feature

AV I AT I O N

feature

AV I AT I O N

Were quite clear where

were going now. 2015 will
be about looking to fill
what we have, get a better
load factor and better
yield on what we have.
If that drives expansion
later on, happy days

SAUDI ARABIA

Turning over
another new leaf

Paul Byrne, flynas

Following three management upheavals in as many

years, Saudi low-cost carrier flynas is thinking carefully
about its next move
by Martin Rivers
thegulf@tradearabia.net

HERE was no shortage of

sceptics in the airline industry when flynas, Saudi
Arabias only private scheduled carrier, began operating long-haul flights in early 2014.
Sure enough it took just a few months
for the airline to scrap the new routes;
return its widebody Airbus A330s; and
hire yet another chief executive - the
fourth in three years.
Incoming boss Paul Byrne, who took
the helm on 1 November, admits that
the airline made a strategic blunder by
going long-haul. Its limited overseas
brand awareness and semi-budget
product was always going to struggle
when
competing
with
betterestablished flag-carrier Saudia.
But while undoubtedly chastened
by the experience, flynas is committed to developing its hybrid offering
across the regional market. Though no
longer a low-cost carrier, the airline
has differentiated itself by retaining a
uniquely minimalist product for the
kingdom. Byrnes predecessor, Raja
Azmi, brought several colleagues
from previous employer AirAsia to the
company during his tenure, and flynas
will continue to draw from its extensive
low-cost expertise. Azmi himself will
remain in an advisory capacity.
Following three management upheav-

als in as many years, the airline is

thinking carefully about its next move.
Parent company Nas Holding is now
ready for us to make a profit, Byrne
candidly told The Gulf. Flynas has been
loss-making since it was established
in 2007, floundering in a regulatory environment that bestows clear
advantages on state-owned Saudia.
And its challenges will only become
more pronounced in 2015, as two
new market entrants inject some
long-overdue competition into the
lucrative but protected Saudi sector. Al
Maha Airways, a fully-owned subsidiary of Qatar Airways, will launch
operations early this year with A320
narrowbodies. After initially focusing
on the Jeddah-Riyadh trunk route, Al
Maha aims to rapidly add destinations and reach 30 aircraft by 2018.
Dammam-based SaudiGulf will also
shortly begin domestic flights, having
ordered four A320s and 16 smaller
Bombardier CSeries CS300s.
Therell obviously be disruption
to the Jeddah-Riyadh service, Byrne
admits, when asked about the city
pair that accounts for nearly half of all
domestic seats in the kingdom.
But he is optimistic that flynas can
defend its 24 per cent market share on
the trunk route, arguing that demand
is yet to be satisfied, so theres
probably room for us to expand, and
for Saudia, and Al Maha. He further
believes Al Maha will focus on funnel-

New boss Byrne aims to reverse some of flynas strategic blunders such as going long-haul

flynas limited overseas

brand awareness
and semi-budget
product was always
going to struggle
when competing with
better-established
flag-carrier Saudia
ing traffic through its parents hub in
Doha, largely avoiding point-to-point
competition with flynas.
When SaudiGulf gets off the ground,
however, flynas next two largest
routes will also come into the firing

line. Dammam-Riyadh and DammamJeddah account for 12 per cent and

10 per cent of the airlines existing
domestic
network.
Given
that
SaudiGulf has contracted Bahrains
flag-carrier Gulf Air in an advisory
capacity, its new base of operations
seems particularly worrying. Gulf Air
has a well-established presence in the
eastern Saudi city, so future codeshares
between the affiliates could quickly
erode flynas proposition.
With these three routes accounting
for half of flynas domestic operations,
the loss-making Saudi carrier is staring
down the barrel of a veritable competitive onslaught at home. And that makes
the failure of its long-haul programme
all the more troubling.
In late 2013, when the Global Flight
Routes initiative was unveiled, flynas

promised to launch a raft of European,

North African and Asian routes with
three leased A330s. The airline rapidly
added scheduled flights to London
and Manchester in the UK; Casablanca
in Morocco; Islamabad, Lahore and
Karachi in Pakistan; Kuala Lumpur in
Malaysia; and Jakarta in Indonesia.
Services to the French capital Paris
were also in the pipeline, pending the
necessary traffic rights.
But almost as soon as the strategy began, cracks emerged. Azmi had
stretched the long-haul network too
thin, laying on multiple low-frequency services that would take years to
fully mature. Sustaining losses in the
interim was a tough pill to swallow,
even for well-endowed Nas Holding.
More fundamentally, the rationale
behind adding markets such as London

was baffling. UK tourism board

VisitBritain estimates that by 2020
Saudi Arabia will have the highest
projected value percentage growth (181
per cent) of the UKs 20 key inbound
tourism markets. While this may have
seemed an attractive opportunity for
flynas, the airlines budget product was
poorly positioned to capitalise on the
trend. Saudi tourists spend an average
of 2,354 when staying in the UK,
compared with 600 by the average
overseas visitor. Saving pennies on the
flight over is simply not a priority for
most Saudis, who will happily splash
out on full-service airfares with Saudia
and British Airways.
Flynas had been hopeful of adding
US routes and deploying 12 widebody
aircraft by 2017. That kind of scale if combined with a re-think of some
markets - could perhaps have delivered
profitability. But it was always going
to be a gamble. Recognising that Azmi
had bitten off more than he could
chew, the airline abandoned the strategy and Byrne is now returning its focus
to the challenging but more sustainable regional network.
Were quite clear where were going
now, he says. We need to just get
what were doing right consistently,
so 2015 will be about concentrating
and doing what we do best were
looking to fill what we have, get a
better load factor (seat occupancy) and
better yield (average airfare) on what
we have. If that drives expansion later
on, happy days.
Any talk of aircraft orders is firmly
off the table. The airline had originally
targeted up to 60 aircraft under its
expansion programme, but will now

8
36

January 2015 | the gulf

the gulf | January 2015

37

feature

AV I AT I O N

8 keep the fleet static at 24 A320s. On

any given day, 22 of those units are
operational while one is in maintenance and one on standby.
Route development is also no longer
a priority, although frequencies on
existing services are up for review.
The airline currently serves 11 points
in the kingdom; six in Egypt, three in
Turkey; two in the UAE; and one each
in Kuwait, Sudan and Jordan. Byrne
sees some potential to scale up its
presence at Istanbuls Sabiha Gken
Airport, and is really keen to add a
Riyadh-Cairo service. Were pressing
the Egyptian authorities to give us
access, he notes.
Despite calling the short-haul A320
network very successful, he concedes
that diversification could be beneficial
given the competitive headwinds at
home. Inbound religious traffic presents
the most obvious opportunity, with
flynas already well-established as a
charter operator that shuttles passengers to the kingdom during the Hajj
and Umrah. By selling block bookings
through agents the airline can operate
these unscheduled flights with a degree
of commercial certainty. Contracting
widebody aircraft and flight crews on
short-term wet-lease agreements further
allows it to avoid investing heavily in
speculative capacity, Byrne explains.
At the moment we have a [Boeing]
747 operating on our Malaysian route,
and we have two A330s operating in
Indonesia, he says of the long-haul
charter network. Were always
looking to expand that.
Its a very organised market, so you
tend to sign it up at the start of the year,
and then the agents will stick with you
for a full year. The numbers that some
of these guys are talking about are
staggering. Hundreds of thousands of
people spread over eight months of the
year for the Umrah traffic. The Hajj is
a very, very active period and we want
to get a full involvement in that as
well. It will always be a profitable side
of the business, and certainly well
never turn down good profits.
Product-wise, flynas is also keen
to further hybridise its on-board
offering. The airline has a dedicated Business Class cabin with 48-inch
seat pitches, complimentary meals,
38

flynas is keen to add a Riyadh-Cairo service as it look to the region for growth

Any talk of aircraft

orders is firmly off
the table. Route
development is also
no longer a priority,
although frequencies
on existing services
are up for review
lounge access and other perks. Even
its Economy passengers are given a
20kg free checked baggage allowance.
Byrne believes that such generosity
is well-suited to the high-end Saudi
market, and he plans to launch a
frequent flyer programme, Nas Miles,
later this year.
But well continue looking to sell
ancillary products, ancillary services, he quickly adds, highlighting the
conundrum that all hybrid operators
face when balancing stripped-down
cost-bases with full-service expectations. Well charge for what the
customer wants, and if they dont want
it theres no reason why they should
have to pay for it.
Amid all the uncertainty facing
flynas, one good piece of news must
be acknowledged. Saudi regulators
have eased the domestic fare cap that

prohibited it from raising ticket prices

as the date of travel approaches.
The kingdoms controversial fare cap
was designed to protect passengers
from excessive fare hikes - a hangover
from the days when Saudia had a
monopoly on domestic flights - but
today it merely obstructs the fluid
pricing models that most airlines use to
incentivise early bookings. Though the
fare cap has not been abolished, flynas
can now raise ticket prices within 10
days of the travel date. That counts as
a small but symbolic victory, taking
commercial decision-making powers
away from the regulator and handing
them over to the free market.
Nonetheless, it would be wrong to
suggest that flynas faces anything
other than an uphill battle in 2015.
Several failed strategies over recent
years have left it ill-prepared for the
looming entry of two well-connected
domestic rivals.
Byrne brings a wealth of experience
to the beleaguered carrier, with 24
years at Irelands Aer Lingus under
his belt plus 11 years as a commercial
consultant. He is already sounding the
right notes by slamming the brakes
on flynas expansion programme and
redoubling its focus on core strengths.
The next 12 months will determine
whether he has the right formula for
turning around flynas, or whether its
first-mover advantage in the private
sector has already been squandered. <
January 2015 | the gulf