Fuel consumes 45% of cost for Sama Airlines

Soaring oil prices have triggered a 40-45 per cent growth in fuel as a percentage of cost for Saudi Arabian low-cost carrier Sama Airlines, a top official at the airline said.

"Fuel is taking as much as 45 per cent of our cost at the moment, with Saudi Aramco's effective price now at $148 per barrel," said CEO Andrew Cowen.

The airline, which expects to reach profitability "very soon", said its biggest challenge is the domestic economy fare cap that is in place in Saudi Arabia.

"The fare cap has not increased since 2000-2001, but during this time the price of oil has increased from $15 to $20 per barrel to more than $100 per barrel, making flying in Saudi Arabia very expensive," Cowen said.

State-owned Saudi Arabia Airlines (Saudia) receives fuel at a domestic discounted rate which is 80 per cent below what Sama receives. "The oil price growth is concerning all airlines except Saudia, which receives a discounted rate, and it certainly impacts on investments decisions – how many more aircraft you take and so on. This is why we have been taking things more cautiously of late," Cowen said.

Sama – Saudi Arabia's second largest airline – launched operations in March 2007 and has since made moves to expand internationally, adding up to nine international destinations and launching more later this year.

"It's still very hard going. New carriers have to fight very hard to gain international access due to a series of biases in favour of flag carriers. The Middle East has not yet liberalised on the aviation side and there is still a lot of protection and bias surrounding the flag carriers. We're chipping away at that because this is what's going to lead to more competition and more services offered at lower prices," Cowen said.

Sama is also negotiating for another three to four aircraft by the end of the year, and aims to grow its fleet from six to 25-30 aircraft by 2010.

"We've been holding back because the aircraft market has been a very over-bought market. Orders have gone up with crazy prices, so we've stood back until the market turned as it is now doing as part of the credit crunch, and we expect in the coming years to be in a position to get new aircraft, which will allow us to continue developing," said Cowen.

The numbers

80%: The discount Saudia gets from Aramco

2007: The year in which Sama was launched

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