Kingdom invests in aviation sector

06 April 2015

Saudi Arabia is trying to keep pace with its GCC neighbours in the airports sector, with a series of expansions planned

For many years, Saudi Arabia’s aviation sector seemed to lag behind its Gulf neighbours. Oman, the UAE and Qatar have all expanded airport capacity in recent years to keep pace with rising passenger numbers, while their respective flag carriers have tapped into surging regional and global demand. In contrast, the largest hubs in the kingdom have failed to keep pace.

Only now is the kingdom starting to play catch-up, with a series of expansions to its 28 airports, four of which service international destinations.

Domestic airports

In March last year, Saudi Arabia’s General Authority for Civil Aviation (GACA) issued tenders for the redesign of seven domestic airports - part of the ongoing expansion of airports across the country, involving new passenger terminals, runways, aprons, control towers, maintenance buildings, VIP lounges, and landscaping.

Passenger traffic, 2012
King Abdulaziz International airport 18,89027,111
King Khaled International airport 8,28817,069
King Fahd International airport 3,4546,422
Prince Mohammad Bin Abdulaziz International airport 3,1274,738
Source: Gaca

The capital is also set to get a boost to passenger capacity. In May 2014, bids were submitted for the expansion of Riyadh’s King Khaled International Airport to increase its annual capacity to about 24 million passengers a year by 2017, from the current 14 million by upgrading the first four terminals. In May 2013, a joint venture of Turkey’s TAVAirports Holding and the local Al-Arrab Contracting Company won a SR1.5bn ($400m) contract to construct the new Terminal 5 building.

The expansion plans stretch the length and breadth of the kingdom. Prince Naif bin Abdulaziz regional airport in Qassim is to accommodate 3.2 million passengers by 2017 as part of its upgrade, a four-fold increase on the previous 750,000. Meanwhile, the three-year development project for Arar airport will see a ten-fold increase in its airport’s capacity to 1 million passengers a year.

Jizan work

Jizan’s regional airport is to be relocated, and will have a capacity of 3.6 million passengers a year by 2018. A local consortium was awarded the estimated SR2.5bn contract in May 2014 for the construction of the new King Abdullah bin Abdulaziz airport in Jizan, which will involve the construction of a three-storey passenger terminal, a control tower, air cargo zones and other facilities. Abha airport will see an almost fivefold increase in capacity to 5 million passengers a year. Another tender involves the redesign of the Qaisumah, Rafha and Turaif airports.

The bulk of projects are aimed at meeting increasing volumes of traffic, rather than catering for increases in tourism. But they indicate the kingdom’s acknowledgement that change is needed.

“Authorities in Saudi Arabia have woken up to two major realities,” says Saj Ahmad, chief analyst at London-based Strategic Aero Research. “The first is that the GCC as a whole is a thriving and vibrant market, regional neighbours in Oman, the UAE and Qatar are all expanding airports for more passengers and that their airlines are growing at an amazing speed while tapping into regional and international demand. Now the Saudis want in on that game too.”

The second element is that they realise their own domestic population is young and increasingly pushed towards vacations and travel, and they want to harness that and not lose demand to non-Saudi airlines. This is where the kingdom must play catch-up. “While there will always be growth in religious traffic, particularly around the time of hajj and Eid, the GCC is a flourishing market and Saudi Arabia, [along with] Kuwait and Bahrain, have been sleepwalking as their neighbours succeed in business and leisure travel,” says Ahmad.

Jeddah airport

Some of the airport expansions are explicitly designed to cater for the rising demand emerging from religious tourism.

In Jeddah, the first-phase upgrade of King Abdulaziz International is due to be completed this year, with a new 640,000-square-metre passenger terminal and associated buildings that will increase capacity to 30 million passengers a year. The $8.2bn project will ultimately be expandable to handle 80 million passengers a year - enough for the steadily rising number of religious tourists and the general increase in visitor volumes.

Jeddah’s airport will greet the millions of visitors with a new terminal featuring 46 departure gates, of which at least three will accommodate the Airbus A380, as well as new hangars and a 136-metre-high control tower. In a nod to transport integration, a railway station is also being built to improve links between the city and the airport.

Key fact

Jeddah’s King Abdulaziz International Airport will ultimately be able to handle 80 million passengers a year

Source: MEED

Jeddah has long been a landing point for religious tourists. That status will remain, even though Medina airport is also undergoing its own expansion. The aim is to calibrate the expansions to create a seamless flow of tourists. This could lead to the promotion of a “one-way street” methodology in which pilgrims arrive at Jeddah and leave out of Medina airport.

The latter’s Prince Mohammad bin Abdulaziz International airport is also expected to see a substantial increase in size, with passenger capacity due to rise to 4 million a year when the first phase expansion is completed this year. A second-phase expansion, to take place between 2021 and 2024, will see capacity grow to 14 million a year, with the addition of another runway.

The UK’s Atkins is the design consultant for all aspects of the terminal building, including an advanced baggage-handling system, departure gates and airway bridges, a 56-room hotel for transit passengers, four first-class lounges and a business lounge, and duty-free shops and commercial centres. The Washington-based International Finance Corporation is a lead adviser on the project.

Medina also stands out as the Gulf’s first public-private partnership (PPP) airport. Gaca awarded TAV Airports, in partnership with the local Saudi Oger and Al-Rajhi Holdings, a 25-year contract in 2011 to develop and maintain the airport. By 2034, it will be expanded to accommodate 16 million people a year.

Logistical challenge

Managing the ongoing surge in Mecca and Medina-bound tourists is a key policy driver for the Saudi authorities’ aviation and wider transport strategy, says Joss Dare, head of Middle East and global head of transport at the UK’s Ashurst, a legal adviser on the expansion of Jeddah airport.

“The pilgrimage aspect is a logistical issue for the kingdom because of the big influx of people going to the Western Province who have to get in and out and also move around efficiently while there,” he says.

“That is why they are upgrading the transport systems by which this is achieved: primarily Jeddah and Medina airports, Haramain High Speed Rail, Mecca Metro and Medina Metro. This is part of a strong push to upgrade public transportation infrastructure across the kingdom and, in some cases, create it for the first time.”

This means the authorities have had to give serious thought not just to sprucing up and expanding airport facilities but also to ensuring the transport nodes are in place and functioning properly in an integrated fashion.

Integrated links

“When we designed Jeddah airport, we had to integrate with the Haramain high-speed line that allows people, when they land, to jump on a train and head to Mecca or Medina, and from there link to the various metro systems,” says Julian Hill, director of rail at UK consultancy Atkins.

There is now a growing range of options for tourists entering the kingdom for pilgrimage purposes. “Eventually, you will be able to go by train from Riyadh or even Dammam, or fly into Western Province airports, whether Jeddah, Medina or Taif, and then link up by rail,” says Dare.

“Most of these projects are very large indeed. Jeddah airport, for example, will be able to handle 30 million passengers when phase one of its redevelopment is complete. And the aggregate cost runs into many billions of dollars. This scale of infrastructure requires huge capital investment and that means you have to take great care in the planning stage.”

Multi-mode focus

The motivation behind the multi-mode focus of the various Western Province aviation projects is clear. Integrating airports with rail is nonetheless a challenge for transport planners, as it would be even for developed countries with extensive networks and experience in both these modes, says Srinath Manda, programme manager for transportation and logistics at US consultancy Frost & Sullivan.

“As yet, they don’t have seamless integration between road, rail and air in Saudi Arabia. In a few locations, there is good connectivity between rail and road networks, but not necessarily seamless interaction of all three,” he says.

Financing, whether off the state’s balance sheet or via private means, should not present a significant challenge. The advantage of the Western Province’s religious tourism is that the regulated passenger volumes lend themselves well to private financing options, which in the case of Medina airport has made it a landmark project for the kingdom.

Medina potential

Compared with other airports in the region, which have encountered a lack of definite demand, Medina sees high volumes of traffic related to the annual hajj and umrah pilgrimages. The fact that its expansion is being carried out on a PPP basis is important because Medina airport has real demand, with persistent annual growth, which enables project sponsors to model in a predictable manner the type of traffic and demand flowing through the Medina and Mecca area.

“In the airports sector, there is definitely scope to expose the private sector, to a degree, to the risk and reward of rising passenger volumes,” says Dare. “That was the structure successfully adopted for Medina, and Jeddah is likely to consider something similar (although in that case there is no [capital expenditure] connected to that as the construction work is being carried out under a separate arrangement). Taif is also considering PPP for its airport development.”

Too late

Critics warn that expansions under way in Saudi Arabia’s airports sector may be welcome, but could have been planned earlier. According to Ahmad, the development of Jeddah airport itself is not the issue. “The problem is that it appears the investment has arrived too late to make an impact,” he says. “Yes, there will be spill-off traffic for Mecca and beyond, but in terms of being a prime regional airport with gateway connections through the GCC, North Africa and beyond, it is far-fetched.”

There will need to be other changes if Saudi Arabia is to realise the anticipated passenger volumes that underscore the various expansion projects. Stringent travel rules and visa regulations continue to choke off passenger demand, and may need addressing, although control of visas is one means by which the Saudi authorities are able to manage the huge traffic volumes.

Most important is that the new airport facilities are able to seamlessly integrate with the rail systems being planned, providing foreign guests the best possible experience when undertaking hajj or umrah.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications