Saudi Arabia launches new state-owned airline, entering a crowded field

Saudi Arabia will launch another state-owned airline, entering a field already crowded with regional competitors, as Persian Gulf states turn to tourism in an effort to decrease their dependence on oil revenue.

Riyadh Air, which will be based in the capital, aims to fly to 100 destinations by 2030, according to state-run media. State news agency SPA said it “will be a world-class airline, adopting the global best sustainability and safety standards.”

But the carrier, which will be owned entirely by the government’s Public Investment Fund, faces steep competition, including from the country’s other state-owned airline, Saudia, formerly known as Saudi Arabian Airlines.

Saudi Arabia’s neighbor, the United Arab Emirates, owns the successful Emirates airline, as well as the smaller Etihad Airways. State-owned Qatar Airways is another long-standing competitor in the region. Tony Douglas, previously the chief executive of Etihad, will lead Riyadh Air.

Middle Eastern airlines have leveraged their geographic positions as a gateway between Europe, Asia and Africa. Layovers in the gulf are common for flights between Europe and Asia, especially as the war in Ukraine has made many flight paths longer, with airlines avoiding Russian airspace.

The oil-rich kingdom of Saudi Arabia, along with its similarly resource-wealthy neighbors, says it wants to diversify its economy and reduce its dependence on oil revenue. Dubai loosened alcohol regulations in January in an apparent bid to appease tourists and expatriates. Qatar’s hosting of the World Cup last year was widely seen as a high-stakes test to prove itself as a major world player and destination for business and tourism.

The creation of Riyadh Air is forecast to add $20 billion in

“non-oil GDP growth,” SPA said, adding that it was part of the state investment fund’s “strategy to unlock the capabilities of promising sectors that can help drive the diversification of the local economy.”

Rico Merkert, a professor of transportation and supply chain management at the University of Sydney, said the move was a “a significant development for the aviation industry.” He noted that Riyadh Air was seeking to fly to dozens of destinations by 2030, even as other airlines are trying to achieve net-zero emissions by that year.

Still, the planes set to be used by Riyadh Air are “very fuel efficient and hence less CO2 emitting compared to the fleets of some of their competitors,” he said. And the competition could lower fares for people seeking to transit through the Middle East, he added.

Henry Harteveldt, a travel industry analyst at Atmosphere Research Group, called the move “extraordinary.” He said the founding of Riyadh Air is probably an effort by the state fund to pressure Saudia to perform better.

“They want the country to compete more for leisure travelers, and they certainly want the country to be an easier destination to reach for business travelers,” he said.

But Saudi Arabia faces hurdles beyond the regional competition in pursuing those aspirations. Its human rights record, particularly on women’s rights, has been widely criticized. The United States has blamed Saudi Crown Prince Mohammed bin Salman for ordering the killing of journalist and U.S. resident Jamal Khashoggi in 2018.

Differences in cultural norms may also prove challenging for Riyadh Air as it seeks to compete with the big players in the gulf. Saudia doesn’t serve alcohol on its flights, Harteveldt said, noting that Emirates is known for a vast selection of wines.