Middle East Aviation: New Aircraft Orders

Here is the last in our series of articles focused on the Middle East Aviation Market, we have previously examined the current rate of growth and transformation in the region and explored the key factors required to achieve the ambitious strategies outlined in Vision 2030

Setting aside the specific challenges related to aircraft availability, resources, and timely project completions (outlined here), this article focuses in on where the 300 million passenger target outlined in Vision 2030 will come from and looks at how sustainable that demand will be over time. 

The most obvious way to achieve Vision 2030’s tourism targets would be by stimulating local market demand, although equally perhaps the hardest to create. Market stimulation typically comes from a combination of low-cost airlines - of which there are many active in Saudi Arabia - and by providing accommodation options that provide high quality value for money, which might not align with the current product positioning of the luxury resorts that are under development. A quick search of accommodation at the Red Sea resort in October offers a 6-night package at the St Regis for £11,200, or the Six Senses Southern Dunes for £8,327; in comparison similar luxury accommodation in South East Asia is half the price, and even the Caribbean works out cheaper.

While the development of luxury accommodation may align with the aspirational goals of Vision 2030, it seems disconnected with the practicality of attracting visitors beyond the very wealthiest of travelers. Creating a market of 300 million passengers, 100 million of which are tourists, and introducing six-star accommodation products is unlikely to deliver the expected outcomes. 

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Connecting Traffic

The success of other locally based airlines has - at least initially - been established on attracting connecting traffic between various regions in the world. For Emirates, the initial foundations of their network were based around connecting traffic from Europe to the Indian Subcontinent and South East Asia, often attracting travelers with appealing stopover packages on the beaches of Dubai. More recently, the local market demand has matured to a point where it now accounts for just over half of all traffic, representing a mere 23 million connecting passengers annually for the airline.

In Doha, the proportions of connecting traffic are closer to 85% and on some routes even higher as Qatar Airways seek to match the network of their UAE-based competitors. While slightly beyond the Middle East region, the new Istanbul airport and growth strategies for Turkish Airlines, which already flies to more countries than any other airline globally, suggest that developing connecting traffic via Riyadh will require a very competitive product. This offering should combine low airfares, rapid connectivity, and attractive stop-over packages in Riyadh for interested travelers, despite the absence of a coastline that may deter some potential connecting passengers. And of course, it would be naïve to expect anything other than a competitive response from all the locally based airlines in the region, many of whom have significant aircraft orders of their own for the next few years, as the chart below highlights.

Collectively, the ten largest airlines in the Middle East already have a combined order book of 795 aircraft to be delivered by the end of 2029; on a regional market basis it is one of the largest order books in existence. In their latest global market forecast, Airbus estimate that around 58% of all new aircraft deliveries will be for network expansion; apply that ratio to the 795 aircraft that these airlines have on order, assume an average capacity of 160 seats per aircraft and assume a low average utilization of four flights per day, and by 2029 an additional 107 million extra seats will be added to the market by those locally based airlines. Although around 16 million of those will be supplied by Saudi-based carriers, the degree of competition from competing airlines (with their own new capacity) will add a further degree of complexity to the market conditions, not just for Riyadh Air and Saudia, but for the ambition of Vision 2030.

Balancing Ambition with Reality

The need to adjust the dependency of Saudi Arabia away from an oil-based economy is a necessity. The focus on sectors such as travel, aviation/aerospace and the service sectors is a natural evolution for the economy. The aspirational nature of Vision 2030 is something that has captured the imagination of everyone, and certainly has architects desperately trying to out-design each other on a near daily basis. From a positional perspective, Saudi Arabia was always going to try and out-do its close neighbors, and the targets are certainly in keeping with that objective.

In summary, achieving those targets is already beginning to look in doubt. A difficult aircraft supply market, securing the required number of experienced operational staff – which is likely to prove expensive at the very least - and a lengthy list of competing airlines, that will not give away their existing business, easily makes delivery of the 300 million passengers by 2030 seemingly unattainable, even amongst the most optimistic.

However, if Vision 2030 only achieves half of its ambition by the end of this decade, an additional 100 million passengers passing through Saudi airports would still represent a remarkable success story for the Kingdom. 

Catch-up with the Middle East series:

Part 1: A Constantly Climbing Market Read Now

Part 2: Saudi Arabia's Vision 2030 Read Now