Saudi Arabia is to move towards allowing international airlines to operate domestic flights, which would heap pressure on the kingdom's airline industry.
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Price caps on Saudi Arabian flights mean the kingdom is an extremely difficult marketplace for airlines to operate, but analysts said the move could present "significant and substantial" opportunities for regional carriers, with low-cost airlines such as Air Arabia poised to benefit.
In a statement acknowledging the difficulties of a lack of domestic flights, Saudi Arabia's General Authority of Civil Aviation said yesterday foreign airlines would be allowed to bid for licences before the end of next month.
The move adds to pressure on Saudi Arabian Airlines and Nas Air, the low-cost carrier - the two remaining domestic carriers in the kingdom after the closure last year of Sama.
Sama, another low-cost carrier, stopped all flights after reporting losses of 1 billion Saudi riyals (Dh979.4m) in August last year.
While the move to open Saudi airspace was likely to be viewed with excitement by regional carriers, the latest move would not make operating profitably in the kingdom's aviation market any easier, said Kareem Murad, a logistics analyst at Shuaa Capital.
"All in all, it means higher competition," he said.
But the Saudi government would be unlikely to shake up the domestic air travel sector too drastically and harm the profitability and prestige of its national carrier, he added.
"At the end of the day they won't take a decision that will put a lot of pressure on their airlines and cause them a huge loss," Mr Murad said.
Flights in Saudi Arabia are subject to price caps by the government, but fuel subsidies from the kingdom to Saudi Arabian Airlines allow it to remain profitable in the domestic market.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
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“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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