After a months-long bidding process, Qatar Airways and Bahrain-based Gulf Air have been awarded licenses to operate in Saudi Arabia, the first foreign airlines to do so, Reuters reports.

The two companies, which beat out a dozen other airline bids, will now we able to fly within KSA, not just into and out of it. 

They will join KSA national carrier Saudi Airlines and National Air Services NAS in catering to a growing domestic market. Last year, Saudi saw 54 million passengers pass through its 27 airports, an increase of 13.6 percent since 2010.

In July, The General Authority for Civil Aviation shortlisted seven airlines, including QR, the UAE’s private carrier Falcon Express and Bahrain Air, for the domestic licenses.

Emirati Gulf affairs commentator Sultan Al Qassemi suggests that KSA’s awarding of licenses may have been politically motivated:

I expected Saudi to award these two airlines a domestic license (out of 14 applicants), first awarding Gulf Air is a leg up to an ally and second Saudi relations with Qatar have improved dramatically recently.

But economics also definitely plays a role.

According to Reuters:

With Saudi Arabia’s price cap on domestic flights, private airlines have struggled with their profit margins.

Saudi Airlines, which is undergoing a slow privatization process, receives fuel at subsidized prices unlike private carriers, allowing it to offset the limits of the ticket cost ceiling.

The airlines are expected to launch operations at the end of 2013.

Thoughts?

Credit: Photo by Waleed Alzuhair