Jonaid's private thoughts

With just six aircraft in its fleet, SaudiGulf Airlines, a boutique carrier based in Dammam in eastern Saudi Arabia, has only a modest slice of the kingdom’s fast-expanding aviation market.
Owners, Al-Qahtani Group, a family-run conglomerate, undoubtedly hoped to spread their wings faster when they were granted an operating licence in 2016.
But, for chief executive, Abdulmohsen Jonaid, who joined the airline after heading up Saudia, the country’s much larger flag-carrier, quality is more important than quantity at this stage of SaudiGulf’s development.
“There is a small statement that we use in the company,” he said. “What we’ve been doing for the past three years is putting down a very strong foundation. Our statement is that we can use this foundation to build a skyscraper.
“If the stakeholders want to bring 100 aircraft now, we can take that – at any moment – because we have the systems in place. We can take the challenge, we can see it through, and we can operate safely and in a very efficient and optimised fashion.”
Jonaid’s confidence echoes that of his predecessor, Samer Majali, who told Arabian Aerospace in 2017 that Al-Qahtani Group’s investment could support an “operation several times the size of what it is today”. However, tough market conditions have not helped either chief executive make the most of those capabilities.
The airline’s current network centres on a primary hub in Dammam, with spokes extending to four domestic cities (Abha, Jeddah, Medina and Riyadh), plus four points in Pakistan (Islamabad, Karachi, Lahore and Sialkot).
Scheduled flights are also operated from Riyadh to Jeddah; Amman in Jordan; and Dubai in the UAE.
Oversupply is the main stumbling block to growth, with two other new airlines – Flyadeal, a low-cost subsidiary of Saudia; and Nesma Airlines, a regional carrier based in the north – entering the market around the same time as SaudiGulf.
Alongside fleet expansion by both the flag-carrier and Flynas, the country’s second largest airline, this glut in capacity has hit profitability across the sector.
“Our five-year business plan was put together at a time when the assumptions were significantly different,” Jonaid admitted. “So, what we’re doing is we’re revisiting our business plan, going more towards a transformation plan. And I think the time is right. We have three solid years of understanding and data and knowledge to revamp our business plan.
“Three years as a private company, with no subsidies, has given us a lot of insight – real insight – into behaviour, into the way things have changed.”
Jonaid tacitly acknowledged that the airline is loss-making at an operational level but said Al-Qahtani Group is “determined to make sure it stays alive and prospers”.
Asked how to achieve that, he added: “It can't be anything except growth. If you don’t grow, you get eaten alive.”
Expansion will get under way this year with the delivery of three brand new A320neos in February, March and June – all drawn from the order-books of supplying lessors. Management are also working to source another three A320s or A321s on the secondary market.
That could, potentially, lift the narrow-body fleet to 12 aircraft, though it is likely that two wet-leased units currently deployed on the Pakistani routes will be withdrawn.
Jonaid did not outline delivery targets for 2021 or 2022, but the company has previously said it aims to grow “at the rate of six to eight aircraft annually”.
Any older units sourced in the near future will likely start being phased out in 2023, when a direct order with Airbus for 10 A320neos comes on-stream. The commitment includes options for another 10 units, plus the ability to convert to A321neos.
Although board member, Abdalmalik Al-Qahtani, has set his sights on a fleet of 70 aircraft by 2026, Jonaid restricted himself to a shorter-term forecast of 20.
That would mean SaudiGulf remains a minnow in the local aviation sector: at the time of writing, Saudia had 147 passenger aircraft in service plus firm orders for 65 more; Flynas operated a 32-strong fleet with 71 firm orders; and Flyadeal deployed 14 aircraft with plans to take 30 units from Saudia’s backlog.
Small size is not necessarily a problem for SaudiGulf, given its positioning as a boutique carrier. It consistently achieves the highest customer satisfaction rating of any airline in the kingdom, distinguishing its service with leather seats, in-flight entertainment (IFE) systems and complimentary hot meals.
However, with market-wide pressure on yields showing no sign of abating, Jonaid is looking for ways to balance this high-end service with better economics.
Customers will notice one compromise when the A320neos arrive in Dammam this year: all three units have been configured in an economy-only layout. That contrasts with the airline’s existing four owned A320s, which feature a “BusinessFirst” cabin with 16 seats.
“We’re not abandoning the full-service model that we have,” Jonaid stressed, pointing to the IFE systems and generous seat pitches on the new aircraft.
“We will be adjusting. We are repositioning. We know that we have managed to identify routes that will sustain this boutique product, and around that we’re building for, let’s say, not ‘low-cost’ but ‘smart boutique’.”
As well as refining its cabin configurations, SaudiGulf is paying close attention to the government’s Vision 2030 plan – a macroeconomic initiative that aims to reduce Saudi Arabia’s dependence on oil in favour of developing other public service sectors.
Religious tourism is a cornerstone of the plan, with officials aiming to attract 30 million Umrah pilgrims from abroad by 2030 – triple the number that visited during the last season.
“The opportunities that Vision 2030 is actually bringing can take away a lot of the negatives,” Jonaid predicted. “The government has done its part. This vision has put things in perspective. And now it’s really for the investors, the entrepreneurs to actually move forward and take advantage.”
Encouraged by the liberalisation of the Umrah visa regime, SaudiGulf will be playing its part in bringing more pilgrims to the kingdom.
The airline is preparing to add narrow-body charter flights from Medina and Jeddah (near Mecca) to the Iraqi cities of Baghdad, Erbil and Sulaymaniyah. Civil unrest in the country delayed a planned launch last year, but Jonaid insisted the flights are “definitely” going ahead.
Religious charters to Pakistan are also being targeted for 2020, with management planning to dry lease an A330 in order to maximise loads.
The decision to source an Airbus wide-body might raise eyebrows given SaudiGulf’s well-publicised memorandum of understanding (MoU) with Boeing, which covers up to 16 787s and 777s. Majali had predicted that eight of those units would be firmed up in 2018 with deliveries starting in 2021 – but little has been heard of the deal since.
Understandably, Jonaid kept his cards close to his chest when talking about the MoU, saying only: “These discussions are ongoing. We are meeting with Boeing continuously.”
He was more forthright about the fate of SaudiGulf’s founding order for 16 A220-300s – originally marketed as Bombardier CSeries CS300s. Although the commitment is still listed in Airbus’ order and delivery report, he confirmed it has now been “dropped completely”.
Asked about scheduled network development, Jonaid said Cairo in Egypt and Khartoum in Sudan are still front of the pack for new services as the fleet grows.
Europe is also a “legitimate target” further down the road, with the chief executive hinting at possible route launches to London Gatwick and Milan from 2023 onwards. However, despite calling the UK a “must” for SaudiGulf’s long-term vision, he said market conditions will need to be evaluated closer to the time.
British Airways became the third European network carrier to serve Dammam in December, when it added daily flights from its London Heathrow hub via Bahrain.
Amid stiff competition at home and abroad, SaudiGulf’s management team is playing the long-game with a conservative growth trajectory and an unwavering focus on safety and customer service.
Though progress has been slower than expected, the strategy gives Al-Qahtani Group the best possible chance of securing its future in Saudi Arabia’s lucrative skies.
“One thing that we cannot escape is the mandate from our chairman, Sheikh Tariq Al-Qahtani, to ensure that we deliver good service,” Jonaid concluded. “His belief is that the Saudi public deserves good service.”