New doors open as the Jeddah door closes

Ashraf Lamloum knew he was taking a risk in 2016 when he opened a base in Jeddah and launched narrow-body flights under the Nesma Airlines brand.
The chief executive was taking advantage of the long-awaited liberalisation of domestic air transport in the Kingdom of Saudi Arabia (KSA), which had for years been dominated by just two airlines: flag-carrier Saudia and Flynas.
Another two carriers – SaudiGulf and Flyadeal – were also granted licences around the same time.
From day one, Nesma KSA struggled to make a profit on the busy Jeddah to Riyadh trunk route.
Its six daily flights with Airbus A320-family jets lacked the frequencies and economies of scale needed to beat incumbents that already served the city-pair more than 30 times a day – often with wide-body metal.
The subsequent launch of Flyadeal, Saudia’s low-cost subsidiary, only made things worse by pushing up capacity and dragging down fares.
It was, therefore, no great surprise when Nesma KSA quietly shut down its Jeddah base in October, retreating from a market that Lamloum now describes as a “money burner”.
But the company is no stranger to reinventing itself and management already have their fingers in several other pies.
Growing political stability in Cairo has seen a return of the European charter flights that Nesma Egypt – a sister carrier and the original operator of the brand – first served when it launched in 2010. Its scheduled flights in the Egypt-Saudi country pair also remain active, albeit at slightly reduced frequencies. And Nesma KSA still runs a domestic network from the northern city of Ha’il.
Jet operations from Jeddah had, in truth, been something of an afterthought. The Saudi licence was originally granted for the Ha’il base, which deploys four ATR 72-600 turboprops and benefits from government subsidies because of poor connectivity in the region.
By contrast, flights from Jeddah were being operated on a commercial basis with wet-leased A320s and A321s – initially from Small Planet Airlines, then from Jetstar Pacific, and finally from Nesma Egypt.
“The Ha’il hub is the main project that we built the [Saudi] company on,” Lamloum affirmed.
“We are out of the market from Jeddah because of the competitors. Flyadeal, SaudiGulf, plus the increased frequencies of Nas and Saudi Airlines. It was useless to remain fighting there. It doesn’t make sense for one route, Jeddah-Riyadh-Jeddah, to have around 30 flights a day. How to compete? How [when you have] round-trip tickets [costing] around 300 riyal ($80)?”
Profitability is no easier to find in Ha’il, but the company’s subsidy contract eases the pressure while Lamloum focuses on building brand awareness and network efficiencies.
“The Saudi Government is supporting our losses for a while,” he confirmed. “Hopefully, with time, it will make money. Still, we are promoting the routes with very low ticket rates, and still the load factor is not stable all year round.”
As of December, the Ha’il hub had spokes to 10 destinations in the northern half of the kingdom: Arar, Al Jawf, Qaisumah, Qassim, Qurayyat, Rafha, Tabuk, Turaif, Al Ula and Medina.
That represents the “maximum operation we can achieve” in the city at present, though talks are under way with the General Authority of Civil Aviation (GACA), Saudi Arabia’s aviation regulator, about basing turboprops at another domestic airport. The second hub could open as soon as this year if an agreement is reached, but Lamloum would not be drawn on its location.
The picture at Nesma Egypt is more complicated, owing to its oscillation between charter and scheduled flying.
Having started life as a charter operator linking the Red Sea and Nile Valley resorts with Europe, Nesma Egypt was thrown into turmoil by a succession of political and security crises in its home country.
An Arab Spring revolution, a military coup, the creation of a Daesh affiliate in Sinai, and the resultant bombing of Metrojet Flight 9268, sent Egypt’s tourism sector into freefall between 2011 and 2016. The airline responded by diversifying with scheduled flights to Saudi Arabia – a market that eventually accounted for 100% of its operation.
By 2017, however, the situation was calm enough for charter services to resume. Nesma Egypt now operates ad hoc flights to countries such as Spain, Germany, Italy, Hungary, Slovakia, Slovenia, Czechia and Armenia.
“There is no exclusive contract with any tour operator. We are open and ready to contract with the best options we may have,” Lamloum said. “Now we are increasing slightly our charter operation compared to scheduled [flying] … We are planning to have around 60-65% of our operation as charter.”
The airline also ran flights between Riyadh and Sarajevo on behalf of FlyBosnia last year, though that partnership ended when the Bosnian start-up secured its own aircraft.
On the scheduled side, Nesma Egypt currently flies from Cairo to seven points in Saudi Arabia: Ha’il, Al Jawf, Jeddah, Qassim, Tabuk, Ta’if and Yanbu.
Applications for the right to also serve Medina and Dammam had not yet been approved by regulators as Arabian Aerospace was going to press.
Lamloum has a clear wish-list for regional expansion – Kuwait; Dubai’s Al Maktoum Airport; Khartoum in Sudan; Baghdad, Basra and perhaps one Kurdish city in Iraq – but there is no firm timeline for the programme. “We are in a very unstable period,” he said, noting aggressive discounting by other Egyptian carriers. “So we prefer to keep the well-known markets with the well-known revenue, before investing and injecting more for new markets.”
Two A320s and one A319 are currently based in Cairo, following the withdrawal of a fourth aircraft last autumn. Both A320s will be replaced with younger models when their leases expire this year.
Though there are no plans to add more narrow-bodies, Nesma Egypt could be on the verge of becoming a wide-body wet-lease provider.
“We are seriously considering right now adding at least two Airbus 330s to our Egyptian air operator’s certificate (AOC),” Lamloum said, expressing hope that the aircraft will arrive between June and September this year. “We will wet lease them to our Saudi company because there is huge demand there almost all year round for Hajj and Umrah operations.”
The wide-bodies, which will be 2006-build or newer, will be deployed to the Far East and west Africa, including Indonesia, Bangladesh, the Philippines and Senegal.
Religious traffic is a major source of revenue for airlines in Saudi Arabia, with an estimated 8.3 million foreign pilgrims visiting the kingdom in 2017 for the Hajj and Umrah. Nesma KSA previously dipped its toes into the market by wet-leasing a Boeing 777-200ER from Malaysia’s FlyGlobal for charter flights from Kuala Lumpur.
Sub-contracting its sister carrier should make the services more profitable, particularly given Egypt’s low cost-base for maintenance and operations.
Lamloum also did not rule out the possibility of finding other wet-lease customers.
Notwithstanding the move into wide-body operations, Nesma Egypt’s appetite for growth has waned in recent years. Plans for a seven-strong fleet in Cairo were abandoned almost as soon as they were announced in 2016.
The slowdown may appear at odds with Egypt’s recovering tourism figures. But lessons from the over-heated Saudi market are telling Lamloum to keep a watchful eye on capacity hikes by rivals such as Air Arabia Egypt and FlyEgypt.
He believes some competitors are offering “purely unrealistic” fares that will grow their market share in the short-term while endangering their long-term survival.
“We cannot go through the price war that others are following,” the chief executive insisted.
“Nesma has a very high standard and name regarding quality and safety. Therefore, we have minimum prices we are offering and we are not going down below those prices. If tour operators would like to sleep at night without being worried, then they are coming to us and accepting a little bit higher price than the others.”