“Saudi Arabia’s General Authority for Civil Aviation (GACA) has awarded carrier licenses to Gulf Air and Qatar Airways, the Saudi state news agency (SPA) said.

The national carriers of the two neighbouring Gulf states will be the first foreign airlines to operate domestic flights in the oil-rich nation, competing mainly with the government-owned Saudia and budget carrier NAS.

“The best bids came from Gulf Air and its partners, and Qatar Airways,” the GACA said in a statement late on Friday.

It said 14 companies had competed for the licences, adding that the decision took into consideration the accumulated experience of the companies in air transport, as well as operational efficiency and financial solvency.

Saudi Arabia stretches over 2.149 million square kilometres (0.85 million square miles) of mainly desert covering most of the Arabian Peninsula, and has a population of more than 27 million, including around 8.5 million foreigners.

Until now only the national carrier Saudi Airlines and budget airline National Air Services (NAS) have serviced a domestic market. It has four international airports and 22 domestic airports. With Saudi Arabia’s price cap on domestic flights, private airlines have struggled with their profit margins.

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

Qatar Airways claim

Meanwhile, Qatar Airways is filing a $600 million legal claim against a contractor for a delay in opening a new international airport in the emirate’s capital, Doha, the airline said in a Press release on Saturday.

Lindner Depa Interiors, a German-Dubai joint venture, holds a $250 million contract to build 19 airport lounges by the middle of 2012, said Qatar Airways, which will operate the new airport.

The $15.5 billion airport will be the hub for an airline that has grown to a fleet of 116 aircraft since its launch 15 years ago. The new airport was scheduled to open this month but is now expected to start operations in late 2013, the airline said in the release.

It said Doha’s existing airport had reached capacity and the delay in moving to a new facility was hindering the company’s expansion plans.

LDI is a joint venture between Lindner Group and Depa United Group.