Aviation is developing fast in Central Asia but challenges remain. Joe Bates investigates

With traffic on the rise, new route launches, growing airlines,  and one of the newest airports in the world in Tajikistan, there is no doubting that these are good times for aviation in Central Asia.

A quick look at the traffic figures for the region over the last decade shows that all five Central Asian nations—Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan—have experienced a significant upturn in passenger numbers, although last year was a tough one for all due to geopolitical issues.

Indeed, Air Astana, a top carrier in the region, saw its passenger revenues drop 20%, leading President and CEO, Peter Foster, to describe it as the airline’s most difficult year since the start of the global financial crisis in 2008.

All our markets suffered and the Kazakh currency pretty much halved in value between late 2015 and 2016

He notes that although the fall in oil prices benefited global aviation, it hit Kazakhstan’s oil-dependent economy hard, which, combined with a price decline in other commodities such as minerals and metals, had a significant effect on Air Astana.

“All our markets suffered and the Kazakh currency pretty much halved in value between late 2015 and 2016,” says Foster. “Obviously, a huge amount of our revenue is in the local currency, so it was a very challenging year.”

He is, however, optimistic that 2017 will be much improved and has been encouraged by “significantly better revenues” in the first quarter of the year and the fact that oil prices are on the rise again, currently trading at around $50 to $55 a barrel compared with around $35 to $40 this time last year.

IATA’s data shows that Kazakhstan leads the way in terms of aviation growth

Kazakhstan, like all Central Asian former Soviet republics, still enjoys strong links with Russia, and these economic and social ties are largely fueling traffic growth across the entire region, with many Uzbeks, Tajiks, and Kyrgyz working in Russia and the former CIS states. 

IATA’s data shows that Kazakhstan leads the way in terms of aviation growth. This isn’t surprising as it has the most diversified national economy, is home to Air Astana, and boasts the region’s most developed airports system.

And the good news is that things can only get better—Kazakhstan’s status as the world’s largest landlocked country, and the ninth biggest nation on the planet, means that aviation is key to the future development and prosperity of the country.

“Aviation is a priority for the region because its size and geography often makes road journeys impossible or impractical,” says Jordan Karamalakov, IATA’s Country Manager for Kazakhstan, Kyrgyzstan, Uzbekistan, and Tajikistan.

“Aviation connects people, and supports education and business. It has a brilliant future here.

"You don’t have to be Nostradamus to predict that passenger numbers will go up in the years ahead, although the increase is more likely to be slow and stable rather than a volcano-style eruption.”

Strong growth

Twelve years ago, Air Astana enjoyed annual revenues of $150–$200 million. Today, this figure is closer to $800 million and has been as high as $1 billion. 

Its fleet today primarily comprises A320s, B757s, B767s, and Embraer 190s and will grow shortly as it has firm orders for an additional eight A321neos and the B787, which Foster insists is still on the airline’s radar.

We changed our philosophy around four years ago and now transfer traffic accounts for about 10% of our business

The airline, which effectively became Kazakhstan’s national flag carrier when Air Kazakhstan went bankrupt in 2004, counts Kazakhstan’s sovereign wealth fund, Samruk-Kazyna (51%), and BAE Systems (49%) as its shareholders.

Kazakh citizens going on holiday, visiting family and friends or working and studying abroad account for the bulk of Air Astana’s passengers.

Foreign nationals working in the oil and mining sectors, and others employed in more mainstream industries, such as insurance and banking, also use the carrier.

International tourism is still very much in its infancy but Foster expects this to grow in the future, especially from Organisation for Economic Co-operation and Development (OECD) countries, as its citizens can travel visa-free to Kazakhstan for up to 30 days. 

Transfer traffic is also on the increase as the airline moves away from its former strategy of being entirely focused on point-to-point traffic.

“We changed our philosophy around four years ago and now transfer traffic accounts for about 10% of our business,” explains Foster, noting that the airline’s transit revenues doubled in size last year despite the overall decline in revenues. 

Kazakhstan's two biggest gateways, Almaty and Astana, are the region’s best connected

He attributes the growth in transfer traffic to “offering a good product”, Air Astana’s growing reputation in the market, an efficient cost base that allows it to put good value fares into the market, and Kazakhstan’s geographical location that makes it a logical place to fly via when travelling between Asia and Europe or northern Russia and South East Asia. 

Air Astana doesn’t have it all its own way in Kazakhstan though. The country is served by three other Kazakh carriers—Samruk-Kazyna subsidiary, Qazaq Air, and the privately-owned Bek Air and SCAT Airlines—as well as a number of international airlines. 

It means that the country’s two biggest gateways, Almaty and Astana, are the region’s best connected.

Kazakhstan is also the only country in the region to sign an agreement with EU member states to bring all existing bilateral air service agreements in line with EU law. And it is the only Central Asian country to have a part-privatised airport system.

Its biggest gateway, Almaty, is operated by a 100% Dutch-owned joint stock company whileKaraganda’s Sary-Arka Airport and a couple of others are privately owned and operated.

Transformation

Astana is Kazakhstan’s second largest airport and according to IATA’s Karamalakov “has a brilliant new terminal” that will open in June and more than double its capacity to 8.2 million passengers per annum. 

Air Astana’s Foster enthuses: “It is being built to international specifications and will transform the airport by offering plenty of gates, plenty of lounge space, plenty of retail, and plenty of check-in space and baggage facilities.

"When it opens, people that use it are suddenly going to wake up to the fact that Kazakhstan has a world-class airport.”

His former Cathay Pacific and Air Astana colleague, Paolo Ricciotti, is chairman of Astana International Airport.

Ricciotti’s connections, Foster says, ensured that that the airline “was fully involved at all times” with the design of the new $193 million complex.

Our key goal is to become the hub of Central Asia by making Astana the region’s main connecting point between cities around the world

Ricciotti, who saw his airport handle 3.5 million passengers (+3%) in 2016, believes that the new 47,000m2 terminal will boost Astana’s appeal as a transfer hub. 

He says: “Our key goal is to become the hub of Central Asia by making Astana the region’s main connecting point between cities around the world, and we believe that the new terminal will help us achieve that.

"We can’t compete with routes which connect two main cities. Paris and Hong Kong, for example, are served by several direct flights. But we can compete on routes from main cities to secondary ones that do not justify a direct flight.”

He cites Hong Kong to Minsk or Ashgabat, Omsk, Baku and Tashkent as examples of where Astana could fit into the equation.

None are served direct from the region and Ricciotti says that Astana presents the best possible opportunity in terms of flying times.

Transit passengers only account for about 5% of the airport’s passengers today, although international traffic accounts for 35% of the traffic after a number of new route launches in 2016, which included a new KLM service to Amsterdam.

LOT Polish Airlines, Finnair, Air China, Ural Airlines and Wizz Air will join Astana International Airport’s growing list of international airlines this year.  

Challenges and opportunities

As good as things are for Kazakhstan there is always room for improvement, and some experts feel that the lack of competition in the ground handling market, the need for greater transparency over airport charges, and the high price of jet fuel are three key areas where improvements can be made.

There is certainly room for improvement here in terms of the quality of service offered and equipment used

The latter is because all the airlines, with the exception of Air Astana and SCAT, are forced to buy their fuel from the solitary fuel supplier at each airport—the monopoly situation has resulted in substantial mark-ups. 

With the exception of a new entrant into the market at Astana International Airport, the lack of ground handling competition in Kazakhstan and across the region’s airports is also seen as a big issue.

“There is certainly room for improvement here in terms of the quality of service offered and equipment used,” says Karamalakov.

“There is also a dramatic need to improve staff training to raise standards to internationally-accepted levels.”

He says at least three airlines terminated services to Kazakhstan based on factors such as fuel prices and the cost of ground handling.

Air Astana’s Foster agrees with him about both the high fuel prices and lack of ground handling options in Kazakhstan, but is quick to point out his airline is unaffected by these issues.

It is self-handling and has negotiated its own deal with the Kazakh government that allows it to buy its fuel direct from refineries. 

Traffic levels at other airports make it difficult to support the case for multiple ground handlers just yet

Existing legislation forbids Air Astana from providing ground handling operations to any other airline. It is something that the airline would be interested in though, feeling that it could “offer an extremely high standard of service” if the law was changed.

But Foster also points out that traffic levels at other airports make it difficult to support the case for multiple ground handlers just yet.

Central Asia may never become a “super region” like Asia-Pacific and boast some of the world’s biggest and best-known airport hubs and airlines.

However, with steady growth it will definitely become a significant aviation market and, perhaps, one day, be as famous for aviation as it is for being part of the old Silk Road trading route. 

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