Airports and airlines in Saudi Arabia expand capacity to meet growing demand

One of the keys to unlocking Saudi Arabia’s potential as a global transport hub is the development of its aviation sector, and there are significant changes taking place that will provide opportunities for international investors. Across the country, airports are expanding to meet growing passenger demand, and those same terminals are being prepared for privatisation. At the same time, three new airlines are planning to begin operations, offering more choice in price and destinations.

Expansion Initiatives

A notable milestone in Saudi Arabia’s aviation sector was reached when a consortium led by Changi Airports International (CAI) of Singapore won the 20-year concession to run the expanded King Abdulaziz International Airport (KAIA) in Jeddah in May 2017. The company had been managing and operating King Fahd International Airport in Dammam for eight years at the time it won the new KAIA contract.

KAIA is being developed in three phases. The first phase was designed to process an annual capacity of 30m passengers, while the second phase – planned for 2025 – will boost capacity to 43m. Finally, total capacity will be increased to 80m by 2035 under the third phase. However, as the first stage is nearing completion – set to open in the first quarter of 2018 and be operational in time for the busy Hajj season – passenger numbers have already overtaken the airport’s intended capacity: some 31m travellers passed through KAIA in 2016 – a 7.3% increase on the 28.9m people using the facility in 2015. As the Kingdom’s busiest airport, Jeddah handled 10.2% more flights in 2016 than in the previous year, rising from 19,028 to 20,767.

King Khalid International Airport (KKIA) in Riyadh is also expanding to cope with strong demand. Terminals one and two handle international flights while terminals three and four are currently not being used. In 2016 the airport’s new terminal five opened for domestic passengers. The airport is expanding to accommodate 25m passengers annually, but traffic is already close to that figure. Some 23.6m passengers passed through KKIA in 2016, up 4.9% on the 22.5m in 2015. The number of flights also increased by 9.2%, from 158,556 to 173,090.

Air Facilities

Saudi Arabia has two other international airports: King Fahd International Airport in Dammam and Prince Mohammed bin Abdulaziz in Medina. Dammam saw its passenger numbers grow by 3.3% in 2016, from 9m to 9.3m, while over the same period the airport in Medina saw passenger numbers expand by 20%, from 5.5m to 6.6m. The number of flights grew by 6.7% at Dammam and 16.5% at Medina between 2015 and 2016. There are 23 additional airports operating domestic services only, and from 2015 to 2016 there was a collective 12.3% growth in the number of flights at these facilities, from 116,907 to 131,277.

According to the General Authority of Civil Aviation (GACA), five new airports are to be built in Saudi Arabia at Taif, Jizan, Qunfudah, Farsan and Najran, while new terminals are being built at existing airports in Jeddah, Abha, Arar, Hail, Al Ahsa, Yanbu, Qassim, Wadi Al Dawasir, Al Qurayyat, Rafha, Al Jawf, Turaid, Al Qaisuma, Sharurah, Al Wajh and Al Baha. While these developments are taking place, existing terminals are being redeveloped at Riyadh, Dammam, Bisha, Dawadmi and Al Ola.

Upcoming Projects

The new regional airport in Taif, terminals at Hail regional airport, Prince Abdulmohsen bin Abdulaziz Airport in Yanbu and Prince Nayef bin Abdulaziz Airport in Qassim are all being built with private sector partners. The public-private partnership (PPP) approach to airport construction was pioneered with two projects to cater to the Hajj pilgrims. A consortium led by Saudi Binladen Group and Aéroports de Paris Management won the 20-year build-operate-transfer (BOT) agreement for the $249m Hajj terminal at KAIA, which has a unique structure that enables it to be converted from an arrivals-only facility to a departures-only gate to match the flow of pilgrims visiting Jeddah. The terminal was completed in 2011.

In the same year, joint venture TIBAH Airports Development Company was formed between TAV of Turkey, Al Rajhi Group and the construction company Saudi Oger to bid for the $1.2bn BOT contract to develop the existing airport at Medina into an international terminal with a particular focus on pilgrims visiting the two Holy Mosques. The facility was completed in 2015 and was the first privately financed airport in the Kingdom. In 2017 TAV and Al Rajhi won contracts to operate three more airports in Saudi Arabia. The 30-year contracts to operate the Hail and Qassim airports were awarded in April 2017, a month after the consortium announced it had also been selected to expand and operate Prince Abdulmohsin bin Abdulaziz Airport in Yanbu.

Another PPP project was also awarded in April 2017, when a Saudi-led consortium won the bid to develop and operate the new Taif International Airport. Asyad Holding, Munich Airport and Consolidated Contractors’ Company of Beirut will work together on the project to provide an airport with an initial capacity of 5m passengers by 2020. “One of GACA’s main strategic objectives is to strengthen the partnership with the private sector, which becomes a strategic ally in the construction and operation of airports,” Tariq Al Abduljabbar, deputy president for airports at GACA, told OBG. “This strategy will contribute to the operation of airports in accordance with the best international practices.”

GACA has announced that foreign companies will be able to invest in privatised airports without a local partner, and it intends to organise each airport as an operating company under the umbrella of Saudi Civil Aviation Holding, which will be handed over to the Public Investment Fund (PIF) by mid-2018. The PIF will then determine the best method to privatise each airport, either by offering a stake to a foreign investor or launching an initial public offering. Air navigation and airport IT services are also to be privatised as part of the plan, with the country signing a deal with Indra of Spain in November 2017. Indra has been contracted to develop, upgrade and modernise air traffic management systems at airports around the country to improve safety and efficiency. All these moves will change the role of GACA by removing its operational responsibilities and enabling it to focus on regulatory duties.

Specialty Travel

Quicker, more comfortable air transport – including the use of private planes – is an attractive and growing proposition for business and VIP travellers. “Private aviation remains strong because it is the fastest method of transport across the country. When faced with dense traffic or vast distances, ground transport is not the answer for those who need to travel quickly,” Saad Wallan, chairman of Wallan Aviation, told OBG. “With 28 commercial airports in the Kingdom, infrastructural capacity is here today.”

Another niche area is luxury flights. Flag carrier Saudi Arabian Airlines Group (Saudia) launched the Al Bairaq service between Riyadh and Jeddah in 2016 using 50-seat Airbus A319 aircraft. These flights offer high-end products and services on board, and cater to those wanting a unique and streamlined experience.