Regional airlines starting to fly low?

Regional airlines starting to fly low?

Saudi budget airline Sama cuts starts axing domestic routes. Is the high price of fuel weighing down Middle East airlines?

September 24, 2008 12:12 by kippreport

Sama, one of Saudi’s low cost airlines, says that it is cancelling some of its domestic routes due to the high price of fuel.

“Sama cannot afford to continue to bear losses on domestic routes,” Andrew Cowen, Sama CEO told Arab News. “Our shareholders are fully supportive of Sama and recently decided to strengthen the company further with an additional SR200m ($53m) financing. The suspension of some domestic flights is not a decision we have taken lightly, but we have no choice.”

The low-fare Saudi carrier is even considering the prospects of shutting down all of its domestic flights until the situation in the aviation market of the kingdom improves.

Sama, along with the other low-cost Saudi airline, Nas Air, has complained that state-run Saudi Arabian Airlines enjoys an unfair competitive because it buys fuel at a subsidized rate up to five times lower than the market rate. It has also been burdened with a domestic fare cap imposed by the government, so it cannot pass on the high fuel prices to consumers.

But while chopping domestic routes, the airline says it plans to add new international ones in the coming months. With no fare cap on international flights, it hopes to make up for its domestic losses.

Looking at the Middle East’s spending spree at the Farnborough Air Show in UK this year, one would be tempted to believe that the region has been immune to rising fuel prices.

On the other hand, in July this year, Emirates – which is soon coming out with a sister low-cost airline, FlyDubai – announced it is cancelling its service to Alexandria, Egypt, because of high fuel costs.

Earlier Emirates also said it is deferring its plan to have direct flights from Dubai to Durban, South Africa, in December, also due to high oil prices.

Interestingly, more than 50 percent of the first-half net earnings of Air Arabia for the year have been contributed by the profit from fixed deposits in its bank deposits, rather than operations.

With oil prices fluctuating wildly and the global economy slowing, carriers across the world have been hit badly. According to reports, more than 27 airlines have gone bankrupt this year.

But with the Middle East producing the largest amounts of oil in the world, it does seem surprising that even airlines here are starting to feel the fuel pinch.