Editorial: Pounded and grounded
Sama and its investors cannot lay all the blame at the government’s door — or Saudia’s
The decision by the independent Saudi carrier Sama to suspend operations after accruing a SR 1-billion loss will certainly inconvenience many travelers but it is not a catastrophe. Airlines spring up, flourish and then collapse and disappear in remarkable numbers all over the world. There is probably no other industry with such a turnover and there is no reason what Saudi Arabia should be exempt from the normal commercial forces that make this an all too regular occurrence elsewhere. Saudi businessmen being what they are and the airline industry the ebullient business it is, it will be surprising if no new airline fails to take to the skies to fill the void. The demand is there.
Not that it is certain that Sama will not, phoenix-like, spring back to life and take to the skies again. It is, as yet, not formally defunct. It has merely suspended operations. That may sound like a technical difference, but this is not the first time that Sama has gone down this route. Two years ago, it announced it was suspending a number of domestic routes because of heavy losses which it blamed on the government’s policy of capping fares while providing subsidized fuel to state-owned Saudi Arabian Airlines.
Those claims are now being made again by Sama and cannot be ignored. The government is committed both to competition in the skies and to Saudia’s privatization. The fact that the latter is going through a remarkably long gestation period should not necessarily be a problem. Europe’s state-owned airlines are not allowed to be subsidized or given other state support. They operate on a purely commercial basis. But that is not yet the case in Saudi Arabia and it is difficult to envisage a proper level playing field unless Saudia is fully privatized. Investors are not going to part with their money if they believe that the competition has an unfair advantage, be it fuel subsidies, help for expansion plans or some other form of government support denied to other operators.
Sama and its investors cannot, however, lay all the blame at the government’s door — or Saudia’s. It is not its job to make life easier for its competitors.
Questions have inevitably to be asked why Sama failed but why the other private low-cost operator, Nas Air, is still happily flying despite the same handicaps. The question also has to be asked why Nas Air can afford to expand and buy new aircraft while Sama was stuck with a fleet of old aircraft. The unavoidable answer must be that despite a SR500 million injection from its shareholders, Sama has been chronically underfunded from the start. As such it is a warning to other businesses about the absolute need for sufficient working capital. Good ideas are not enough. In business, cash flow is everything.
There is, however, a major lesson to be learned by the authorities. There has to be a level playing field if the aviation industry in Saudi Arabia is to flourish and develop. There is no level playing field present. The sooner Saudia is privatized and allowed to fly on its own two wings without any government help whatsoever, the sooner Saudi Arabia will have a genuinely competitive aviation industry.
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Aug 25, 2010 00:17
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Aug 25, 2010 19:46
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