The objective is to transform Saudi Arabian from a money-losing, bloated state airline into a commercially aware organisation capable of competing, and winning, against the major European and US carriers. Longer term, the government wants to privatise its flag carrier.
The Saudia name is going because research by image consultants Diefenbach Elkins found it meant nothing to non-Arab speaking customers. 'It does not reflect the name of the country, an air of heritage, the name of a tradition,' says Ben-Bakr. 'The new logo will be Saudi Arabian - like Canadian, American and so on. When the customer looks at the new name, I think an image of the sand, the desert, the hospitality, the rich Arabic culture, Lawrence of Arabia - all these beautiful images will come into the picture.'
Similar considerations applied when the carrier decided to ditch its green livery for blue. 'Blue reflects modernity,' says Ben-Bakr. 'We want to combine tradition and modernity. Blue gives an image that is clean, efficient and modern.' Tradition is emphasised through service and hospitality, he adds.
Ben-Bakr emphasises that this is much more than a straightforward corporate redesign. Over three years, Saudi Arabian plans to revamp every aspect of its service, including its cuisine, food presentation, onboard sales, reservations and the way passengers are greeted at the airport. 'We are competing with international airlines . . . unless you upgrade your services and your image, you cannot compete with them.'
Alongside these externally obvious changes, Ben-Bakr is also aiming to transform the way Saudi Arabian is organised internally. 'When I came to Saudi Arabian, I was amazed at how huge the organisation is, and how complex it is. If you want to get anything done, it takes days. The problem is that critical decision making is fragmented through five or six departments. Sometimes we have conflict; sometimes we have different perceptions about our goals.'
Saudi Arabian is now implementing a new structure recommended by consultants from AMR. For example, to cut out duplication the information systems and communications departments have been merged into a new information technology department.
But the real challenge is to revamp the marketing department. Ben-Bakr declines to be specific about the new marketing structure, but says: 'All departments will be demolished and we will have new departments that will be geared to increasing sales and being responsive to the market.' The objective is to merge departments which currently overlap each other - Saudi Arabian has separate departments covering scheduling, research, bilaterals, pricing, advertising, and planning, for instance.
As well as slowing down decision making and wasting resources through duplication, the present structure also means that when things go wrong everybody can blame somebody else. 'Lack of accountability is the problem in Saudi Arabian,' says Ben-Bakr. 'Everybody does nothing because he knows you cannot hold him accountable. We will give responsibility, but also accountability.'
While the structural change will take another year or so to put in place, some changes in attitude are already apparent. Take pricing. 'We used to be the good boys in the market. We stuck to the Iata fares and our competitors were reducing their fares by 40 or 50 per cent. We were hesitant to do so, but . . . if you look at our prices now in the market you will find them very competitive. I think this strategy has helped us increase our market share and, in certain markets, to preserve our very good market share.'
The carrier is piloting a frequent flyer programme, with 1,000 customers currently signed up. This should help to secure the loyalty of increasingly demanding Saudi travellers. 'Saudis used to be satisfied easily,' says Ben-Bakr. 'Now they are becoming very sophisticated.' This is especially the case on the routes to Europe, where Ben-Bakr sums up the problems as: 'High expectations, high competition and low fares.'
To help meet these expectations among the highest yield portion of Saudi Arabian's customer base, the carrier has established a 25-member advisory board to bring it closer to the Saudi business community. This board, which includes the heads of the chambers of commerce throughout the kingdom, meets monthly to hear about Saudi Arabian's plans, and to tell the airline about their needs.
Although Saudi Arabian serves over 40 overseas destinations with scheduled flights, frequencies are low. Ben-Bakr says the carrier is evaluating all routes with the objective of closing unprofitable ones and increasing frequencies on the successful ones. India and the Philippines are likely areas for frequency increases and new destinations, he says.
The European route network illustrates the lack of frequencies and the incoherence of the network. Saudi Arabian has eight flights a week to London, seven to Paris, three each to Frankfurt and Rome, and two to Geneva. But many flights either tag Riyadh and Jeddah together at one end, or two European points at the other end, resulting in multi-stop flights and a different schedule and routing on different days of the week.
The story is similar with the US and Far East routes. There are three weekly flights to New York, two of which continue to Orlando and one to Washington. While the only direct competition is three weekly TWA flights routing Riyadh-Cairo-New York, there are plenty of indirect routings via the major European hubs. In the Far East Saudi Arabian serves Bangkok, Jakarta, Kuala Lumpur, Manila and Singapore.
The alliances between European and US carriers spells trouble for Saudi Arabian and other Middle Eastern carriers, because they threaten to divert lucrative North American business via strengthening European hubs.
So far, Saudi Arabian has placed little emphasis on alliances. Ben-Bakr describes the block seat deal with United as 'a small experiment', but he hopes to develop this into a more meaningful codesharing arrangement with either United or Delta. He is also keen to implement more alliances with other Arab carriers, as recommended in a recent study performed by SH&E for the Arab Air Carriers Organisation (see Newsline).
Saudi Arabian buys seats on Olympic Airways' flights to Athens, with connections to other European points, and it takes a share in the revenue from KLM's flights from Amsterdam to Saudi Arabia. The Saudi carrier's only other alliances are a joint venture air bridge with Gulf Air on Dhahran-Bahrain, and a block space agreement on Jeddah-Seoul with Korean Air.
The Saudi flag carrier's biggest problem is its domestic routes. These services were established for social and political reasons to bind together a widely dispersed kingdom with few road or rail links, but low fares mean losses for the airline. Domestic routes account for 70 per cent of Saudi Arabian's 12 million annual passengers, but provide only 30 per cent of the carrier's revenue of around $2.5 billion. While some domestic trunk routes, such as Jeddah-Dhahran, make money, most are in the red. Last year, the government agreed to domestic fare increases of 10 per cent in economy, 15 per cent in business class and 20 per cent in first class. 'That helped a lot. It generated about SR50-60 million ($13-16 million) in income and did not hurt people,' says Ben-Bakr.
While this is a step in the right direction, it does not solve the problem. Still, Ben-Bakr does not expect authorisation for further domestic fare increases in the near future. 'Before I go and ask the government, I think we have to do our job in Saudi Arabian. We have to reduce costs and be more economically oriented when we design our schedules and procedures. When we've finished with that, if we're still not making money I think we can then go and justify why we need an increase.' The idea of creating a separate government subsidised airline for domestic routes has been dropped because of the need for close integration with international services.
The domestic routes are a major reason for Saudi Arabian's persistent lack of profitability. The airline last made a profit in 1984, and it lost over $1 billion in the nine years to 1993, when the net loss was SR462 million (US$123.5 million) even after a government subsidy of SR284 million. 'In 1994, through just the reduction of some fat in the organisation, we reduced the loss by about 50 per cent,' says Ben-Bakr. The results for 1995 have not been finalised yet, but Ben-Bakr expects another big reduction in the loss, and he anticipates reaching breakeven 'very soon.'
Privatisation remains a longterm objective. King Fahd has said he wants to privatise commercially oriented organisations such as Saudi Arabian, but this has never been done in Saudi Arabia. Ben-Bakr stresses that the airline must be commercialised first, and clearly the airline needs to show a record of profitability if investors are to be attracted.
There is also uncertainty over the carrier's balance sheet. Ben-Bakr says the new fleet will be financed internally. 'We will not get any loans from outside, and Eximbank isn't going to guarantee anything.' In the mid-1980s, the Saudi government presented the airline with 10 Boeing 747-300s as a gift, but Ben-Bakr declines to speculate on whether this will be repeated, or whether the government will provide the carrier with extra capital for the new fleet.
Deliveries of the new aircraft will begin in July 1997, according to the following schedule:
* Five CF6 powered B747-400s starting in September 1997, with two deliveries in 1997, two in 1998 and one in 2001.
* 23 GE90 powered B777-200s starting in October 1997, with six in 1997, eight in 1998, five in 1999, two in 2000 and two in 2001.
* 29 MD90-30s starting in October 1997, with four in 1997, 14 in 1998, eight in 1999 and three in 2000.
* Four MD-11 freighters with deliveries between July and October 1997.
Saudi Arabian will always be an unusual airline. As well as the usual inbound and outbound business traffic, the airline brings in high-yielding labourers from India, Pakistan and the Philippines, and low-yielding pilgrims to Mecca and Medina. There is little tourism in Saudi Arabia. Alcohol is not served on board the aircraft. There is an obligation to serve 25 domestic points, many of which are not viable economically.
Yet Ben-Bakr is only too aware that the Saudi flag carrier has to find ways of coping with a more competitive environment in which it is expected to support itself. 'You cannot rely on the government for protection any more. We are facing very aggressive competition, and with deregulation in the US and liberalisation in Europe the winds of change will hit us very soon. If we are not prepared, I think we will not survive.'
Source: Airline Business
