Country Report Saudi Arabia May 2011

Economic policy: Consultative Council considers opening Saudi aviation market

As part of government plans to liberalise the aviation sector, the Consultative Council has begun studying ways to stimulate the domestic airline market. The government has already agreed to the partial privatisation of Saudi Arabian Airlines, the kingdom's flag-carrier, having earlier this year divested the airline's cargo and catering units; in March Arab News, an English-language Saudi daily newspaper, quoted an unnamed senior official at the airline as saying that a plan to privatise the core aviation unit "had been presented to higher authorities for approval". The requirement for an overhaul of the domestic airline sector comes in the wake of the criticism directed at the flag carrier in the local press this year for its ageing aircraft and poor customer service. Speaking in late March at the Jeddah Economic Forum, the company's director-general, Khaled al-Molhem, acknowledged the criticisms, arguing that the problem lay in a lack of choice for consumers and that "we need more airlines to create competition and improve efficiency".

One resolution to the domestic flights issue would be an invitation to outside carriers, who are currently banned from operating in-country services. In April the Reuters news agency quoted a spokesperson from the Consultative Council as saying that the body had recommended a study on the matter. If such a proposal was confirmed, the most likely beneficiaries would be Bahrain's low-cost carrier, Bahrain Air, and the UAE's Air Arabia. However, at present a fare cap on domestic flights remains in place, which would probably deter most Gulf airlines from entering the market; Saudi Arabian Airlines and a local competitor, Nas Air, have both suffered losses because of the fare cap. Another no-frills carrier, Sama, was forced to cease operations last year, after posting a US$266m loss.

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