Riyadh Air set to spark price war among regional rivals

Reuters/Ben Job

• Riyadh Air’s impact on market ‘will be profound,’ say aviation experts
• PIF-owned airline is part of Vision 2030 strategy to boost Saudi tourism
• Another locally based carrier operating from Neom may be launched

Saudi Arabia’s new national airline is bound to intensify the rivalry between Gulf carriers, analysts have said, and price wars are likely.

Riyadh Air, which is wholly owned by the kingdom’s Public Investment Fund, was launched on Sunday and will be run by aviation veteran Tony Douglas.

The carrier’s first international flight will take off in early 2025, according to Douglas, who was formerly CEO of Etihad Airways. Riyadh Air aims to connect Saudi Arabia to more than 100 destinations by 2030.

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The Gulf is already home to a number of major carriers, including Douglas’ former employer Etihad, based in Abu Dhabi, Dubai’s Emirates and Qatar Airways.

“A new airline with 100-plus markets being served will be fighting for every possible connecting passenger from Europe to Southeast Asia, from Africa to China and perhaps even to Australia over time,” said John Grant, partner at UK consultancy Midas Aviation.

“When some of the established carriers still have over 80 percent of their traffic connecting through their hubs, competition will be increased – it’s inevitable. This is almost like plonking a Lufthansa or British Airways into the European market.

“The ripple effects will be profound and that will create increased competition on air fares,” he told AGBI.

Linus Benjamin Bauer, founder and managing director of Bauer Aviation Advisory, also expects Riyadh Air to have a big impact.

“The launch of a new competitor could disrupt the balance of power in the market and lead to increased competition with price wars and innovation across the Gulf and beyond,” he said.

The kingdom hopes to boost the number of passengers through its 29 airports from 100 million to 330 million by the end of the decade, as part of Saudi Arabia’s Vision 2030 goal for tourism to generate 10 percent of GDP.

“The role of Saudi’s revamped aviation industry in boosting the kingdom’s tourism sector is likely to be significant,” Bauer added.

“The availability of more direct, non-stop flights to and from Saudi makes it easier for travellers to visit the country. This increased accessibility could help to put Saudi Arabia on the map as a destination.”

Grant suggested that Saudi’s tourism giga-projects would drive further investment in aviation.

“The vision for the Red Sea resorts is huge and well advanced. How that project is supported by air lift is important and we can certainly expect a lot of growth in that region,” he said.

“There have been suggestions of another locally based carrier operating from Neom and that may happen in the near future. The size and scale of that carrier will be smaller, I suspect, than the Riyadh Air announcement. It will probably serve a range of regional leisure markets so will perhaps operate using single-aisle long-range aircraft, but something is happening for sure.”

Pedro Ribeiro, Saudi Arabia general manager at property consultancy CBRE, said the Vision 2030 targets were ambitious, but achievable with robust planning and execution strategies.

“As the ease of doing business continues to improve in Saudi Arabia, alongside improvements in its quality-of-life rankings, it will continue to attract businesses and employees to help deliver these ambitious targets,” said Ribeiro.   

In 2022 Saudi extended eVisa regulations to GCC countries and visas on arrival to holders of valid US, UK and Schengen visas. Since opening to tourism in 2019, the kingdom has become the biggest Arab market for international tourists.

“It will certainly be competing with Dubai for the high-end sector,” James Reeve, chief economist at Jadwa Investment, told AGBI.

“Saudi’s Red Sea has the advantage of proximity to Europe, while Dubai has a huge tourism ecosystem that Saudi currently doesn’t have.”

He added: “Tourism is key to Saudi’s diversification efforts because of the job creation potential, putting the kingdom on the map and because it will help the shift away from capital-intensive industries towards lower-emitting services.”

The Middle East is one of the fastest-growing aviation markets in the world, according to the Global Fleet and MRO Market Forecast 2023-2033 published last month by consultancy Oliver Wyman. The region’s fleet is set to expand by 5.1 percent each year over the next decade. The global average is 2.9 percent.