Profit is not an issue for Neom Airlines … for now

Neom

Eighteen months before its first scheduled flight, managers at newly registered Neom Airlines are doubtless preparing their schedules, considering their load-factors and mulling their target market, but they can make their plans secure in the knowledge that profitability is a secondary concern.

The airline is a central element of the wider Neom giga-project, a $500 billion scheme covering a surface area of 26,500 square kilometres of Saudi Arabia.

The intention is that 1 million residents will be living on urban development The Line, by 2030 and that Sindalah Island and Trojena, a luxury ski resort, will be attracting thousands of tourists. To service these projects and its residents, developers have come to the conclusion that Neom needs its own airline.

Four locally based scheduled airlines currently operate in Saudi Arabia, but they have their own priorities.

Saudia is trying to turn a tired brand around and at the same time build a new network from Jeddah.

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Saudi Arabia’s two low-cost airlines, FlyNas and Flyadeal, need to ensure that other carriers do not eat into their market share.

Low-cost Wizzair of Hungary already has a foothold in the kingdom, Jazeera Airways of Kuwait is showing a keen interest, and FlyDubai would love to add more capacity.

Sky Pearl Aviation, the fourth airline with Saudi registration, operates fewer than 200 flights with Gulfstream aircraft. This will not trouble the bigger players.

So there are three existing airlines in Saudi Arabia with enough on their plates, and Riyadh Air, a new regional mega-carrier is in development.

Adding a Neom strategy to their agendas is challenging. Neom’s backers have therefore decided that they will start a new airline and make it part of the whole DNA of the project. 

The success of Neom will be based on taking risk out of every possible element. That includes the process of getting people to the slopes, the hotels and the beaches.

Neom

Thus it will have to control its inbound market. Neom Airlines will be a charter carrier – but on steroids with levels of product higher than currently offered. Its task will be to bring in tourists and allow the profit to be made by the tour operator rather than the airline.

Neom Airlines will therefore be shaped by the broader strategy. Important markets are likely to include major cities within the region such as Cairo, Istanbul and Dubai, and European destinations such as Milan, Rome, Paris and London. Many will require no more than two or three flights per week. 

Connectivity to longer haul markets such as North America and Asia will be via the Riyadh super hub and multiple interline agreements. Riyadh Air will be central to that proposition.

That, in a nutshell, is the logical network and distribution strategy for Neom Airlines. The question is: can those managers make it work?

The search for staff and jets

It is going to be tough. There is no major market in the world that has not been impacted by a lack of resources, post pandemic. Saudi Arabia and Neom are no exception, although they may buy their way out.

The ideal aircraft choice for Neom Airlines is a long range single aisle jet with perhaps four rows of business class and 170-plus economy passengers. But Boeing is again facing production and delivery issues this summer while Airbus is behind on its deliveries. Queue jumping will come at a price.

Finding skilled staff to operate those aircraft will also be a headache – and expensive. Neom Airlines will have to offer attractive terms and conditions to all its operating staff if it is to start with full resources. 

Moreover, the required management experience and specifically new airline start-up skills come at a high price. Klaus Goersch, the CEO, is a former chief operating officer of a legacy airline. His initial management team will consist of more expatriates than locals. Their packages will have to be attractive to lure them away from others.

Besides aircraft, aircrew and senior managers, Neom is likely to need some expensive brand development specialists to create swanky imagery, aircraft interiors and uniforms, which point to the fact that Neom Air’s operation is about delivery and not profitability. But can it succeed? 

Neom Airlines cannot afford to fail. Its role is much broader to the wider agenda. The growth of the airline will be linked to growth in accommodation, the number of local residents in Neom and wider commercial activity in the destination. 

Quite how large the airline will be by 2030 is more of a question. Will it have more than 20 aircraft six years from launch? Since profitability is not a consideration, Neom Airlines may reach that size and more by that point.

But if Neom Airlines ever needs to turn a profit, as many of its overseas commercial rivals do, that will be the biggest challenge of all.

John Grant is partner at UK consultancy Midas Aviation