Sama domestic flights reductions due to fuel

Andrew Cowen, CEO was pleased to update the journalists present on key developments at Sama.

Mr Cowen said:

"Sama has had a mixed summer. On the positive side our new international routes have performed well and we expect this good performance to continue. We have recently launched new routes from Dammam to Beirut and from Riyadh to Assiut and these are performing to expectations. We are planning further new international route launches in the coming months. We have also launched a number of customer focused 'Just for you' initiatives including our 'fly 9 flights get 1 free' programme that rewards loyal customers, a seat sale offering discounts of up to 60% off regular fares for those prepared to book early, along with a number of initiatives designed to improve the travel experience. However, the serious issue which continues to trouble the Sama business is the performance of Sama's domestic routes. The combination of the fixed economy fare cap, which was set approximately eight years ago and has not changed since, along with ongoing cost inflation, particularly fuel means that it is impossible for Sama to make money on domestic routes, despite high passenger demand and full aircraft. Even though we have adopted the low cost airline business model, flying domestic routes has led to Sama incurring significant losses. This is because Sama cannot pass on the fuel price increases, for which we pay full market rate compared to the subsidised rate that Saudia makes which represent 5 times cost difference."

For example, Sama served the holy city of Medina from Dammam and Riyadh but had to pull off these routes after incurring accumulated losses of over SR40m in a year of flying. We were regularly filling over 80% of our seats but simply were not able to charge fares that covered the cost of operating to Medina.

So with great unhappiness, we had no choice but suspend services to Medina until the situation changes.

Another example is the Dammam to Riyadh route. Sama loses approximately SR40,000 on every flight between these two key cities, despite again very respectable passenger numbers.

To reduce these losses, we have had to halve our number of services between Dammam and Riyadh.

Mr. Cowen went on to say: "Sama is a deeply committed Saudi company, dedicated to improving the choice of destinations and fares to the Saudi consumer. We also play a vital role in creating new job opportunities since 60% of Sama's employees are Saudis, for whom we have committed extensive training & development.

Our shareholders are fully supportive of Sama and recently decided to strengthen the company further with an additional SR200m of financing.

But Sama cannot afford to continue to bear these sorts of losses on domestic routes and indeed Sama's Board of Directors has instructed the management team to evaluate suspension of all domestic flying until the situation improves and a reasonable return can be made.

This is not a decision we have taken lightly but we have no choice.

The Civil Aviation Authority, GACA have been extremely supportive of Sama and tried very hard to find a solution to these issues, and we are very grateful for that.

We commend them for the substantial liberalisation steps already taken and urge them to continue with that liberalisation But the 'unfinished business' that needs to be completed is removal of the fare cap and ensuring that Sama is charged the same rate for aviation fuel as is received by Saudi Arabian Airlines.

Otherwise will be enforced to reduce our domestic flights significantly and focus only on international routes.