New Madinah Mohammad BinAbdulaziz Airport addsmomentum to Saudi AirportprivatisationPublished on 2-Aug-2015Thegradual liberalisationandinfrastructureimprovement intheSaudi Arabian aviation sector continues to build momentum, with theopening of Madinah Mohammad Bin Abdulaziz Airport new privatisedterminal at the beginning of Jul-2015.Thecompletionof the MadinahAirport project inwesternSaudiArabia represents another milestone in the ongoing privatisation inSaudi's aviation sector. By looking to private partners for solutions,Saudi Arabia is accelerating the development of aviationinfrastructure which has held back the growth of its airline sector,and of the wider economy.Theconstructionof newairports, alongsidethedevelopment ofexisting facilities such as this new terminal, is needed for the countryto support long-term plans to turn aviation into an economic driver inthe kingdom. As oil prices remain depressed, the Saudi economy isincreasingly looking to its non-oil sectors to ensure growth continues.Private participation will only take on an increasing level ofimportance, in aviation and elsewhere.Much needed capacity for overcrowdedMadinah AirportTheUSD1.2billion, threelevel development at Al Madinah(alsoknownasMedina) encompassesnearly157,000sqm. Thenewterminal features72 check-incounters,including24 self check-inkiosks, as well as 26 are passport control counters at departure andarrival, more than doubling the amount of passengers the airport canprocess at any one time.The facility has been designed to be modular, allowing the handlingof greater passenger flows during peak travel periods, particularly forthe high volume summer travel period, as well as the Hajj and Umrahpilgrimages.AlMadinah is home to severalimportant Islamic holy sites and isalso less than 5 hours road journey from Mecca. In 2014, around 2.1million pilgrims went on Hajj, with nearly 1.4 million of them arrivingfrom outside of Saudi Arabia. The majority of these fly into Jeddah,but Al Madinah also experiences a traffic spike during Hajj.New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisationPage 1 of 7MadinahAirporthandled 6.3millionpassengers in2014, wellabove nominalits designcapacityMadinahAirport hasexperiencedpassengertraffic growthaveraging justunder 20% p/afor the pastfour yearsThe newterminal alsofeatures16 aircraftstandsand20 remoteapron, whichnearlydoublethenumber of aircraft that canbehandledsimultaneously. Theproject alsowidenedandextendedMadinah Airports taxiways and its runway, allowing it to very largeaircraft such as the Boeing 747 and A380, a useful capacity for thepilgrimage periods.The development increases annualpassenger handling capacity at theairport to around 8 million. This is muchneeded: Madinah Airport handled 6.3millionpassengersin2014, well abovenominal its design capacity for 4 millionp/a. The resulting congestion led tofrequent delays, particularlyfor pilgrimtravellers.Madinah International Airport passengertrafficSource: CAPA Centre for Aviation and Saudi Arabian GACASubsequent developments will raise capacity to 18 million and thento40millionpassengersp/a. Thesewill bephasedinover theremainder of the 25-year build, operate and transfer contract for theairport, the first contract of its kind for Saudi Arabia, inside or outsidethe aviation sector.Madinah Airport has experiencedpassengertrafficgrowthaveragingjustunder 20% p/a for the past four years,thankstogrowthinbothdomesticandinternational travel. By 2020, Madinahand Mecca combined are forecast toattract more than 20 million visitors p/a,around 11 million of which will betourists, and the majority of the resttravelers for religious reasons.New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisationPage 2 of 7The smallerstates of theMiddle Easthave generallyprovedreluctant toturn overcontrol of theirmajor airportsto privatepartnersPrivatisationpushshoulddriveupcapacityand standardsThe Madinah development is also Saudi Arabia's first public privatepartnership (PPP) airport project. The Saudi Arabian GeneralAuthority for Civil Aviation (GACA) entrusted the developmentcontract to the TIBAH Consortium, comprised of local companies AlRajhi and Saudi Ogier and TAV Airports. The consortium has the rightto operate the airport until 2037.Outsideof Madinah, Saudi GACAhasalreadyprivatisedtheHajjterminal at Jeddah International Airport. In addition, a managementcontract 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. KharafiGroup of Kuwait, has been charged with developing the fast-growingHa'il Regional Airport. TheGACAhasalsoconfirmedthat RiyadhInternational Airport istobeoperatedunder another PPPinthefuture, although a firm date has not been announced.Other airports are being considered for private sector managementor development. This includes the remaining international airports,which handle nearly 85% of the countrys passenger traffic betweenthem.SaudiArabia is now emerging as a leader in the Middle East withits airport privatisation efforts. State operation remains theoverwhelming model for airports in the Middle East, although manyare run along corporate lines.The smaller states of the Middle Easthave generally proved reluctant to turnover control of their major airports toprivatepartners, primarilyduetotheirimportance to national developmentplans.Some exceptions exist, most notablyJordanwhichawardeda25-year buildoperatetransfer concessionin2007toAirport International Groupfor AmmanInternational Airport.The regions few other large states - suchas Iran and Iran - have market featuresthat have generally rendered them less than attractive for privatesector investors. Iran's recent detente with the West may change thisthough, with Chinese and French investors already reportedly lookingat airport privatisationopportunities inthecountry. Iraqtooisseeking to attract foreign investment into its airport sector.Saudi Arabia's situation is somewhat different, allowing to it adopt adifferent approach. With a population of more than 30 million and aland area of 2.15 million sq km, the country has the Middle Eastssecond largest domestic air travel market (after Iran) and the thirdlargest international travel market.New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisationPage 3 of 7With the GACA operating 27 airports there is no single point of failurefor it to be concerned with. As domestic and international traffic isdiffused between its airports, the GACA also does not need to worryabout a monopoly from a private operator.TheGACAhasinvitedprivatepartnersintoliftthestandardsofitsairportstowardsinternational standardsfor design, operatingefficiency and passenger services. Its move to increasingprivatisation also frees up finances and other resources, which theGACA can devote to its regionaland smaller airports, which havesuffered from a long-standing neglect.Infrastructuredevelopment, liberalisationandprivatisation contribute to growthTraffic at Saudi Arabian airports exceeded 74 million in 2014.ForecastsarethatthewiderSaudi Arabianairtravel market willgrow at around 5.5-6.5% p/a over then next five years, with trafficforecast to reach more than 100 million passengers before 2020. TheSaudi travel market is benefitting from the country's rapid economicgrowthof thelast fewyears, theexpansionof domestictourismmarkets and the country's own young, growing population that isexhibiting an an increasing propensity to travel.SaudiArabia's airports have received better than USD15 billion ininvestment in development over the past six years, to accommodatetheballooninginternational growthandalsoencouragedomesticgrowth. The majority of funding has been dedicated to upgrading thefour major internationalairports. The initialstages of these whichhave now been completed.Oneof thefinal elements, theUSD7billionJeddahInternationalAirport project, is due for completion in mid-2016.Saudi Arabian Airports passenger traffic: 2007-2014Source: CAPA Centre for Aviation & Saudi Arabia GACAThe GACA has also moved to address the neglect of regionalanddomestic airports, improving accessibility in domestic air transportsector. The transformation has been impressive.New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisationPage 4 of 7Growth rates at most of the domestic airports have reached double-digit levels. Five Saudi Arabian regional/domestic airports nowhandle more than one million passengers p/a, compared to just onewith more than a million in 2010. Regional and provincial capitals likeYanbu and Ha'il are expected pass this milestone in the next two tothree years.Saudi domestic airports traffic growth: 2010 to 2014Source: CAPA Centre for Aviation & Saudi Arabia GACAMarket liberalisation will ensure regional travelgrowth; Al Maha Airways, Saudi Gulf AirlinesstartupsIn addition to the infrastructure improvements, the continuedliberalisation up of the Saudiairline market will play a major partinensuringthecontinuedtheexpansionof regional travel. Twonew airlines - Al Maha Airways and Saudi Gulf Airlines - have beengranted start up approval, although their launch, originally slated for2013 or early 2014, has been thwarted by repeated delays.Both airlines are now due to launch operations towards the end of2015, althoughissuedwiththekingdom'scomplicatedregulatoryregimeandtechnical requirements meanthat theyhaveyet toformally secure their operating licenses.The intention of both carriers is to initially focus on Saudi Arabiasmajor trunk markets, linking the business triangle of Jeddah,DammamandRiyadh. However, theyhavealsodetailedplanstooperate links from the major cities to second-tier regionaldestinations such as Abha, Gazan and Gassim, which should continueto feed the double-digit growth at these smaller airports.Beyond the start-up phase, the new licensees have major ambitionsfor international short haul travel from the Saudi market. Al Mahaplans to add 10-15 aircraft p/a into the market, building up to a fleetof around 50 aircraft at maturity. Saudi Gulf Airlines plans to launchwith a fleet of four A320s and is due to start taking delivery of 16new CS300 from late 2016. It has options for a further 10 CS300s.New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisationPage 5 of 7Incumbent airlines adapt to respond to the newcompetitionThe existing airlines in the market, flynas and Saudia, are adoptingdifferent tactics in the face of the new competition. flynas, firmlythe junior player in Saudi Arabia, is increasingly devoting capacityto the domestic market, taking advantage of the suspension of thedomestic fare cap and improved infrastructure at regional airports.With the failure of its low-cost long-haul business in 2014, flynas isnow devoting more than than 70% of its seat capacity on domesticroutes. 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 considerableurgingfromtheSaudi government. Followingcompletion of the initial phase of its narrowbody aircraft fleetrenewal, it has eased back this domestic focus slightly, slowing itsdomestic capacity growth in favour of the international market.Saudias share of seat capacity devoted to the domestic market hasdeclined from just under 60% in 2012 to around 50% at present.According to the carrier, the combination of government establishedairfares, short sectors with ill-suited equipment and poorinfrastructure meant that domestic flights lost money and hinderedgrowth in international markets.Inresponsetothis, theGACAplans tointroduceaschemetoincrease the amount of seats operated by local carriers to smallerdomestic destinations.Saudia willlead the programme and may receive some additionalstatessupport totheget theproject off theground. TheGACAenvisions using selected airports as regional gateways for onwardsconnections frominternational markets to smaller destinationsacross Saudi Arabia's northern and southern provinces. Ha'il Airportwill be used to conduct a pilot for the scheme.Investment andprivatisationshowwelcomeeffects in Saudi ArabiaSaudi Arabia is approaching a point where its aviation infrastructureissufficient tosupport itslongplannedforgrowth. TheMadinahairport upgrade is meaningful, but it is just another incremental stepin the development process.New Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisationPage 6 of 7airlineliberalisation,airportprivatisationandcompetition isbeginning totransform theperformance ofwhat should beone of theGulfsstrongestaviationmarketsThe combination of airline liberalisation,airport privatisationandcompetitionisbeginning to transform the performanceof what should be one of the Gulfsstrongest aviation markets.While this process has not been painless,nor has it yet achieved all that it has setout for, it is producing tangible benefits.Saudi Arabia's passenger traffic growth isnow consistently matching, if notbettering, the growth in the rest of theMiddle East. With the heavy stateinvestment complemented by growingprivate financing, the country'sincreasingly market-oriented competitiveenvironment is witnessing animprovement in standards at bothairlines and airports.Thereisstill ampleroomfor improvement. Manyof thesmallerdomestic and regional airports still suffer from outdated or decrepitinfrastructure and more could be done to raise their performance.Domestic airline competition is stilllacking, but 2016 and beyondshould produce major changes. Saudia's decade-long and fitfulprivatisation process is approaching a conclusion and the two newlicenseesareexpectedtoproduceadouble-digitbustincapacitygrowth for 2016.Saudi Arabiahaslongbeenplayingcatch-upintheGulf regionsaviation transformation. The development of markets like the UAEand Qatar has been more cohesive and better managed, and theresults have been more impressive.However, the kingdom is now beginning to draw level with the otherGulf states. Steps like the privatisation of Medinah Airport build thismomentum and will pay dividends for Saudi Arabia, as the kingdomcontinues to enhance competitiveness and efficiency in its aviationsector. 2015 Centre for AviationNew Madinah Mohammad Bin Abdulaziz Airport adds momentum to Saudi Airport privatisationPage 7 of 7