Budget Airlines Take to the Skies

Saudi Arabia’s prime low-cost carrier, Flynas, stunned the industry on January 16, 2017 by confirming its purchase of 80 new aircraft from European manufacturer Airbus. In a deal worth USD8.6 billion, the airline placed an order for 60 new A320neos, and upgraded its existing order of a further 20 A320 narrow body jets to the new model.

The deal, which in LCC terms is only rivaled by FlyDubai’s USD11.4 billion purchase of 111 Boeing aircraft back in 2013, will likely prove a game-changer for the Saudi carrier as it looks to expand its existing fleet of 29 leased A320s. In fact, once delivery commences, scheduled throughout an eight-year period starting 2018, Flynas will boast one of the largest budget airline fleets in the Middle East.

Speaking to TBY days before the deal was made official, the airline’s CEO, Paul Byrne hinted, “We are close to the end of the process with Airbus to buy a total of 100 aircraft. This is split between 60 aircraft coming in over the next 10 years and options for the other 40 aircraft.” And while Byrne insists, “Flynas still sees itself as a regional airline,” the breakthrough deal will certainly allow it to spread its wings to an ever-growing list of fresh destinations in and around the Middle East.

Yet it is within its own primary market, Saudi Arabia, which accounts for 70% of the airline’s traffic, that Flynas is bracing itself for stiffer-than-ever competition. In 2016 the Kingdom’s aviation sector encountered its most dynamic year in recent history, as a number of low-cost carriers look to disrupt existing market forces.
Namely, Dammam-based SaudiGulf Airlines was granted a license for domestic flights in June 2016, shortly followed by Nesma Airlines, which though Saudi-owned, is headquartered in Cairo. In addition, the local industry is bracing for another newcomer to enter the market, with the news that national carrier Saudi Arabian Airlines (Saudia)—the Middle East’s second biggest—would launch its own LCC. By 3Q2017 the newly formed Flyadeal is expected to hit the skies, with a fleet target of 50 aircraft by 2020.

Byrne points to the fall in oil prices as the key factor for this surge. “Typically with a drop in oil prices, planes that were sitting idle are more viable, and, as a result, we have been inundated with competition.”
Yet to truly understand the boom in Saudi’s aviation sector, one ought to analyze the vast reforms introduced by the government, principally through Vision 2030. Amongst its key initiatives lies the aim to drastically boost its Hajj and Umrah industry by increasing the number of visitors from 8 million in 2016 to 20 million by 2020 and 30 million pilgrims by 2030.

As pointed out by the Mayor of Mecca, Osama Al-Bar, in an interview with The Business Year, “With the completion of the new King Abdulaziz International Airport in Jeddah, with an annual capacity of 34 million travelers, bringing visitors here should be much easier. There are more airlines coming, and visa issuance has recently been eased for visitors, businessmen, and tourists, especially from Islamic countries.” In other words, Saudi Arabia’s unique religious tourism industry is expected to swell beyond recognition, presenting a huge opportunity for emerging budget carriers.

For its part, Flynas has already played an integral role in transforming air travel in the Kingdom by going beyond Saudi’s three major cities and introducing fresh routes to smaller towns such as Abha, Bisha, and Tobuk, or as Byrne put it “by getting the everyday commuters and travelers off the road and into the air.”
While newcomers will be keen to tap into this booming market, the airline’s recent performance suggests it is only just taking off. Namely, buoyed its success of first turning a profit in 2015 and 2016, Flynas spectacularly followed its announcement of the Airbus purchase to suggest—on the same day— that it is seeking regulatory approval for an IPO in mid-2017, thus becoming the first airline to be listed on the country’s stock exchange.