SAUDIA AIRLINES HEAD ON OPEN SKIES, COMPETITION,

C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000414

SIPDIS

DEPT FOR NEA/ARP (HARRIS),NEA/PPD, EEB/TRA/AN (FINSTON),
CA/FO

E.O. 12958: DECL: 10/28/2019
TAGS: CVIS EAIR ECON KTIA PREL SA
SUBJECT: SAUDIA AIRLINES HEAD ON OPEN SKIES, COMPETITION,
AND VISAS

REF: A. 09JEDDAH 0178

B. 09JEDDAH 0146

JEDDAH 00000414 001.2 OF 002


Classified By: Classified By: CG Martin R. Quinn for reasons 1.4 (b) an
d (d)

Summary
--------------


1. (C) In an October 26 dinner conversation, the Director
General of Saudi Arabian Airlines, Khalid Abdullah Almolhem,
said that the company has no objection to an Open Skies
Agreement (reftels) with the United States, stated that
Saudia is not currently profitable because of government
price caps on fares, dismissed competition from regional
airlines, praised the American people, and complained about
US visa procedures. End summary.


Saudi Airlines doesn't oppose Open Skies Agreement with US
-------------- --------------


2. (C) Conversing at a small private dinner in Jeddah on
October 26, Khalid Abdullah Almolhem, the Director General of
Saudi Arabian Airlines, said his company does not object to
an Open Skies agreement with the United States because the
company knows US airlines have no interest in flying to Saudi
Arabia and most of Saudia's passenger traffic is on domestic
routes. Saudia is on the verge of signing a code share
agreement with Sky Team airline alliance (which includes
Delta),he added.


Saudia not profitable because of government price caps
-------------- --------------


3. (C) Asked if Saudia is profitable, Almolhem replied that
numbers can lie. The government price cap on fares --
particularly for domestic routes -- keeps Saudia from turning
a profit and has driven new bargain airline Sama to the verge
of bankruptcy. The government has refused to allow Saudia to
raise fares even though operating costs, including fuel and
labor have increased. The government also mandates reduced
fares for large numbers of travelers, from students to senior
citizens to people with disabilities. In the United States,
in contrast, a board looks at costs for regulated industries
like electricity and sets prices to allow for a reasonable
rate of return. The Kingdom lacks a transportation policy,
Almolhem commented, and the opening of the planned railway
service (between Jeddah and Mecca and Medinah, and
cross-country) is likely to produce further confusion in
transportation prices. Once price caps are removed and the
airline privatized in a few years, Almolhem expects Saudia to
become profitable, despite a likely fall in the number of
domestic passengers.


GCC and all business-class airlines no competition
-------------- --------------


4. (C) Asked about competition from all business class
airlines and regional airlines like Qatar Airways, Emirates,
and Etihad, Almolhem discounted them as true competitors.
All business class airlines are not viable for the Saudi
market, as Saudis will not be willing (or able) to purchase
business class seats for their wives, many children and
servants. Saudia is not interested in emulating the Qatar or
Dubai aviation strategies, he continued. The majority of
passengers flying into Qatar and the Emirates merely connect
to other flights rather than staying and visiting and
contributing to the local economy. Saudia is not interested
in becoming an air transit hub like Doha and Dubai. It
prefers to have passengers flying into the Kingdom for Haj
and Umrah and staying on for several days in the Kingdom
spending money. Almolhem recalled the days when Saudia
provided Qatar with planes and noted that the Qatari ruler
subsequently decided to spend billions of dollars to purchase
new aircraft. At this time Saudia lacks the resources to
modernize its fleet. It has purchased some new Airbus 320
planes, but is awaiting delivery of Boeing 787s -- which have
been delayed with no anticipated delivery date specified.


Saudia no longer the royal family's private fleet
-------------- --------------


JEDDAH 00000414 002.2 OF 002



5. (C) Asked if it is true (as commonly believed) that Saudi
Arabian Airlines cancels flights unexpectedly whenever any
member of the royal family wants to fly, Almolhem said this
is not true -- although another guest with 14 years'
experience flying in Jeddah disputed the statement. Almolhem
asserted that for the past 5 or 6 years, all requests by
members of the royal family to use Saudia planes have
required authorization by an agency of the royal court.
Saudia sets aside a certain number of planes for the Al Saud
family's use, and contracts with other airlines to provide
service if necessary. In the past few years, royals have
become "more reasonable" and Saudia has been able to delay
requests during peak periods.


Americans are "the greatest people on Earth"
--------------


6. (C) Although critical of the Bush administration's foreign
policy, Almolhem lauded Americans as "the greatest people on
earth." He recalled his days as a student in the United
States fondly (including his TKE fraternity hazing) and said
he would be happy to participate in Post outreach programs to
promote US education to Saudi students. One of his sons is
currently a college student in Boston, although he prefers to
spend time with other Saudis and Gulf Arabs -- defeating the
purpose of an American education in Almolhem's view. He also
praised Americans for their friendly and courteous treatment
of his hijab-wearing dauhters. Almolhem criticized his own
countrymen, aying they are most demanding and difficult
custmers, and lack a work ethic from growing up withservants. Almolhem attributed his own success to Sudi
Aramco, where his father worked in food servces and which
provided him with everyhing from vaccinations to an
education.


Visa issues
--------------


7. (C) Almolhem asked when the Jeddah Consulate will provide
full visa services, complaining about the inconvenience and
work time lost by crew members of the Jeddah-based airline
having to apply for crew visas in Riyadh. Looking around the
table at the Saudis -- all prominent and US-educated --
Almolhem commented that by accepting thousands of Saudi
students in the 1960s, 1970s, and 1980s, the United States
had ensured contacts and supporters among the Saudi elite.
He continued that after 9/11 the United States closed its
doors and Britain stepped in offering quick and easy visas
service -- costing the US future allies. (Note: The British
Deputy CG in Jeddah announced this week that its mission is
opening a new VIP service aiming to issue visas within 48
hours, while reporting to have issued 78,000 visas nationwide
during 2008. End note.)
QUINN