Room for one more? Saudi moves in on Gulf aviation market


Undeterred by the crowded Gulf market, Saudi Arabia is embarking on an aggressive aviation expansion, with a massive jet order and the launch of a new national carrier.

The project is part of an effort to remake the once-shuttered kingdom as a business and tourism magnet, but analysts say that even with official backing, its path to success is complicated.

This month Crown Prince Mohammed bin Salman, the de facto ruler of Saudi Arabia, unveiled Riyadh Air, the new airline that aims to transform the capital into a “gateway to the world”, according to state media.

Two days later, officials said Riyadh Air and Saudia, the kingdom’s current flag carrier based in Jeddah, would buy 78 Boeing 787 Dreamliner jets.

The deal, which the White House valued at nearly $37 billion with options for up to 121 planes, is the fifth largest by commercial value in Boeing’s history.

Riyadh Air chief executive Tony Douglas told AFP the airline would serve international, regional and domestic markets — putting it in direct competition with Gulf heavyweights Emirates and Qatar Airways.

That raises difficult questions about how Riyadh Air will gain market share, especially at a time when long-haul nonstop flights that bypass the entire Middle East are on the rise, said independent aviation analyst Alex Macheras.

“It will be difficult to replicate and then build on the successful business models of Gulf airline neighbors in a crowded market where passengers are spoiled for choice,” said Macheras.

– A new role for Riyadh –

Saudia, also known as Saudi Arabian Airlines, was founded in 1945, receiving its first jet as a gift from US President Franklin Roosevelt.

At the time, instead of Riyadh, foreigners were more likely to enter the kingdom through Jeddah on the Red Sea coast, which remains the “Gateway to Mecca”, welcoming millions of Muslims making the hajj and umrah pilgrimages every year.

Foreign embassies did not relocate to Riyadh, in central Saudi Arabia, until the 1980s.

These days, however, Riyadh is at the heart of Prince Mohammed’s “Vision 2030” reform agenda intended to help the world’s largest crude oil exporter transition away from fossil fuels.

Officials talk of it as a rival to Gulf business hub Dubai, predicting that the current population of 8 million will balloon to 15-20 million by 2030.

Last November, officials announced plans for a new airport in Riyadh to serve 120 million travelers a year by 2030, up from about 35 million today.

The projected growth makes Saudia’s current model — which consists of two hubs, Jeddah and Riyadh — unsustainable, Saudi Finance Minister Mohammed al-Jadaan told AFP.

“Jeddah only needs one airline to focus on for the hajj and umrah … so you need an airline focused on Riyadh,” Jadaan said.

The airline and the new airport reflect an “if you build it, they will come” attitude, said Robert Mogilnicki of the Arab Gulf States Institute in Washington.

“The question of what demand looks like in this equation has yet to be resolved, but the Saudis must be confident enough to push ahead with a massive aircraft order,” he said.

– ‘Late to the party’ –

The convenient location of airports in the Middle East – well placed for flights to Europe, Asia and Africa – helped fuel their rise as major hubs.

Trade group Airports Council International predicts the region’s airports will see 1.1 billion passengers by 2040, up from 405 million in 2019.

Besides Riyadh Air, Saudi Arabia is also launching NEOM Airlines, which will be based in the planned futuristic $500 billion megacity of the same name.

Klaus Goersch, the airline’s CEO, wrote in a recent blog post that it will be “operational at the end of 2024” and that NEOM itself could eventually become a “global aviation hub”.

Saudi Arabia’s expansion strategy depends in part on tapping its population of about 35 million people, which officials see as a major advantage over less populous rivals such as the United Arab Emirates and Qatar.

But according to Macheras’ analysis, the Boeing order suggests that Riyadh Air’s vision is “long-range, which is in line with its goals of operating as a transit hub carrier”.

Competitors are taking notice.

“Riyadh Air will definitely eat up some of the market share in the region and in the Asian markets in particular,” said an official at Qatar Airways, requesting anonymity because he was not authorized to speak to the media.

“We are ready to face a tycoon-to-be.”

Perhaps Riyadh Air’s biggest advantage is its owner – Saudi Arabia’s sovereign wealth fund, which Macheras said will ease the “very capital-heavy first phase” ahead of inaugural flights in early 2025. .

“Clearly the airline thinks that, although it is late to the party, there is room for another one at the table,” he said.

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