Saudi Arabia offers incentives to airlines fly unprofitable routes

The Saudi government plans to compensate airlines that open up unprofitable routes that will directly connect the kingdom to major cities around the world. — AP

Saudi Arabia is offering incentives to airlines to start flying unprofitable routes linking it to major global cities, as part of efforts to boost tourist arrivals and hit a goal of attracting 100 million visitors a year by 2030.

The government is offering the incentives as part of its Air Connectivity Program and is in talks with airlines about the plan that’s open to any carrier to receive support, Tourism Minister Ahmed Al Khateeb said in an interview. The kingdom has already signed a deal with national carrier Saudia to fly to Zurich and Barcelona as part of the programme.

“The main purpose is to create direct flights to our main target markets,” the minister said in Jeddah recently. “The programme will compensate airlines to cover their losses from flying direct flights to these very important hubs for us.”

Funding will come directly from the government, though it wasn’t immediately clear how much it would cost. “We have to negotiate with every carrier to size it,” Al Khateeb said, adding that details on the programme’s budget should be available next year.

Saudi Arabia only began offering tourist visas in late 2019, and subsidising carriers to fly to the country is a recognition of how limited options are for travellers to get there. The move is the latest step in Crown Prince Mohammed Salman’s strategy to reduce reliance on the world’s largest crude oil exports and turn Riyadh into a global business centre. “Our objective is to incentivize airlines to fly new routes to and from Saudi Arabia, by sharing start-up financial risks for routes that promise long-term viability, in line with international best practices,” said Khalil Lamrabet, chief executive officer of the Air Connectivity Program.

The government plans to invest US$147bil (RM649.23bil) to help turn the country into a transport and logistics hub that also includes developing a new airport in Riyadh, launching an airline, and increasing the number of direct destinations served from the country to 250 from about 100.

Having identified gaps in connectivity, the government asked airlines to start direct flights, Al Khateeb said. Eventually the launch of a new carrier owned by the Public Investment Fund would “fill a big gap in the number of routes flying to Saudi Arabia”, said Al Khateeb, who is also a board member of the fund.

The tourism ministry is targetting 12 million foreign tourists this year, with tourism on track to contribute about 4% of economic output, Al Khateeb said. By 2030 the government wants to get that to 10% of economic output. – Bloomberg