The airline industry in Saudi Arabia is finally starting to take off, with annual passenger numbers set to soar from 65million in 2012 to 100million in 2020, according to projections by the General Authority of Civil Aviation (GACA)
Important changes in the industry include an on-going $30billion investment in airport infrastructure, including increasing the capacity at King Abdulaziz International Airport near Jeddah, initially by 30million and more in further phases, widespread airport privatisation, the granting of a permit to low-cost carrier Nesma Airlines, and the expansion of the national airline Saudi Arabian Airlines, says GACA.
Khalid bin Abdullah Al Molhem, Director General of the national airline holding company, has said, “I’ll be clear here: Saudi Arabia has not invested [in the aviation industry] over the last 25 years. However, over the last four to five years there has been a very, very clear plan. We will be one of the strong hub operators in the Middle East.”
The major changes to the sector are set to have an effect on some real estate sectors in Saudi Arabia and outbound property markets, too, say industry experts.
The latest data shows flight and passenger numbers are increasing. In December 2015 it operated 16,559 flights in domestic and international networks, a 5% annual increase. Scheduled domestic flights represented 65.24% of flight and there were 5,506 international flights.
During December 2015 the airline transported 2,481,643 guests, a 9% year-on-year rise and with 55.6% or 1,374,054 domestic customers.
It is expected that 2016 will witness further growth in numbers of flights and seating capacity in both international and domestic networks as the company is receiving the 23 aircraft of its new fleet.
King Khaled International Airport, Riyadh’s main airport is expected to be privatised by March 2016 with air traffic control and information technology units following. Plans are to privatise other airports up until 2020.
Even so, Saudi Arabia, the the largest country in the Gulf, has one of the smallest airline networks in the region relative to its size.
The availability of additional flights into and out of the Kingdom of Saudi Arabia (KSA) will affect some areas of the real estate industry, Kathryn Athreya, from leading agency, JLL MENA, tells OPP.Today.
“As the aviation sector grows, demand for support real estate such as warehousing, storage facilities, support offices and employee housing are likely to grow in Saudi. With more direct flights coming to the Kingdom, there may also be growth from international businesses which may increase demand for office space. However, following the announcement of the 2016 budget in December, growth in the office sector is expected to slow.
“There are currently no tourist visas for Saudi, so the dynamic of the retail and hospitality sectors, in that most demand derives from underlying demand (in the case of retail), local tourism, business visitors and pilgrims (in Jeddah, Makkah and Madinah), are likely to remain the same.
“Given that only Saudi nationals/residents and GCC nationals (with the exception of Makkah and Madinah where only Saudi nationals are permitted to buy property) are allowed to purchase residential property in Saudi, the residential sector is unlikely to be affected by the growth in the aviation sector.”
The additional availability of international flights is likely to have a bigger effect on Saudi interest in foreign real estate.
“Interest in international real estate has traditionally been strong in Saudi. Easing flights and accessibility may increase/encourage more interest in investing in international real estate,” says Kathryn Athreya. “Giving Saudi investors more choice in destinations may also see investment diverted away from traditional markets to new markets.
“The UK has long been a popular destination for Saudi investors and Dubai has been attracting investment from Saudi for some years now. Interest in the Turkish real estate market picked up approximately 4-5 years ago and we have recently registered increased interest and enquiries on Turkey. Egypt could potentially attract more investment from Saudi, especially after the announcement of New Cairo, as political and economic conditions stabilise.”
Tourism and new flight routes play an important role in generating new demand for the destination in question, she explains.
“The sectors most likely to be affected are the hospitality, retail and residential sectors. Demand for property will increase from hoteliers and retailers wishing to capitalise on the growing number of tourists arriving by expanding their brands or entering the market. Depending on local laws, the residential sector may also be affected as some regular visitors might choose to purchase second/holiday homes. However, this would depend on whether local laws would permit non-nationals/residents to buy property there.”
.Source : OPP Today