Saudi Arabian Airlines Business Information, Profile, and History

Company Perspectives:

Since the airline's humble beginning in 1945 with a single DC-3, finally becoming one of the world's great modern carriers, Saudi Arabian Airlines has been contributing to the country's training and development of manpower and skills and continuing development and repeated successes that can be traced to corporate dedication to the highest level of passenger service and to efficient use of state-of-the-art civil aviation technology.

History of Saudi Arabian Airlines

Saudi Arabian Airlines (Saudia) is the national airline of the Kingdom of Saudi Arabia and the largest airline in the Middle East. It flies 12 billion passengers per year. The airline carries many observers as they make an annual pilgrimage, the hajj, to the holiest of destinations in the Muslim world. Saudia Arabian religious practice prevents the carrier from serving alcoholic beverages to passengers and also informs certain personnel policies.

1940s Origins

The origin of Saudi Arabian Airlines goes back to April 1945, when U.S. President Franklin D. Roosevelt presented a single Douglas DC-3 to King Abdul Aziz ibn Saud. This aircraft was quickly put into service to transport passengers and mail between the country's three main cities: Jeddah, Riyadh, and Dhahran. By the end of 1945 an additional four DC-3 aircraft had been purchased by the Saudi Arabian government. Under the aegis of the Saudi Ministry of Defense and utilizing the existing government equipment and personnel, Saudi Arabian Airlines was formed in September 1946. In October of the same year the first international flight took off for Jerusalem, returning via Beirut carrying pilgrims bound for Mecca. By the end of the year the first overseas office was taking bookings in Cairo.

The first of the scheduled operations using these aircraft began in 1947 with a service between Riyadh, Hofuf, Dhahran, and the summer capital, Jeddah. There also were regular international flights to Cairo, Damascus, and Beirut. By 1949 the fleet had expanded to 13 aircraft with more DC-3s and the airline's first Bristol 170 nose-loading freight aircraft.

The close relationship between Saudi Arabia and the growing American interests in the region continued in the 1950s when management and technical services for the fledgling airline were provided by Trans World Airlines (TWA) of the United States. The fleet of DC-3s was expanded in the early 1950s with the addition of ten Convair 340s, two Douglas DC-4s from the United States, and another Bristol 170 freighter from England. The fleet expansion was undertaken in response, in part, to the great demand from Islamic pilgrims wishing to travel to the two holy mosques in the Kingdom of Saudi Arabia. The early international expansion of the airline's network was dictated in large part by this demand and by the end of 1953 services operating to Amman, Jordan; Asmara, Ethiopia; Bahrain; Basra, Iraq; Istanbul, Turkey; Karachi, Pakistan; and Kuwait.

On the domestic front, the airline's role in the kingdom's economic development was significant. In a state more than five times the size of California with a population of less than ten million in the 1950s, air travel proved to be the only fast and efficient method of connecting many of the scattered and remote towns and cities. In the mid-1950s airports at the domestic centers of Madinah, Buraydah, Najran, Jizan, and Khamis Mushayt were modernized and upgraded and joined the expanding domestic network.

Saudia moved into the jet age in 1962 with the acquisition of two Boeing 720s with long-range capabilities and seating capacities of 119 passengers each. The new aircraft were put into service on the Cairo, Amman, and Beirut routes. In February 1963 a royal decree was issued by King Faisal making Saudi Arabian Airlines a legally independent, commercial entity with its own board of directors. The decree also stipulated a pattern for future growth through modernization and expansion of the airline business and through the provision of training facilities and backup services.

Going International in the 1960s

The mid-1960s saw a steady integration of the airline into the international airline community. In 1965 it joined the Arab Air Carriers Organization (AACO) and inaugurated a new service to Bombay the following year. In 1967 Saudi Arabian Airlines became a member of the International Air Transport Association (IATA) and inaugurated its first European service to Geneva, Frankfurt, and London. A new livery also was introduced on the fleet of airliners in 1972, and the name "Saudia" was adopted as a shorter alternative to the longer official name.

By the early 1970s Saudi Arabia was benefiting from significant economic expansion as a result of the activities of foreign oil companies in the kingdom. With the exception of the ruling sheiks, the kingdom itself was not receiving an adequate share of the profits of the massive international oil business. Following the 1973 to 1974 oil price hikes that were promoted vigorously by Saudi Arabian representation at the Organization of Petroleum Exporting Countries (OPEC), revenues from the oil business increased dramatically. Much of the new wealth was invested outside the kingdom, but a sizable proportion was invested in the domestic economy and infrastructure. This gave a further boost to Saudia's activities as demand for internal and external freight flights increased, as did the number of foreign workers entering the kingdom for short- or long-term contracts.

In 1973 Saudia carried a little more than one million passengers for the first time. By 1975 the annual number of passengers carried had risen to three million. This unprecedented increase in demand was given a further impetus in 1975 when a fare cut of 25 percent was announced by the airline for all domestic routes. To meet the new demand, the fleet expansion program was accelerated. Between the beginning of 1975 and the end of 1976, the fleet had grown through the purchase of two Fokker F-27s, five more Boeing 707s, nine Boeing 737s, and seven long-haul Lockheed Tristars.

The cargo division of Saudia was the next area to see a major expansion. In 1977 three DC-8 freighter aircraft were leased together with three more Tristars, two Boeing 707s, and two 737s, and for the first time the airline leased two Boeing 747s. The first of the kingdom's chain of new international airports in Jeddah neared completion and the contract was signed to build "Saudia City"--at 1.5 million square meters, the largest housing complex ever built by any airline for its staff.

In 1978 the high level of re-equipment and expansion continued. In that year three more Boeing 737s were purchased and an additional 747 was leased to meet demand on the long-haul routes. The following year the airline opened the $40 million Flight Training Center in Jeddah equipped with the latest flight training equipment. This was designed to ensure that the airline's requirements for qualified crews would be met up to and beyond the year 2000.

The rapid expansion of the middle to late 1970s was not sustainable in the long term, and in 1980 a five-year development plan was announced that placed emphasis on upgrading service and ensuring a controlled expansion of about 30 percent more passengers carried each year. The plan made provision for ordering new wide-bodied aircraft: eight Boeing 747-100s, two 747-SPs, and 11 Airbus A300-600s. By the end of the five-year plan in 1985, an additional provision had been made for the purchase of ten Boeing 747-300s, five of which entered service that year.

By the end of the five-year plan, the fleet had grown to 104 mostly modern jet liners, and the total number of passengers carried had increased by more than threefold to a stable 10.8 million in 1985. Of these, about seven million were carried on domestic routes, a number significantly lower than that of the record-breaking previous year when the total stood at 11.34 million passengers.

The year 1985 was also Saudia's 40th anniversary year. Looking back over the history of his company, Captain Ahmed Mattar, Saudia's Director General, said at the time, "Throughout its history, Saudia has been committed to growth and progress, incorporating at every opportunity the latest technical developments in the highly competitive field of international air transport. There has been no time in the last 40 years when Saudia has been content to stand still."

In recognition of his contribution to Saudia and to the international airline business, the following year Captain Mattar was appointed to the executive committees of AACO and IATA. By the 40th anniversary year, Saudia had seen a great expansion in demand for its cargo services from companies in the oil, petrochemical, and associated industrial sectors for the rapid transportation of high-value industrial equipment and tools. That year saw the total weight of cargo handled increase to 165 million kilograms, an increase of more than 20 percent from the previous year.

Continuing Expansion in the 1980s

In the mid-1980s Saudia also started the implementation of cargo handling for other airlines operating flights into the kingdom. Saudia's growing cargo handling activities were boosted in 1983 with the opening of the new Saudi Air Cargo Building (SACB) at the new King Khaled International Airport in Riyadh. With equipment to handle more than 140,000 metric tons a year, the facility became the largest of its kind in the Middle East and one of the most sophisticated in the world in terms of information and cargo-handling technology. The SACB included a special docking facility that allowed up to three 747 aircraft to unload directly into the freight handling terminal.

Also during the mid-1980s, Saudia's expansion was still progressing, with Africa and Europe seeing a large portion of the expansion. In April 1986 twice weekly flights were started to Kano, Nigeria. In May flights were introduced to Cameroon and Senegal, and in June flights to Amsterdam and Brussels commenced. Saudia's cargo business continued to expand during 1988 with the first flight from the kingdom to the new Saudia cargo freight handling hub in Taiwan. The following year Saudia took delivery of its first custom-built Boeing 747-F freighter with a capacity of 100 tons. The aircraft was put to work immediately on the Far East freight route.

The year 1990 was perhaps Saudia's most traumatic to date. The Iraqi invasion and occupation of Kuwait, followed by the eventual military action to force the Iraqis out of Kuwait, caused great disruption to the world economy and especially to the airline business for many months after the fighting had stopped. For Saudia the immediate effect of the Iraqi invasion was the disruption of scheduled services within the region. Services to Baghdad and Kuwait were suspended and all other regional and long-haul flights suffered some form of disruption. With the airline's main business centers in Jeddah, Riyhad, and Dhahran acting as important logistical bases for the massive military buildup in the region, airspace for military use became a priority.

One year after the end of the Gulf War, only 75 percent of the air services within the region that were halted during the conflict had been resumed. Furthermore, intraregional air traffic had fallen by almost 30 percent compared with the 1989 level.

For Saudia, the financial impact of the Gulf War in terms of reduced revenue and higher insurance premiums forced the airline to freeze its plan for a fleet modernization program involving the replacement of all of the company's Boeing 737s, some of which were more than 20 years old. The Middle East Economic Digest quoted Saudia's executive vice-president for operations, Adnan Dabbagh, as saying: "We did have a plan anticipating some fleet replacements but, with the crisis, everything is being postponed until things get back to normal." Dabbagh confirmed plans to dispose of the fleet of 737s, but noted that they could not be replaced until financing became available for new aircraft.

Over the course of its development, Saudia has tended to follow a policy of business expansion in response to growing demand. The airline has benefited greatly from its domestic market, which has expanded rapidly and steadily. This approach has resulted in a stabilization of passenger volumes in recent years. According to Jane's Airline Directory, Saudia's prudent approach "has protected the airline from the worst of the economic and traffic downturn in the Middle East generally, following the rapid decline in the oil price."

Although the airline's rapid expansion has been remarkable, its operating losses of $163.5 million in 1990, along with the prospect of increasing competition between the other regional and national carriers, created some uncertainty for Saudia over the next few years. This was compounded by Saudi Arabia's poor relations with a number of its geographically close neighbors, including Iraq, Iran, and Israel. To date, however, the airline also had proved that good relations with close neighbors was not a prerequisite for successful business.

Beyond the 1990s

As Saudia depended on other countries for labor, in the 1990s it intensified its training program to ensure a supply of Saudi workers and pilots. At the time, all of the female flight attendants were foreigners; the other half of the cabin crew were all Saudi, as were three-quarters of the technical staff.

In 1994, in the wake of the Persian Gulf War, President Clinton announced a $6 billion order was forthcoming from Saudia Arabia, and all of it would be for U.S. aircraft at the expense of Airbus Industrie. The next year, Saudia ordered 23 Boeing 777s and five Boeing 747 jumbo jets, as well as four MD-11 aircraft and 29 MD-90 built by McDonnel Douglas. The latter aircraft featured the Honeywell Pegasus advanced flight management system, making Saudia the launch customer for these avionics. The massive order came to be worth $7.5 billion. The first Boeings, scheduled to arrive in 1997, were delivered late amid rumors of financing problems on the part of the Saudis. Although oil forecasts were better than expected, the country carried a nearly $5 billion budget deficit and Gulf War debt.

To provide extra capacity without further taxing its capital resources, in early 1997 the company leased four Boeing 747 aircraft from an Icelandic firm. Later that year it was reported that J.P. Morgan would be issuing a seven-year, $4.33 billion syndicated loan to facilitate its first payments on the 61-aircraft order it made in 1995.

Many national airlines in the Middle East struggled in the 1990s, prompting a call for an "open skies" policy among regional carriers. Jordan's Prince Faisal Bin Al Hussein challenged the efficacy of major carriers serving such short routes with half-full jumbo jets. Prince Faisal implored that developing a regional network in the area would actually create more business for the large state airlines in the long run. Arab-Israeli tension remained a volatile barrier to the type of regional cooperation Prince Faisal was seeking.

In the spring of 1998 the airline's Khalid bin Bakr announced a shift in the culture of the airline intended to smooth the way towards privatization. New company colors were part of the scheme. Saudia was expanding its cargo operations at the same time.

Principal Subsidiaries: Saudi Cargo; Saudia Catering.