Understanding the changing dynamics of the Saudi aviation industry
The Saudi aviation sector is dominated by the national carrier, Saudi Arabian Airlines, which once enjoyed monopoly status. A few years back, before the coronavirus disease (COVID-19) pandemic, the sector opened up to competition with the entrance of privately owned operators, and due to multiple challenges, some of these privately owned airlines could not compete.
Last week, Saudi Arabia’s Crown Prince Mohammed bin Salman announced plans to launch a second national airline as part of a broader strategy to turn the Kingdom into a global logistics hub, as it seeks to diversify its economy away from oil.
The new airline is expected to primarily serve the Kingdom’s tourism sector, while the existing carrier will focus on serving Haj and Umrah travelers from around the world.
Over the past 30 years, three global events have negatively impacted the aviation industry. The Gulf War in the early 1990s, which affected oil prices and resulted in a drop in passenger numbers; the 9/11 terror attacks, which led to a decline in the use of planes due to fears of a repeated action; and most recently, the COVID-19 pandemic, which has brought the global airline industry to a halt, paralyzing it in an unprecedented manner.
The pandemic has changed the economics of the aviation industry in Saudi Arabia. To break even, the airline needs to have at least 75 percent of the airplane full. This ratio became even more challenging with the blocked empty seats in the economy cabins. Though the skies have now reopened for travel to various parts of the world, it will take time for the Saudi aviation industry to return to normal. Taking advantage of the new trends in the aviation industry, technology will be the greatest game changer, especially taking into account futuristic alternative travel modes. According to Mireilla Abdalla, a senior aviation researcher, “the future of the airline industry can only be understood by analyzing the changes occurring in all other sectors directly affecting the global world of aviation.”
The industry appears to react to new technology rather than lead the way. Disruption to existing airline modes may come from energy breakthroughs, alternative modes of transport, big data and data transparency, new manufacturing tools, and quantum computing. As an example, one of these technological evolutions is coming from the Boom Supersonic Co., which is building the world’s fastest and most sustainable commercial airliner. This supersonic aircraft is slated to roll out in 2025 and will start commercial flights by 2029. American Express Ventures is one of its key global investors.
In my opinion, we need to keep an eye on the key factors that will shape the future of Saudi Arabia’s aviation industry and its new carrier. The gradual completion of the different giga projects by the Public Investment Fund will set the stage for the growth of the international tourism trend in the Kingdom, which, in turn, will be a key success factor for the new carrier.
• Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group.