Saudi Arabia’s recent move to tender the upgrade and rehabilitation of nine existing domestic airports and the development of two greenfield airports and one new terminal all at once could prove wrong the assumption that its airport privatisation objectives are completely unattainable within such an aggressive timeline.
It now appears that a decision has been made that these smaller airports must reach a certain level of operating standard before they – along with the larger airports that are currently undergoing upgrades and renovations – are turned over by the Saudi Civil Aviation Holding Company to the Public Investment Fund (PIF).
The PIF will then sell stakes of these airports, following the formation of individual airport companies, to private investors – a strategy that is parallel to what has been adopted for the international airports in Riyadh and Dammam.
While no timeline has been released in terms of when the stake sale will commence, the appointment of US-based Goldman Sachs as adviser for the sale of a minority stake in Riyadh airport implies that things are moving quickly.
Upgrading domestic airport facilities, however, does not mean they will automatically attract more passengers, obtain good valuation and attract hordes of private investors over the short-term.
There needs to be a concerted effort between Gaca, the municipal governments and other authorities to build better infrastructure and road networks around these airports. They also need to offer domestic air fares that reflect the airlines’ operating costs to allow the privately-owned airlines to thrive, as well as address high aircraft parking fees being charged by the airports.
Privatising the airports will also likely require passengers to pay a certain fee for using airport facilities and services, a measure that the aviation regulator has been unwilling to adopt previously on account of not wanting to tax passengers as well as the presence of government subsidies.
Imposing additional fees at a time of great economic difficulty will be a challenge but one that is not insurmountable given the rising demand for air travel especially among the kingdom’s young population.
Despite such challenges, these recent developments appear to present an excellent opportunity for the kingdom to bring its domestic aviation sector on par with its long-term economic vision.