Saudi Arabia’s Flynas Aims For Profit On Lower Costs, Higher Demand

Saudi Arabia’s first and only budget airline, flynas, aims to turn profitable this year for the first time since it was launched in 2007, partly by cutting costs, its new chief executive said.

The Kingdom’s air travel market is expanding rapidly on the back of rising incomes and population growth. Over 68 million passengers passed through Saudi Arabia’s 28 airports in 2013, up 5.2 per cent from 2012, according to the latest data from the General Authority of Civil Aviation.

Saudi Arabian Airlines (Saudia), the national carrier, and privately held flynas are currently the only options for flying domestically within the country, and they are struggling to keep up with demand.

But even in this environment, high operating costs and regulatory obstacles, such as price caps on domestic fares, have made it hard for airlines to make money. In 2010, rival SAMA Airlines was forced to halt operations after incurring a loss of about $300 million.

Flynas chief executive Paul Byrne said in an interview that a combination of demand growth and cost-cutting was likely to push his airline into the black this year.

“We would certainly gear ourselves towards an absolute minimum of break-even this year, but we are hoping for a small profit at least. We have basically budgeted ourselves for a modest profit this year, which will be the first for flynas.”

According to its website, flynas carried 6.5 million passengers in 2014, almost double the 3.3 million which it carried in 2013.

Byrne replaced the previous chief executive, Raja Azmi, last November, a month after flynas announced it was shifting strategy and suspending long-haul flights because profits on the routes did not meet expectations.

The company now expects to expand its capacity by around 20 per cent this year, focusing on shorter-haul flights. Byrne said flynas was waiting for the green light from Egyptian authorities to start a new route from Riyadh to Cairo, hopefully in April; it already has a route from Jeddah to Cairo.

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The Riyadh-based airline, 37 per cent owned by Saudi investment firm Kingdom Holding and the rest by National Airline Services Holding, now flies to 25 destinations with a fleet of 24 aircraft.

Financial markets have been speculating that flynas might conduct an initial public offer of shares by the end of 2015, but Byrne said turning profitable would be a major condition before the company could proceed with an IPO.

“For an IPO the first thing we have to be is profitable, and that’s effectively my job for the year is to deliver a profit, or at least not a loss. Other than that, there is no statement to be made about the IPO,” he said.

Lower global oil prices may help the move towards profitability as the airline is enjoying a slight reduction in fuel prices in several countries, though the immediate impact won’t be large as some airports are trying to double handling charges, Byrne added.

“I think like most airlines we don’t hedge, we have never hedged, so it is probably good news for us in the long term, as long as the price stays low,” he said of cheaper oil. “It will give us opportunity to make the profits we are hoping for.”

Saudi Arabia announced in 2012 that it would liberalise its domestic air travel market. That will mean more competition; Qatar Airways has obtained permission to run a Saudi domestic carrier, Al Maha Airways, though its chief executive said in December that complicated bureaucracy meant the launch of the Saudi arm would be delayed a further six to 18 months.

Byrne said additional competition would probably push prices down, but added: “We are expecting (competition) and we have budgeted accordingly.”