Plans for new Saudi airline to takes aim at Emirates and Qatar

Saudi Arabia plans to target international transit passenger traffic with its new national airline, going head-to-head with Gulf giants Emirates and Qatar Airways and opening a new front in simmering regional competition.

Crown Prince Mohammed bin Salman, who is pushing economic diversification to wean Saudi Arabia off oil revenues and create jobs, announced a transportation and logistics drive on Tuesday aimed at making the kingdom the fifth-biggest air transit hub.

Two people familiar with the matter said the new airline would boost international routes and echo existing Gulf carriers by carrying people from one country to another via connections in the kingdom, known in the industry as sixth-freedom traffic hub.

However, this will not be an easy task; during the pandemic, Emirates lost $5 billion and required government financial assistance. Apart from the current global turmoil, if Saudi Arabia wants to attract transit tourism, it will need to relax some of its stringent alcohol-serving regulations in hotels. Serving alcohol is currently prohibited in the kingdom. Western tourists would prefer to transit through Dubai or Doha, which have fewer restrictions.

The transport ministry, which has not released any details about the plans, did not respond to a request for comment from Reuters.

Saudi Arabia’s other airlines, such as state-owned Saudia and its low-cost subsidiary flyadeal, primarily operate domestic services and point-to-point flights to and from the country of 35 million people.

The Saudi expansion threatens to intensify the competition for passengers at a time when travel is being hampered by the coronavirus pandemic. Long-haul flights, such as those operated by Emirates and Qatar Airways, will take the longest to recover.

Riyadh has already moved to compete with the UAE, the region’s business, trade and tourism hub. The Saudi government has said that from 2024 it would stop giving contracts to firms that do not set up regional headquarters in the kingdom.

“Commercial competition in the aviation industry has always been fierce, and regional competition is heating up. Some turbulence in regional relations is on the horizon,” said Robert Mogielnicki, resident scholar at the Arab Gulf States Institute.

Dubai, the world’s largest international air travel hub, has announced a five-year plan to double tourism capacity and increase air and shipping routes by 50 percent over the next two decades.

Riyadh has already taken steps to compete with the UAE, the region’s business, trade, and tourism centre. The Saudi government has stated that beginning in 2024, it will no longer award contracts to companies that do not establish regional headquarters in the kingdom.

Prince Mohammed is attempting to entice foreign capital to invest in new industries, including tourism, with the goal of increasing total visitors to 100 million by 2030, up from 40 million in 2019.

“Saudi Arabia has the ability to push forward with its aviation and tourism strategy when others will be retreating and retracting,” aviation consultant Brendan Sobie said.

“It is a risky strategy, but also sensible given its position and overall diversification objective.”

However, any airline requires substantial start-up capital and experts warn that if Saudi Arabia’s ambition is to compete on transit flights it may have to contend with years of losses.

Saudi Arabia’s large population generates direct traffic that could cushion losses as a new airline targets international transit traffic, aviation consultant John Strickland said.

Emirates reported a record $5.5 billion annual loss last month with the pandemic forcing Dubai to step in with $3.1 billion in state support.

Etihad Airways has scaled back its ambitions after it spent billions of dollars ultimately to unsuccessfully compete in building a major hub in the United Arab Emirates capital Abu Dhabi.

People familiar with the matter said the new airline could be based in the capital Riyadh, and that sovereign wealth fund PIF is helping set it up.

Saudi Arabia is developing non-religious tourism with mega projects backed by PIF. It has launched social reforms to open up the country, the birthplace of Islam, including allowing public entertainment.