Airports and travel will survive Saudi budget cuts

Saudi Arabia’s 2016 budget cuts could have a dampening effect on airport construction and airline travel in the country, analysts say.

But even with a sudden loss of altitude, the landing should be soft.

“For airport construction, you could consider building a grand palace instead of a majestic palace,” said Will Horton, a senior analyst at the Centre for Aviation (Capa). “But this is a long-term decision, not something easily adjusted for one year’s budget.”

Mr Horton said that even amid financial cuts, few airports in the region are designed with strict budgets in mind, as they are viewed as long-haul investments.

His stance was seconded by Mark Martin, the chief executive of Dubai-based Martin Consulting, who said that airports such as Jeddah, Taif and Medina would continue to attract passengers visiting for Haj and Umrah without signals of scaling back.

“Jeddah airport with the Mega Haj bin Laden Terminal in service at the moment is expected to soon reach maximum capacity, and as a result we don’t believe there will be any roll back on the development of the new Jeddah Airport,” said Mr Martin.

He said that in the end, the outlook depends on the oil price.

“This period will probably be the most significant for Saudi Arabia because the country’s biggest economic wealth driver has been devalued to its lowest level ever,” he said.

The decline in oil to an 11-year low last week of $35.98 – down from a high of about $115 per barrel in June last year – has hit the oil exporter hard.

The country has liquidated foreign assets held at the central bank and its sovereign wealth funds to plug the fiscal deficit.

Regardless, Arabian Gulf carriers such as Emirates have been bullish on Saudi Arabia lately. The Dubai carrier operates 70 flights a week to the kingdom – between Dubai and Riyadh, Jeddah, Dammam and Medina.

On December 15, it added a third daily flight to Riyadh in response to rising demand from business and leisure travellers.

Mr Horton said that any curb in Saudi Arabia’s government travel is likely to affect Saudi Airlines (Saudia).

However, he ruled out the possibility of government officials travelling in economy class, let alone low-cost carriers, as has happened in China amid austerity measures.

Meanwhile, Saudi Arabia’s economic situation gives more urgency for reform. Promoting aviation as an economic growth engine could be effective, as Saudi Arabia wants to increase non-oil revenues.

“The focus now shifts [for Saudi Arabia] to it building economic sustainability and, importantly in the coming years, balance its fiscal deficit by realigning its economic drivers,” said Mr Martin.
Source: The National