New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisation

New Madinah Mohammad Bin

Abdulaziz
Airport
adds
momentum to Saudi Airport
privatisation
Published on 2-Aug-2015
The gradual liberalisation and infrastructure improvement in the
Saudi Arabian aviation sector continues to build momentum, with the
opening of Madinah Mohammad Bin Abdulaziz Airport new privatised
terminal at the beginning of Jul-2015.
The completion of the Madinah Airport project in western Saudi
Arabia represents another milestone in the ongoing privatisation in
Saudi's aviation sector. By looking to private partners for solutions,
Saudi Arabia is accelerating the development of aviation
infrastructure which has held back the growth of its airline sector,
and of the wider economy.
The construction of new airports, alongside the development of
existing facilities such as this new terminal, is needed for the country
to support long-term plans to turn aviation into an economic driver in
the kingdom. As oil prices remain depressed, the Saudi economy is
increasingly looking to its non-oil sectors to ensure growth continues.
Private participation will only take on an increasing level of
importance, in aviation and elsewhere.

Much needed capacity

Madinah Airport

for

overcrowded

The USD1.2 billion, three level development at Al Madinah (also

known as Medina) encompasses nearly 157,000 sq m. The new
terminal features 72 check-in counters, including 24 self check-in
kiosks, as well as 26 are passport control counters at departure and
arrival, more than doubling the amount of passengers the airport can
process at any one time.
The facility has been designed to be modular, allowing the handling
of greater passenger flows during peak travel periods, particularly for
the high volume summer travel period, as well as the Hajj and Umrah
pilgrimages.
Al Madinah is home to several important Islamic holy sites and is
also less than 5 hours road journey from Mecca. In 2014, around 2.1
million pilgrims went on Hajj, with nearly 1.4 million of them arriving
from outside of Saudi Arabia. The majority of these fly into Jeddah,
but Al Madinah also experiences a traffic spike during Hajj.

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New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisation

The new terminal also features 16 aircraft stands and 20 remote

apron, which nearly double the number of aircraft that can be
handled simultaneously. The project also widened and extended
Madinah Airports taxiways and its runway, allowing it to very large
aircraft such as the Boeing 747 and A380, a useful capacity for the
pilgrimage periods.
The development increases annual
passenger handling capacity at the
airport to around 8 million. This is much
needed: Madinah Airport handled 6.3
million passengers in 2014, well above
nominal its design capacity for 4 million
p/a. The resulting congestion led to
frequent delays, particularly for pilgrim
travellers.

Madinah International Airport passenger

traffic

Madinah
Airport
handled 6.3
million
passengers in
2014, well
above nominal
its design
capacity

Source: CAPA Centre for Aviation and Saudi Arabian GACA

Subsequent developments will raise capacity to 18 million and then

to 40 million passengers p/a. These will be phased in over the
remainder of the 25-year build, operate and transfer contract for the
airport, the first contract of its kind for Saudi Arabia, inside or outside
the aviation sector.

Madinah
Airport has
experienced
passenger
traffic growth
averaging just
under 20% p/a
for the past
four years

Madinah
Airport
has
experienced
passenger traffic growth averaging just
under 20% p/a for the past four years,
thanks to growth in both domestic and
international travel. By 2020, Madinah
and Mecca combined are forecast to
attract more than 20 million visitors p/a,
around 11 million of which will be
tourists, and the majority of the rest
travelers for religious reasons.

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New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisation

Privatisation push should drive up capacity

and standards
The Madinah development is also Saudi Arabia's first public private
partnership (PPP) airport project. The Saudi Arabian General
Authority for Civil Aviation (GACA) entrusted the development
contract to the TIBAH Consortium, comprised of local companies Al
Rajhi and Saudi Ogier and TAV Airports. The consortium has the right
to operate the airport until 2037.
Outside of Madinah, Saudi GACA has already privatised the Hajj
terminal at Jeddah International Airport. In addition, a management
contract for Taif Airport is due to be finalised by the end of 2015.
Further airport privatisation projects are already in the works.
Al Mal Investment Company, the investment arm of the M.A. Kharafi
Group of Kuwait, has been charged with developing the fast-growing
Ha'il Regional Airport. The GACA has also confirmed that Riyadh
International Airport is to be operated under another PPP in the
future, although a firm date has not been announced.
Other airports are being considered for private sector management
or development. This includes the remaining international airports,
which handle nearly 85% of the countrys passenger traffic between
them.
Saudi Arabia is now emerging as a leader in the Middle East with
its airport privatisation efforts. State operation remains the
overwhelming model for airports in the Middle East, although many
are run along corporate lines.
The smaller states of the Middle East
have generally proved reluctant to turn
over control of their major airports to
private partners, primarily due to their
importance to national development
plans.
Some exceptions exist, most notably
Jordan which awarded a 25-year build
operate transfer concession in 2007 to
Airport International Group for Amman
International Airport.

The smaller
states of the
Middle East
have generally
proved
reluctant to
turn over
control of their
major airports
to private
partners

The regions few other large states - such

as Iran and Iran - have market features
that have generally rendered them less than attractive for private
sector investors. Iran's recent detente with the West may change this
though, with Chinese and French investors already reportedly looking
at airport privatisation opportunities in the country. Iraq too is
seeking to attract foreign investment into its airport sector.
Saudi Arabia's situation is somewhat different, allowing to it adopt a
different approach. With a population of more than 30 million and a
land area of 2.15 million sq km, the country has the Middle Easts
second largest domestic air travel market (after Iran) and the third
largest international travel market.

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New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisation

With the GACA operating 27 airports there is no single point of failure

for it to be concerned with. As domestic and international traffic is
diffused between its airports, the GACA also does not need to worry
about a monopoly from a private operator.
The GACA has invited private partners in to lift the standards of
its airports towards international standards for design, operating
efficiency and passenger services. Its move to increasing
privatisation also frees up finances and other resources, which the
GACA can devote to its regional and smaller airports, which have
suffered from a long-standing neglect.

Infrastructure development, liberalisation and

privatisation contribute to growth
Traffic at Saudi Arabian airports exceeded 74 million in 2014.
Forecasts are that the wider Saudi Arabian air travel market will
grow at around 5.5-6.5% p/a over then next five years, with traffic
forecast to reach more than 100 million passengers before 2020. The
Saudi travel market is benefitting from the country's rapid economic
growth of the last few years, the expansion of domestic tourism
markets and the country's own young, growing population that is
exhibiting an an increasing propensity to travel.
Saudi Arabia's airports have received better than USD15 billion in
investment in development over the past six years, to accommodate
the ballooning international growth and also encourage domestic
growth. The majority of funding has been dedicated to upgrading the
four major international airports. The initial stages of these which
have now been completed.
One of the final elements, the USD7 billion Jeddah International
Airport project, is due for completion in mid-2016.

Saudi Arabian Airports passenger traffic: 2007-2014

Source: CAPA Centre for Aviation & Saudi Arabia GACA

The GACA has also moved to address the neglect of regional and
domestic airports, improving accessibility in domestic air transport
sector. The transformation has been impressive.

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New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisation

Growth rates at most of the domestic airports have reached doubledigit levels. Five Saudi Arabian regional/domestic airports now
handle more than one million passengers p/a, compared to just one
with more than a million in 2010. Regional and provincial capitals like
Yanbu and Ha'il are expected pass this milestone in the next two to
three years.

Saudi domestic airports traffic growth: 2010 to 2014

Source: CAPA Centre for Aviation & Saudi Arabia GACA

Market liberalisation will ensure regional travel

growth; Al Maha Airways, Saudi Gulf Airlines
startups
In addition to the infrastructure improvements, the continued
liberalisation up of the Saudi airline market will play a major part
in ensuring the continued the expansion of regional travel. Two
new airlines - Al Maha Airways and Saudi Gulf Airlines - have been
granted start up approval, although their launch, originally slated for
2013 or early 2014, has been thwarted by repeated delays.
Both airlines are now due to launch operations towards the end of
2015, although issued with the kingdom's complicated regulatory
regime and technical requirements mean that they have yet to
formally secure their operating licenses.
The intention of both carriers is to initially focus on Saudi Arabias
major trunk markets, linking the business triangle of Jeddah,
Dammam and Riyadh. However, they have also detailed plans to
operate links from the major cities to second-tier regional
destinations such as Abha, Gazan and Gassim, which should continue
to feed the double-digit growth at these smaller airports.
Beyond the start-up phase, the new licensees have major ambitions
for international short haul travel from the Saudi market. Al Maha
plans to add 10-15 aircraft p/a into the market, building up to a fleet
of around 50 aircraft at maturity. Saudi Gulf Airlines plans to launch
with a fleet of four A320s and is due to start taking delivery of 16
new CS300 from late 2016. It has options for a further 10 CS300s.

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New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisation

Incumbent airlines adapt to respond to the new

competition
The existing airlines in the market, flynas and Saudia, are adopting
different tactics in the face of the new competition. flynas, firmly
the junior player in Saudi Arabia, is increasingly devoting capacity
to the domestic market, taking advantage of the suspension of the
domestic fare cap and improved infrastructure at regional airports.
With the failure of its low-cost long-haul business in 2014, flynas is
now devoting more than than 70% of its seat capacity on domestic
routes. This compares with just 50% during 2013.
Saudia, which still controls around 80% of total domestic capacity,
had previously concentrated on improving its domestic operations,
after considerable urging from the Saudi government. Following
completion of the initial phase of its narrowbody aircraft fleet
renewal, it has eased back this domestic focus slightly, slowing its
domestic capacity growth in favour of the international market.
Saudias share of seat capacity devoted to the domestic market has
declined from just under 60% in 2012 to around 50% at present.
According to the carrier, the combination of government established
airfares, short sectors with ill-suited equipment and poor
infrastructure meant that domestic flights lost money and hindered
growth in international markets.
In response to this, the GACA plans to introduce a scheme to
increase the amount of seats operated by local carriers to smaller
domestic destinations.
Saudia will lead the programme and may receive some additional
states support to the get the project off the ground. The GACA
envisions using selected airports as regional gateways for onwards
connections from international markets to smaller destinations
across Saudi Arabia's northern and southern provinces. Ha'il Airport
will be used to conduct a pilot for the scheme.

Investment and privatisation show welcome

effects in Saudi Arabia
Saudi Arabia is approaching a point where its aviation infrastructure
is sufficient to support its long planned for growth. The Madinah
airport upgrade is meaningful, but it is just another incremental step
in the development process.

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New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisation

airline
liberalisation,
airport
privatisation
and
competition is
beginning to
transform the
performance of
what should be
one of the
Gulfs
strongest
aviation
markets

The combination of airline liberalisation,

airport privatisation and competition is
beginning to transform the performance
of what should be one of the Gulfs
strongest aviation markets.
While this process has not been painless,
nor has it yet achieved all that it has set
out for, it is producing tangible benefits.
Saudi Arabia's passenger traffic growth is
now consistently matching, if not
bettering, the growth in the rest of the
Middle East. With the heavy state
investment complemented by growing
private
financing,
the
country's
increasingly market-oriented competitive
environment
is
witnessing
an
improvement in standards at both
airlines and airports.

There is still ample room for improvement. Many of the smaller

domestic and regional airports still suffer from outdated or decrepit
infrastructure and more could be done to raise their performance.
Domestic airline competition is still lacking, but 2016 and beyond
should produce major changes. Saudia's decade-long and fitful
privatisation process is approaching a conclusion and the two new
licensees are expected to produce a double-digit bust in capacity
growth for 2016.
Saudi Arabia has long been playing catch-up in the Gulf regions
aviation transformation. The development of markets like the UAE
and Qatar has been more cohesive and better managed, and the
results have been more impressive.
However, the kingdom is now beginning to draw level with the other
Gulf states. Steps like the privatisation of Medinah Airport build this
momentum and will pay dividends for Saudi Arabia, as the kingdom
continues to enhance competitiveness and efficiency in its aviation
sector.
2015 Centre for Aviation

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