their slice of the pie too.
It is only by replacing duopoly with free-market competition that the kingdom can hope to unlock the full potential of its burgeoning aviation sector. As well as benefiting passengers, truly open competition will in turn foster the commercial excellence that Saudia has pledged to deliver.
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