Saudi Arabia’s latest diversification push: A new airline

While the aviation industry is counting losses amid the pandemic, a new venture from Saudi Arabia has beefed up the country’s economic diversification plans. A new airline, a new airport and a push to turn Saudi Arabia into a global logistics hub are intended to place the Kingdom at the center of three continents. 

Launched as part of the National Transport and Logistics Strategy, this is going to add a second national airline after the flag carrier Saudia. While Saudia mainly caters to the domestic passenger flow, the new airline is expected to attract international travelers who would either want to travel to the country or transit through it. 

The National Transport and Logistics Strategy is an initiative to build a network of ports, rails and roads to lift the transport and logistics sector’s GDP contribution to 10% from the existing 6%. It also attempts to boost religious and recreational tourism into the country and increase outbound travel destinations to over 250. 

Meanwhile, the new airport is expected in Riyadh, the capital city and the country’s main financial hub. Plans for the airport at the moment are presently not specific and its precise location and the timeline of its construction have not been made public.

Money for these ventures is coming from the Public Investment Fund (PIF), a whopping $430 billion kitty that the government uses to expand investments at home and abroad. When asked, the spokesman for the fund declined to reveal specific details but media reports citing people familiar with the matter are more than optimistic. 

The Gulf region has a strong hold over the global aviation industry. Arab airlines are frequently featured in the annual top 10 list of the Skytrax awards. Not surprisingly, the announcement of a new airline from Saudi Arabia has triggered speculations of fierce competition in the region with a possibility of turning closely allied countries into economic rivals. 

These speculations gained traction after the recent public spat between Saudi Arabia and UAE over increasing oil output by the Organization of the Petroleum Exporting Countries (OPEC).

Historically, however, Saudi Arabia and the Gulf states have almost always hammered out their differences owing to their common domestic and foreign interests. The overcoming of the 2017 split among Arab nations over relations with Qatar is an example of how they chart common strategies when faced with common challenges. 

The blown-up speculations over the competition in the aviation industry spiraling inter-state relations downwards are, thus, detached from reality. The actual potential that the competition holds is in the improvement of services in Arab world’s airlines. 

Saudi Arabia sits at a geographic location right at the center of the East and the West. Although, from a logistical perspective, this location has not been taken full advantage of. If objectives of the National Transport and Logistics Strategy are met, the country will catapult as the heart of global supply chains. Cargo and passenger flow will exponentially increase when other airlines jump to take advantage of the logistical hub that Saudi Arabia could turn into.

The pandemic’s dark clouds over the aviation industry have induced uncertainty into the near future. But the medium-term to long-term time period is undoubtedly bright.

Asia is seeing the emergence of some new markets that will fuel international travel in the region. One such is Pakistan where economic indicators even during the pandemic have been surprising. This month, The Economist placed Pakistan in third place in its index of countries whose economies are returning to pre-pandemic levels. 

Such emerging economies are going to complement the branching out of Saudi economy as it reduces its dependence on oil. Under the global push of moving away from fossil fuels to mitigate climate change effects, countries dependent on the export of oil are finding it imperative to generate alternate sources of revenue. Oil-rich countries received a head start by building their economies on the black gold and now it is time for them to upgrade to environment-friendly resources and practices. 

The airline industry will necessarily have to adapt to the challenges of climate change. The International Air Transport Association (IATA) says commercial aviation accounts for about 2-3% of global carbon emissions and is advocating for technology improvement, infrastructure improvement and efficient aircraft operations. Likewise, International Civil Aviation Organization (ICAO) has adopted the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) to pursue carbon-neutral growth starting this year.

A new airline with a fresh organizational mindset will find it easier to evolve and meet the targets of emission reduction. Building environment friendliness into its DNA will enable it to lead the aviation industry’s endeavors of reducing carbon footprints. 

The ambitious Vision 2030 program launched by Saudi Arabia to diversify the country’s economy is the impetus behind the new airline. Under this reform plan, the Kingdom is encouraging the G20-backed concept of a circular carbon economy. It is doubling down on solar, hydrogen and ammonia projects while striving to shift half of its energy capacity to renewables by 2030

Since this is the right time for investors to take advantage of financial and economic incentives by governments, the announcement of a new airline by Saudi Arabia comes as a breath of fresh air in the gloomy state of travel and hospitality industries. A new airline and a new airport are two opportunities that investors can immediately use to enter the Middle East market and reap maximum profits when the pandemic subsides.

Hayat Bangash
Hayat Bangash
Hayat Bangash is an air force veteran and a commentator on international affairs. He tweets at @HayatKBangash