The moves would mean a multi-million-dollar change in profit margins for all the country’s airlines.
Costs would tumble for the short-haul carriers, National Air Services (Nas) and Sama, which pay market rates for their fuel. At the same time, profitability on domestic routes would surge at national carrier Saudi Arabian Airlines (Saudia), where the fare cap hits the company hard in what is its largest market.
“Other transport groups in Saudi Arabia benefit from low fuel costs,” says Taher Agueel, president of Nas. “It is only Nas and Sama that are excluded, which is not fair. Saudia pays $0.06 a gallon for fuel; Nas and Sama pay more than $2 a gallon.
“Either Saudia should pay the market price or give the subsidy to us. Clearly this would be the preferred choice.”
He claims the General Authority of Civil Aviation (Gaca) fully supports equal treatment for all the airlines.
Gaca declined to comment on the developments, but has made it clear that discussions are ongoing on both issues, with progress anticipated by the end of 2007. “Within a month we should have some clarity on this,” says a Gaca official.
“We are optimistic that things will change soon. It is just a matter of time,” says Agueel. “Fuel is one of the kingdom’s natural advantages so all businesses should enjoy the benefits of this, and new players should get a subsidy in tandem with Saudia. As the region moves towards open skies, competition will grow and the strongest will survive.”
The fare cap has hit national carrier Saudia, reducing revenue on domestic routes where inefficiencies throughout the business have destroyed margins.
These inefficiencies are only just being corrected and the business is in danger of being out-manoeuvred on its core domestic routes by the new low-cost airlines.
“We serve 26 domestic markets and we are losing money on all of them,” says Abdulaziz Alhazmi, executive vice-president of marketing at Saudia. “Currently, 70 per cent of our traffic is domestic, but 70 per cent of our revenue is from international services.
“Getting rid of the fare cap would be a huge advantage on these domestic routes, but the government has always said it does not want to increase the burden on the people.”
Agueel agrees that the fare cap is outdated and is hindering companies who need flexibility.
“Usually we are below it anyway but it does impose a burden,” he says. “We are all struggling with the cap: us, Saudia and Sama. Gaca is reviewing it now and it is time we put a new fare structure in place.”