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Corrected mideast money gulf airlines set sights on saudi skies

(In July 18 story, corrects spelling of name in paragraphs 5 and 10 to Strickland, from Stickland)By Asma Alsharif and Praveen MenonRIYADH/DUBAI, July 18 Saudi Arabia's push towards an open skies policy is attracting the interest of major airlines in the Gulf and raising hopes that poor service and overbooked flights that have characterised air travel across the country could soon be a thing of the past. More than 54 million passengers passed through Saudi Arabia's 27 airports last year, according to data from the General Authority for Civil Aviation (GACA), rising 13.6 percent from 2010. But the kingdom, the biggest Arab economy and the largest country in the Gulf geographically, still has one of the smallest airline networks in the region relative to its size. Saudi Arabian Airlines, the national carrier, and private low-budget carrier National Air Services (NAS) are the only options for flying within the country and they are struggling to keep up with demand. This is in sharp contrast to neighbours such as the United Arab Emirates, where Emirates airlines and Etihad Airways have made their mark internationally. Qatar, a much smaller state compared to Saudi, is also in fierce competition to grab Gulf air travel demand with its national carrier."Saudi is a big market with huge distances to cover," said John Strickland, director of UK-based JLS Consulting."It's still moving cautiously but undoubtedly they are looking at what's happening around them in the Gulf aviation market and realising that it's not logical to keep a strategy of just supporting the national carrier."Licensed foreign carriers for now can only fly in and out of Saudi Arabia not within. Riyadh has announced it would allow new carriers to operate in the kingdom and would grant licenses for the right to operate both local and international flights. This month, GACA said 14 companies had applied for licences to operate domestic and international flights in the country. Of these, seven have been short-listed and include those fully owned by Saudis, Gulf-Arab firms and consortiums of Saudi-Gulf and Saudi-Chinese companies, the state-run news agency reported. The names of bidders were not revealed but authorities will meet with the short-listed firms in August to talk about the plans. Most of those seeking a licence are eyeing low-cost flights in the kingdom, where business travel is rising and religious tourism is booming."There are several motivations to look at this market, including the amount of business travel and also religious travel that people perform. Despite all that movement the market has no exposure to low-cost travel," said Strickland.

Qatar Airways has said it wants to launch a new airline based in Saudi Arabia and is keen to invest in the kingdom's domestic aviation sector. Sources close to discussions said most bids were from local Saudi firms looking to pick up aviation licences. Firms from neighbouring Bahrain have also shown keen interest."We are not applying directly for a licence but we do not rule out working along with partners," Richard Nuttall, chief executive of Manama-based budget carrier Bahrain Air, told Reuters. The open skies plan is being welcomed by Saudi residents, worst affected by the limited air network in the country of more than 27 million."As a customer I feel I'm stuck with lousy options all the time. Opening the market will force focus and differentiation, competitive prices and packages to win the satisfaction of customers," said Hasnaa Mokhtar, 35, an executive at a multinational in Jeddah. Complaints about being booted off flights to make way for VIPs and waiting eight hours in queues for a seat are common in Saudi public forums, including online social media sites.

Mariam Alawi, a 28-year-old Saudi housewife, says most aircraft used in the country are worn out and look like "the inside of a gym bag" with broken seats and entertainment systems that don't work. Residents hope the open-skies policy will bring cheaper travel, better services and more jobs."Right now it is more like take it or leave it, their way or the highway, but once they feel the pressure of other airlines offering exceptional service, cheaper prices, more punctual flights, then they will really strive to retain their customers," Mokhtar said. The kingdom is investing heavily in aviation infrastructure to back the industry's expansion plans, including building multi-billion dollar projects to expand capacity at the country's airports, including Riyadh. Traffic through the capital's airport, which was originally designed to process 9 million passengers a year, has already reached around 15 million.

The country is also planning a 27 billion riyal ($7.2 billion) airport in Jeddah, which it will finance through Islamic bonds, or sukuk, to raise its capacity to 30 million passengers annually. MORE REFORM NEEDED Riyadh is pushing forward with several economic reforms, passing a much-awaited housing mortgage law this month that is expected to stimulate the property market. It is also discussing opening the stock market to direct investment by foreign institutions. Authorities have mostly completed technical preparations for this, which would subject Saudi firms - including any domestic airlines that listed their shares - to more market discipline. The Saudi aviation market boom is, however, viewed with scepticism by some who feel more reform is needed to provide a level playing field for all investors. The government still controls domestic air fares and, according to analysts, also subsidises fuel for Saudi Arabian Airlines, which the government has begun to privatise but which is still state-controlled. With a price cap on domestic flights, private airlines have struggled with their profit margins. In 2010 a third carrier, Sama Airlines, was forced to suspend its operations. Qatar Airways chief executive Akbar Al Baker said this month that some of the Saudi government's policies were hindering growth opportunities for airline operators. He called for the government to take a fresh look at these policies."The first experience with Sama and NAS was not successful because it was missing the right policies and procedures as well as fair treatment compared to Saudi Airlines," Saudi-based economic analyst Abdulwahab Abu Dahesh said."Now, under the new procedures, they must show that there is fair and equitable treatment between the carriers and Saudi Airlines. Otherwise the local market will not be competitive and they will face a lot of challenges."

Fitch upgrades virgin money to bbb+, outlook stable

(The following statement was released by the rating agency) LONDON, January 20 (Fitch) Fitch Ratings has upgraded Virgin Money plc's (VM) Long-term Issuer Default (IDR) to 'BBB+' from ‘BBB’, Short-term IDR to 'F2' from ‘F3’ and Viability Rating (VR) to 'bbb+' from ‘bbb’. The Outlook is Stable. The agency has also affirmed the Support Rating at ‘5’ and its Support Rating Floor at ‘No Floor’. The upgrades reflect Fitch’s opinion that the bank’s earnings will continue to improve, while its asset quality and funding profiles will remain sound and that liquidity and capitalisation, while declining from high levels, will remain solid. The ratings also reflect Fitch’s expectation that expansion will continue at a controlled pace and that the bank’s public disclosure will improve. KEY RATING DRIVERS VM’s Long and Short-term IDRs are driven by its standalone credit profile as reflected in its VR. Fitch believes that support by the authorities or by the group’s ultimate shareholders in case of need cannot be relied upon. Consequently, we do not factor extraordinary support into its IDRs. Fitch expects the bank’s standalone credit profile to improve on higher profitability over the medium term following improvements to the balance sheet. The bank’s net interest margin should be boosted by growth in new low-risk, residential mortgage loans with wider margins, and the consolidation of a new higher-yielding credit card loan portfolio. Costs are likely to remain fairly flat due to the current scalability of its operations. Fitch expects mildly positive operating profits in 2013 to have been boosted by capital gains from the sale of its share in its credit card partnership with MBNA, as part of its buyback from MBNA of a portion of the existing VM credit card portfolio. While asset quality, on-balance sheet liquidity and capitalisation are likely to weaken we do not expect such deterioration to be material enough to adversely affect the ratings. Mortgage arrears are currently low: the original loan book acquired from Northern Rock on 1 January 2012 had virtually no arrears; new lending policies have been prudent; and low base rates in the UK have generated a fairly benign environment for mortgage performance. However, as newer loans season (both mortgage and credit card lending) and as base rates rise, arrears will increase but we expect them to remain below average industry levels in the medium-term. Reported regulatory ratios are strong with the capital base comprising entirely of core Tier 1 capital, which simplifies capital expectations under the Basel III regime. Ratios are likely to moderate as a result of projected loan growth but to remain in line with the bank’s prudent risk appetite. Liquidity is higher than the industry average and partly reflects management’s conservative attitude to liquidity. VM’s public disclosure is fairly weak. However, this is likely to improve as VM moves towards its preparations for an initial public offering. RATING SENSITIVITIES The IDRs and VR may be downgraded should asset quality unexpectedly deteriorate to the extent that it erodes capital, particularly if VM’s pre-impairment operating profit remains weak. Negative rating pressure may also result if capital, liquidity and funding deteriorate more quickly than expected, as a result of weak earnings and excessive asset growth, whether organically or through acquisitions. The SR and SRF are sensitive to changes in assumptions around the propensity or ability of the authorities or the shareholders to provide timely support to the bank, neither of which is expected by Fitch. Contact: Primary Analyst Claudia Nelson Senior Director +44 20 3530 1191 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Secondary Analyst Vanessa Flores Associate Director +44 20 3530 1515 Committee Chairperson James Longsdon Managing Director +44 20 3530 1076 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.this site Additional information is available on this site Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012 and 'Evaluating Corporate Governance', dated 12 December 2012; are available on at this site. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW. FITCHRATINGS. COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.