ch-aviation interview: Paul Byrne, CEO Flynas

Flynas, formerly known as nasair, is a Saudi Arabian low-cost carrier. It commenced operations in 2007 alongside with Sama Airlines as the first scheduled airlines to be licensed for domestic services in Saudi Arabia by the government. Sama shut down in 2010, leaving nasair as the sole competitor to government-owned Saudia.
During the Aviation Festival in London Thomas Jaeger, had the possibility to chat with Paul Byrne, CEO at Flynas, about the future of his airline and the Saudi Arabian domestic market.

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It is an exciting time in the Saudi Arabian market right now with the upcoming launch of two start-ups – Qatar Airways’ subsidiary Al Maha Airways and SaudiGulf Airlines. Even though their exact launch dates are not yet known, how will their eventual entry affect you in the domestic market where you at least have a head start?

I suppose like you say – it would be nice to know if they are even coming. The word we have is that Saudi Gulf is probably the closest to launching but we are still no wiser as to when they are actually going to arrive. Our impression is that they are going to go after the core domestic routes – literally the line between Dammam, Riyadh, and Jeddah. I’d expect that there might be some fluctuation in prices initially, but to be honest with you there is room for everyone on that. We have not found a bottom to that market yet. Ourselves and the other flag carrier Saudia are basically putting on flights and filling them on a regular basis. So it’s one of those routes that is really crying out for more competition. One of the things that would be useful though is, if we were allowed to do market prices as opposed to being fare capped.

What are the fare caps right now, for example on Jeddah-Riyadh?

Jeddah-Riyadh is capped at SAR280 riyals for an economy seat which is less than USD90.00 dollars for a one-way ticket. It’s based on a subsidy that Saudia get that we don’t. We are, however, allowed to break that fare cap within 10 days of departure or a 70% load factor, whichever comes first. We are then allowed to increase our prices by 80% of the fare cap whereas Saudia are only allowed to increase theirs by 10%. It doesn’t really lend itself to open competition as such. We believe that people will pay what people will pay. We have no intention of gouging the market but we think there is a fairer price out there. The most recent survey that was done for GACA (General Authority of Civil Aviation of Saudi Arabia) compared us to the Turkish and Egyptian domestic markets and they found that about 65% of the revenue was missing. So there’s a gap there where we can do well and so can the new entrants. It is just a matter of getting the space to fly there.

You have been in revenue management for a lot of your life so how do you actually deal with these fare caps in an everyday scenario?

Well a lot of it has to do with one of the instructions that I have for the revenue management team and that is to stay available. What we do is try to keep our availability open until within at least a day of departure if possible. Sometimes that is not possible – some of the peak days on Jeddah and Riyadh are just phenomenal. We have had a number of situations where we have added capacity at a moment’s notice. One time there was the Crown Prince Cup [Ed note. A local football tournament] and we put on two A330s and that filled within a day. More recently we had an A320 that sold out in three minutes – it was like a rock concert!

You have personally worked in a lot of emerging markets such as India, the Philippines, and Indonesia. How does customer booking behavior in those markets compare to that in Saudi Arabia?

It’s not very different to be honest with you. The Indonesian market was very last minute. So typically if you look at a lot of our domestic flights for next week, the load factor would be well below 50%. But I would expect most of those flights to be full when they depart. It’s really nerve-racking at times if you have western attitudes to booking curves. Our international routes are a little bit further out but still consumer planning isn’t a big part of the Saudi market which is very similar to Indonesia and India in terms of the domestic markets.

Every year you undertake Hajj and Umrah charters. Do you actually use your own aircraft for these flights or are all aircraft wet-leased in?

They’re almost like a separate airline in a sense. But we do have a separate entity known as flynas Hajj & Umrah which basically concentrates on the Hajj and which is all wide-body wet-lease. This year, for the first time, we are getting involved in the domestic Hajj wherein our aircraft are being used on domestic flights to carry pilgrims in to the Jeddah/Madinah area from all over the country. But typically Hajj season calls for wide-body wet-leases. This year we are expecting one of the best years that flynas has ever had. The team has been very active in securing new markets. I think the last time I looked, we had pilgrimage contracts for seventeen different countries – east and west of Saudi Arabia – which is a fantastic achievement.

Is there actually competition for these contracts or is it that Saudia and flynas are assigned a certain quota that they can carry? How does it work for flights to other countries?

There is, to the best of my knowledge, a set way of going about it. You first need to be approved by the Hajj Committee. In theory, a Saudi airline is entitled to 50% of every market and the national carrier of the other country is entitled to other 50%. If neither wants the business then it can be opened up to a 3rd or 4th party. But typically Saudia gets first choice, we get second and traditionally, Saudia have covered a lot of the bigger markets, possibly with the exception of the domestic. So it is usually carved up.

Saudia is quite ambitious and is ordering a lot more widebody aircraft for the domestic market – A330s in particular. Is that actually backed up by future demand that they see, or is that part of a government policy to increase the number of Saudis that have access to air travel?

Well there is a big push from GACA at the moment to open up as much Saudi air space as possible and use all of the airports in the kingdom. On top of that you have the various large Emirati airlines that are competing with Saudia in the international market, so I think they are feeling the heat there. Personally speaking, I think that there is plenty of room in that market – there’s something like 27 million people in Saudi Arabia and quite a large percentage of that 27 million can afford to fly. So personally, I don’t see it as a threat to us but I think it’s probably more focused at foreign airlines and Saudia’s wish to be a little bit more relevant in the marketplace.

You mentioned the big Gulf carriers before. Obviously, they make it very difficult for an operator like you to fly an A320 to a place like India. But there are also Air Arabia and flydubai opening up new routes to secondary cities in India – has this affected you as well? Are you planning to start international flights from smaller cities in Saudi Arabia?

Seventy percent of our flying is domestic and that’s a fantastic profit centre for us – we’re managing it well and we are a profitable airline which is a first for the company as well as for Saudi Arabia. We see ourselves concentrating on our core product and staying within the Arabian Peninsula over the next couple of years. We have some interesting longhaul prospects in three to four hour-long flight radius. Places like Cairo – we have six destinations in Egypt alone. We are also looking to do a codeshare with Pegasus Airlines in Turkey. So a lot of our expansion internationally will tend to be on the codeshare side. We are trying to do more with Etihad as we have had a long standing codeshare with them. One of our plans is to try to put some metal into that game and fly into Abu Dhabi from Riyadh starting December 16. Typically there are a lot of destinations that we don’t currently fly to in the Arabian Peninsula that we should be flying to. Some of those are domestic and some of them are close-by international ones.

In the past, you operated Embraer regional jets as well. What was the exact reason why they were in the fleet in the first place and why they were later removed?

Well, to be honest with you it was before my time so I can only guess at that one. I think it was one of those poorly thought-through decisions to bring in aircraft that had not been tested in a harsh environment. But we are finished with those aircraft; they are out of our fleet and I don’t see them returning. One of the things we are good at is being an A320 airline. So anything in the A320 Family would probably be something we would be thinking about in the future. We are looking to expand over time so that’s the way we would go. We are not going to mix our fleet again. We have no intention of becoming two and three different airlines.

Media reports suggest Saudi Arabia is planning to build high-speed railways on key domestic routes. Do you think that’s going to make a meaningful difference once they open, like the Madrid-Barcelona effect, or are distances in Saudi Arabia simply too great for them to have an impact?

It’s an interesting phenomenon because there are currently no trains there so I think they’ll be starting from scratch. They are fantastic projects in terms of civil engineering but in terms of the impact on aviation, I’m not entirely sure. There’s still far too many Saudis on the road in terms of driving long distances so I think that in all likelihood it’ll probably be the car journey that is the first to suffer rather than the airlines.

Thank you very much.

My pleasure.

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