By TBY | Saudi Arabia | Jan 30, 2017
Saudi Arabia's prime low-cost carrier, Flynas, confirmed purchase of 80 new aircraft from European manufacturer Airbus in mid-January.
In a deal worth a staggering USD8.6 billion, the airline placed an order for 120 new A320 neo aircraft with 80 firm and 40 options to be delivered over the coming 10 years.
The deal, which in LCC terms is only perhaps 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—scheduled over an eight-year period starting in 2018—commences, Flynas will boast one of the largest budget airline fleets in the Middle East. We will be initially replacing our 29 leased aircraft.
Speaking to The Business Year days before the deal was made official, the airline’s CEO, Paul Byrne stated“we are delighted to have concluded such an historic agreement with Airbus. The A320 neo will afford us initial savings of 15% on fuel due to its advanced design and performance improvements over the current A320. This will give us the double benefit of bottom line cash savings and allows us move toward a greener footprint with the reduced emissions.”
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 carriers look to disrupt existing market forces.
Namely, Dammam-based SaudiGulf Airlines was granted a licence for domestic flights in June 2016, shortly followed by Nesma Airlines, which although Saudi-owned, is headquartered in Cairo, Egypt. In addition, the local industry learnt of 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 mid-2017 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… as a result, we have been inundated with competition.”
Yet to truly understand the boom in Saudi’s aviation sector, one ought to also 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, Dr Osama Al-Bar, in an exclusive 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, visa issuance has just been made easier 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 transportation 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 travellers off the road and into the air.” And 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.