Saudi aviation body to allow price rises to spur investment

RIYADH, Dec 17 (Reuters) - Saudi Arabia will review fuel

prices and give its civil aviation body powers to allow fare

increases as it struggles to move towards an open-skies policy,

the country's information minister said on Monday.

The Saudi airline industry is dominated by state-owned Saudi

Arabian Airlines (SAA), but the largest Arab economy still has

one of the Middle East's smallest networks relative to its size

and SAA and budget carrier National Air Services struggle to

meet demand.

Riyadh, which already caps economy fares, has announced that

it will allow new carriers to operate in the kingdom, but

analysts say that fuel subsidies for SAA will make it hard for

private companies to compete.

The General Authority for Civil Aviation (GACA) will work on

the issues within a broader "comprehensive strategic plan",

Information Minister Abdulaziz Khoja said in a statement after

Monday's weekly cabinet meeting.

He said that a government committee, including GACA, would

review fuel prices at airports "in comparison to prices in force

in regional airports and raise them to the appropriate level".

Economy-class ticket prices on domestic flights will also be

reviewed, with carriers able to increase prices gradually as the

date of travel approaches, in accordance with guidelines set by

GACA, the body said in an emailed statement.

"This actually seems to be a good stance to take, given that

SAA's fares are so heavily subsidised that it made it difficult

for others to compete, resulting in a continued shortage of

services on most routes," said a lawyer who has worked closely

on Saudi economic reform projects.

GACA was split from the Defence Ministry a year ago in a

move viewed as an attempt to accelerate reform in the sector. It

has since announced plans to allow foreign and private carriers

to operate in Saudi Arabia and launched an Islamic bond to

finance a new Jeddah airport.

Last month GACA said it would delay awarding new carrier

licences until the end of the year.

Information Minister Khoja added that private and foreign

companies would also be allowed to operate airports in

partnership with GACA.

The idea of using public-private partnerships to develop

airports has been under discussion in Saudi Arabia for some

time, the lawyer said.

(Reporting By Angus McDowall; Editing by David Goodman)

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