Saudi Arabia is to move towards allowing international airlines to operate domestic flights, which would heap pressure on the kingdom’s airline industry.
Price caps on Saudi Arabian flights mean the kingdom is an extremely difficult marketplace for airlines to operate, but analysts said the move could present “significant and substantial” opportunities for regional carriers, with low-cost airlines such as Air Arabia poised to benefit.
In a statement acknowledging the difficulties of a lack of domestic flights, Saudi Arabia’s General Authority of Civil Aviation said yesterday foreign airlines would be allowed to bid for licences before the end of next month.
The move adds to pressure on Saudi Arabian Airlines and Nas Air, the low-cost carrier – the two remaining domestic carriers in the kingdom after the closure last year of Sama.
Sama, another low-cost carrier, stopped all flights after reporting losses of 1 billion Saudi riyals (Dh979.4m) in August last year.
While the move to open Saudi airspace was likely to be viewed with excitement by regional carriers, the latest move would not make operating profitably in the kingdom’s aviation market any easier, said Kareem Murad, a logistics analyst at Shuaa Capital.
“All in all, it means higher competition,” he said.
But the Saudi government would be unlikely to shake up the domestic air travel sector too drastically and harm the profitability and prestige of its national carrier, he added.
“At the end of the day they won’t take a decision that will put a lot of pressure on their airlines and cause them a huge loss,” Mr Murad said.
Flights in Saudi Arabia are subject to price caps by the government, but fuel subsidies from the kingdom to Saudi Arabian Airlines allow it to remain profitable in the domestic market.