$100 Billion for a new Gulf air transport player
100 billion dollars is the staggering sum that the government of Saudi Arabia has put on the table to develop its air transport. To give you an idea, this corresponds to nearly 4 times the turnover of Air France/KLM and twice that of the Lufthansa Group. The announcement dates from June 2024 and was reiterated at the last World Economic Forum in Davos in the Saudi Arabian pavilion by the GACA (General Authority of Civil Aviation).
What is this manna for? According to GACA’s head of strategy, Mohammed Alkhugaisi, it consists of tripling the number of passengers, developing the number of destinations served to reach 250, and handling 4.5 million tons of cargo. To do this, 50 billion dollars will be devoted to airport infrastructure, by increasing, among other things, the number of runways at Riyadh’s King Salman airport to 6. 40 billion will be used to acquire new aircraft, at 100 million dollars the average price of an aircraft, which still corresponds to 400 units. The last 10 billion will be used to create an infrastructure for logistics and maintenance. All this by 2030 if we are to believe the plan unveiled in June 2024 and confirmed in Davos.
This will seriously shake up Gulf air transport. It is currently shared between Emirates Airlines and Qatar Airways, with other significant carriers such as Etihad Airways, which is recovering from its past strategic mistakes, Gulf Air, which is starting to show its nose again, Kuwait Airways, and Oman Air, not to mention the Saudi carrier Saudi Arabian Airlines and the “low-cost” Air Arabia. The arrival of a new carrier largely supported by one of the richest states on the planet is enough to cause some problems for already established operators, especially since they also have undisguised growth ambitions. The deadlines are fast. Within 5 years, a new landscape will be operational.
It is easy to imagine that Emirates Airlines and Qatar Airways will have no desire to lose their current leadership. This is exercised not only in the Gulf but throughout the world. In terms of passengers/kilometers carried, Emirates Airlines is by far the leading international carrier; it must be said that the Dubai company has no domestic market. Qatar Airways is fighting to make its mark, the company is aiming for the first, but it is not won. So the arrival of a powerful Riyadh Air will further exacerbate the competition, especially if the latter accepts alcohol on board, which is an essential criterion to welcome an international clientele. After all, it is possible that under the influence of its new leader, Mohammed bin Salman, this country will copy its neighbors’ policies on alcohol consumption.
If we count correctly, in 2030 the Gulf will have 5 first-tier carriers: Emirates, Qatar Airways, Etihad Airways, Saudi Arabian Airways, and Riyadh Air, all largely supported by their respective states, which will provide them with all the airport facilities they need and without them being held back by a repressive ecology, as will be the case for Western airlines. The strike force of these operators will be considerable. Counting the current aircraft plus orders, we arrive at a total of 577 Airbus and 641 Boeings, i.e., more than 1,200 aircraft with an average capacity of 250 passengers. This is enough to destabilize international air transport.
Because two scenarios can be envisaged. The first is to imagine fierce competition between airlines that will have to fill their aircraft well. They can only pick up customers outside the Persian Gulf because the majority of “domestic” passengers in this region will use the services of powerful “low-cost” airlines such as Air Arabia or FlyDubai, to name but two. So it is very possible that the major operators will lower their tariffs to supply their fleets. It is difficult to see how traditional Western airlines can follow such a strategy. They will be condemned to lose market share. The other hypothesis is that, in the end, Gulf carriers agree among themselves to keep a consistent fare level and that they focus their attention and investments on improving the quality of service and the ease of transit in their largely modernized airports.
In both cases, Western companies have a real concern to worry about.
