Centre of gravity

With the imminent launch of a new airline based at King Abdulaziz International Airport, Jeddah is cementing its position as Saudi Arabia’s most important aviation hub. Published in The Gulf, June 2014

From sales executives to a chief pilot, if you have any aviation experience there are jobs waiting for you in Jeddah at the moment. The source of all the vacancies is Al Maha Airways, the new offshoot of Qatar Airways that is preparing to start flying in the coming months.

Speaking at the opening of the Arabian Travel Market trade show in Dubai in early May, Qatar Airways’ chief executive Akbar al Baker said the subsidiary would start offering domestic services in Saudi Arabia this November.

When it launches it will add another string to the bow of King Abdulaziz International Airport, which is already the country’s busiest. According to the country’s aviation regulator, the General Authority of Civil Aviation (GACA), Jeddah’s airport handled 27.1 million passengers in 2012, compared to 17.1 million at King Khalid International in Riyadh. Overall, Jeddah accounted for 42 per cent of all airport traffic in the kingdom that year and it is growing faster than its nearest domestic rival, with passenger growth of more than 18 per cent, compared to 15 per cent for Riyadh.

It’s dominance when it comes to cargo traffic is, if anything, even more pronounced. King Abdulaziz International handled 407,000 tonnes of cargo in 2012, or 48 per cent of all airport cargo across the country that year. Riyadh was the next busiest with 315,000 tonnes.

All this puts Jeddah in a relatively unusual position. In most countries in the region it is the capital cities which serve as the national aviation gateways, the only other exception being Dubai. When Al Maha launches it will only add to Jeddah’s dominance. The new airline aims to have a fleet of 10 Airbus A320 aircraft in service within 12 months.

But Al Maha is not the only airline to use Jeddah as a hub. Another Saudi airline, flynas, has its headquarters in Riyadh, but serves far more destinations from Jeddah, not least in terms of long-haul flights. Indeed, when flynas announced its first two European destinations in March - London and Manchester - it said it would be flying to them from Jeddah.

Other airlines with slightly looser ties to the country also tend to favour Jeddah. For example Nesma Airlines, part of Saudi Arabia’s Nesma Group, is an Egyptian-registered airline based in Cairo, but it uses Jeddah as its Saudi headquarters.

The launch of Al Maha is just one part of a wider attempt by the authorities to inject more competition into the Saudi aviation market. A second new airline, Saudi Gulf Airlines, is also due to launch in the first quarter of next year, although it has chosen the east coast city of Dammam as its base.

The authorities are also making some hefty investments to bring the country’s airports up to a higher standard, and the biggest single chunk of that is being spent on Jeddah. An estimated $28 billion is being invested on upgrading the city’s airport between now and 2035. Once complete it should be able to handle between 70 and 80 million passengers a year.

There are a few reasons why so many people want to fly in and out of the city. There is a thriving tourism market, with people attracted by the relatively relaxed atmosphere in the city.

“A big driver in the regional travel market is and will be Saudi,” says one Gulf hotelier. “Jeddah is already one of the strongest markets in the region.”

The city is also an important commercial centre in its own right, with a large port and some major businesses headquartered there, including the country’s biggest bank, National Commercial Bank. But the number of visitors coming for a weekend break or for business meetings tells only part of the story. It is the large number of religious travellers that really makes Jeddah distinctive.

“The yearly Hajj pilgrimage alone contributes to a flow of over two million [airline] passengers, both domestic and international, and that’s a steady and secure income stream,” says Giuseppe La Commare, a managing director at consultancy firm Accenture in the Middle East.

Saudi Arabia’s existing airlines have long recognised the potential for this market segment. Indeed, flynas runs specific services for Hajj and Umrah pilgrims. In January it launched flights between Jeddah and the Indonesian capital Jakarta to specifically target these travellers.

“The new route to Jakarta is highly important to flynas since Indonesia is home to more than 209 million Muslims,” said Abdulnasser Abu Kassim, chief executive of the flynas Hajj & Umrah division, at the time of the launch. “In the very near future we shall be announcing more flights to serve more markets.”

However, if Al Maha and its fellow new airline Saudi Gulf are also to thrive there are some important developments that will need to happen, beyond just their investments in their own route networks. The Saudi government has tried to liberalise its aviation market in the past, licensing two airlines in 2007 to take on Saudia. flynas has proved a success but the other carrier, Sama, failed because of the restrictions on what routes it had to fly, how much it could charge for tickets, and the government’s failure to offer the same fuel subsidies enjoyed by Saudia. All that made competing with the flag carrier extremely difficult and the same issues remain today, although there are signs that the new airlines will be given subsidised fuel.

“If a government imposes certain routes that are not commercially viable, or places fare caps so that airlines cannot charge more for tickets, or even offers fuel subsidies to an incumbent airline and does not offer the same towards new entrants, this would of course make it difficult to compete and thrive,” says La Commare. “The airlines, both new and incumbents, will want to see more clarity on issues such as fare caps and fuel subsidies.”

If they can get that right, the prospects for Al Maha Airlines look promising. But there is one possible fly in the ointment for King Abdulaziz International airport, with local media reports in early May suggesting that GACA will soon launch a project to redevelop nearby Taif airport as an international entry point for pilgrims on their way to Mecca.

If that goes ahead, Jeddah may yet struggle to hold on to its crown as the country’s aviation hub in the future.