All Change

Abdullah Al-Jehani, vice president advertising & marketing programmes, explains how Saudi Arabian Airlines is preparing for both domestic competition and eventual privatisation.

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By  Neil Denslow Published  June 6, 2004

|~|this one.jpg|~|Abdullah Al-Jehani, vice president, advertising & marketing programmes, Saudi Arabian Airlines|~|Saudi Arabian Airlines has long had a reputation for poor quality and long queues. However, the airline, which is the largest in the region, is now shaking up service levels and tackling its costs base, as it prepares for the twin challenges of privatisation and the end of its domestic monopoly. Saudia is now investing in IT to enhance its back end process, reviewing its fleet options and looking to drive up passenger numbers, especially by developing tourism.

The process for privatising Saudi Arabian Airlines began last year, when four international consultancies led by SH&E drew up a plan for the partial sell-off. The plan calls for the company to be divided into separate businesses, which will then be sold off separately. The first units to be spun off will be the auxiliary businesses — cargo, catering, groundhandling and maintenance — followed later by the airline operations.

“The plan calls for a gradual [sell-off],” says Abdullah Al-Jehani, vice president, advertising & marketing programmes, Saudi Arabian Airlines. “We have already started the [commercialisation] process… [The four auxiliary units] will be developed into strategic business units — I think this will take priority — and then we will move onto the airline part of the company,” he explains.

The privatisation plan, which will see 30% of the carrier being sold off, is now awaiting approval from the council of ministers, although when this will be granted is as yet unclear. This year is certainly possible though, following the successful partial sell-off of Saudi Telecommunications Company in December 2002. “We hope that [the approval] is granted very soon, as the government is making privatisation one of its top priorities,” says Al-Jehani.

The sell-off will only be opened to Saudi investors and it is likely to take the form of an IPO rather than through a strategic partnering. However, it should attract new investment into the carrier and its units, and it will also allow the company to more quickly respond to market changes. “Usually, any type of privatisation gives more power to the decision making process and it will help the airline to work more and more on the profit side of the business,” notes Al-Jehani.

Furthermore, despite its reputation for losing money, Al-Jehani says Saudi Arabian Airlines does make money on its overseas routes at least. “In the international sector, we are profitable,” he comments. “For the year 2002, the airline produced 117 million Riyals (US$ 4.5 million) in total profits.”

However, in parallel to the privatisation process, Saudi Arabian also faces the threat of competition in its domestic market. The carrier currently has a monopoly on internal routes, which account for a substantial part of its business. Last year, for instance, it carried a total of 14.5 million passengers, of which 9 million were domestic. The monopoly is set to end however, following an open skies decree that was handed down last year. No other services have been launched yet, but plans are being drawn up by possible rivals, including National Air Services, the largest business jet operator in the Middle East. Al-Jehani believes, however, that Saudia need not fear the end of its monopoly.

“Competition is always really welcome, as we believe that it will improve the service that is being provided,” he says. “If you look internationally, we are competing with more than 50 airlines, so competition is not something new [for us].”

“The Saudi domestic market is also big,” he adds. “We are carrying around 9 million [domestic] passengers a year, but we believe [the potential market] is bigger than that,” he continues. “The population growth is around 3%, and we believe that with time, the domestic market will grow bigger and bigger. We welcome any newcomers because they can share in developing and increasing the traffic,” he adds.||**|||~||~||~|National Air Services has talked about launching a low-cost carrier in the Kingdom, and Al-Jehani believes that the model may well work. “The low-cost carriers have been proven elsewhere,” he says. “They need a good domestic market, and in Saudi Arabia there is a good domestic market,” he notes.

Saudia, itself, has also not ruled out the possibility of launching a low-cost carrier. “In the domestic market, I think the main consideration is really the price... [and] with newcomers, everybody should look at reviewing their brand,” says Al-Jehani. “The newcomers might adopt the [LCC] strategy, but for Saudi Arabian Airlines, things are still being reviewed,” he adds.

The start of new services has also been delayed by the re-organisation of the civil aviation authority. This body is being transformed into a commercially driven state-owned agency, with financial and administrative independence from the government, and it is likely that this process will need to be completed before new domestic carriers can be approved. Once the process is complete, however, it should enhance the aviation sector in the Kingdom by simplifying procedures and attracting new investors in airport infrastructure.

“Usually, when any government body begins working on a commercial basis, it makes it easier for everybody to understand their role and to work accordingly, so I think it will be better for the co-ordination process,” says Al-Jehani. “It will also be better for the airport facilities and the passenger services, as they will be upgraded under a profit-making authority.”

Saudi Arabian Airlines is preparing for the onset of competition and privatisation by tackling its cost base and by enhancing its service levels, including a much greater focus on the use of IT across its operations. For instance, it implemented a Datalex internet booking engine last year, and recently it has signed up for a Carmen Systems crew-scheduling application, as well as deploying an eBusiness Centre to enhance its customer service levels. “Technology is really the driving force in everything in our business, and we have been keen to develop the use of IT in the airline,” says Al-Jehani.

This drive encompasses introducing self-service check-in kiosks at major airports in the Kingdom. The roll out began in Jeddah’s King Abdulaziz International Airport (KAIA) in February; last month, the kiosks were introduced at King Khaled International Airport in Riyadh, and they will soon be deployed in King Fahd International Airport in Dammam and Prince Mohammed Bin Abdulaziz Airport in Al-Madinah. The airline is confident that passengers will quickly accept the kiosks and start to use them.

“The banks through their ATMs made it easier for people to deal with machines, so I don’t think it is strange now,” says Al-Jehani. “[They will be] especially popular on the domestic market because the domestic market is point-to-point, and it’s not very complicated,” he adds.

The carrier is also reviewing its domestic fleet to better match aircraft to routes. A key part of this process will be the development of two domestic mini-hubs served by nine 50-60 seater aircraft. One will be located in the north of the country in Hail, while the Southern hub will be in Abha. The hubs will allow Saudia to offer more services and greater frequencies within the country in a cost effective manner. “From those hubs we will be connecting other smaller cities in the north and south of Saudi Arabia,” explains Al-Jehani. “[The plan] is at an advanced stage,” he adds. “The airline is receiving proposals from the manufacturers.”

In terms of larger aircraft, Saudia has ruled out the A380 even though its size would certainly be a boost for handling traffic at peak times such as Umrah. “I think we would be more comfortable with a medium-sized aircraft [rather than an A380] of a range like the 777… An aircraft of that size serves our interests in a better manner,” says Al-Jehani.
“We need a bigger aircraft in certain markets, but we now have enough big aircraft, as we have the 747–400s and 747–300s, so I think more of the medium-sized aircraft, like the 777 [are more likely],” he adds.

This also suggests that the airline may be interested in the 7E7 Dreamliner, which Boeing has been promoting within the Saudi market. “It is one of the things that is being evaluated… but the fleet is always a long-term decision,” says Al-Jehani.

As it prepares to face domestic competition, Saudia is also looking to increase its international traffic. A key constituent of this market at present is pilgrims; last year the airline carried over 1 million Muslims who performed Umrah and Hajj, and it is trying to develop this traffic by introducing special visa programmes and services. “We are emphasising more and more the transportation of Umrah passengers,” says Al-Jehani.

The airline has developed two special programmes for Umrah passengers in co-operation with the country’s Tourism Authority, which helps cut through the red tape needed to get a visa. Its Convenient Umrah package allows pilgrims to get a 30 day visa on arrival, while its new Transit Umrah service includes a 72 hour visa that is also available on arrival. The Transit programme is targeted at expatriate Muslims living in the Gulf and travelling home. It enables them to fly from where they are working to their homeland, via Jeddah, where they can perform Umrah, before continuing their journey home. “We expect a large number of Muslims to utilise this service,” says Al-Jehani.||**|||~||~||~|Beyond religious traffic, the airline is also looking to develop tourism via special packages and through co-operation with the Tourism Authority. Through its Discover Saudi Arabia programme, for instance, the airline is seeking to develop cultural tourism, as well as new markets like diving holidays. “We have some of our operators developing programmes for diving in Saudi Arabia, and we have had good success from areas like Italy,” says Al-Jehani. “Last year, we had 200 divers, and this year we are expecting 800… [Cultural tourism] is still at a smaller stage,” he adds.

However, the development of tourism is still hindered by the visa regulations in Saudi Arabia. It has become easier for visitors to get tourists visas, but unlike other Gulf carriers, Saudia is only able to offer a limited number of tourist visas through special programmes.

“In the Discover Saudi Arabia programme, we have a number of visas that we utilise, and we hope that will continue,” says Al-Jehani. “The [Transit Umrah] brand also doesn’t require [pre-arranged] visas either; visas will be granted on arrival,” he adds.
However, Al-Jehani believes that Saudia may soon get wider visa-issuing rights. “I think this is probably part of [the Tourism Authority’s] plans,” he says.

Saudia is also developing its international traffic and network by more closely working with other carriers. Traditionally, the airline has not codeshared with other airlines, but it has recently begun partnering with Gulf Air. In July, the two airlines began codesharing on Damman-Abu Dhabi-Kathmandu and Riyadh-Muscat routes, and last month they extended the partnership to cover Abu Dhabi-Bahrain, Riyadh-Damman and Bahrain-Jeddah.

“We are trying to cover markets that we are not operating to and usually through co-operation, it’s a win-win situation,” says Al-Jehani. “We are looking to expand with any carrier, not just Gulf Air, but with Gulf Air, especially with services to Nepal, we thought co-operation would be a win-win situation,” he adds.

The carrier is also aiming to further expand its marketing reach and network by joining one of the global alliances. An internal working group is currently assessing which of the three major groupings would be the best alternative, and Al-Jehani hopes that the airline will receive an invite to join one ‘probably next year.’

“I think now with the global trends, a strategic alliance is now becoming a necessity,” he comments.||**||

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