Wednesday, June 22, 2016

Air Astana Looks Beyond Kazakhstan for Growth In Tough Times

 - June 22, 2016, 9:06 AM

Air Astana hopes that next year's Expo 2017 event will boost traffic to and from Kazakhstan. [Photo: Neelam Mathews]

A highly devalued currency and collapsing oil revenues have left Kazakhstan’s economy in the doldrums, leaving flag carrier Air Astana to recalibrate its business plan with a stronger emphasis on international routes. In February 2017, the airline is due to start paying for three new Boeing 787 widebodies that may prove to be a heavy drain on its U.S. dollar reserves.
At a June 15 press briefing in Almaty, Air Astana president and CEO Peter Foster did not definitively confirm that the 787 deliveries will go ahead as planned. “That is something we have got a close eye on given the weak currency market,” he told AIN. “We will have to see how the market develops. Obviously, markets are not huge at the moment and growth has slowed down.” Air Astana’s plan has been to put the 787s on services to Singapore, Tokyo and the U.S., replacing its existing 757s.
U.S.-based Seabury Group was recently engaged as a consultant to review the carrier’s network strategy in order to maximize potential revenue. “We have too many routes with no dailies [daily services]. The Seabury Group will do a full network review from July to September, looking at frequency and connectivity issues,” explained Foster.
Air Astana, which is the official carrier for the Expo 2017 being held for three months of next year in Kazakhstan, still plans to broaden its equity base with an initial public offering (IPO) in 2018, with a listing in both Kazakhstan and, probably, London.
Expanding service throughout the Indian subcontinent is a strategic priority for Air Astana, with Pakistan’s capital Islamabad identified as a possible new route. On flight out of Delhi, the airline already flies significant numbers of passengers on connecting flights to St Petersburg, Russia, and Tbilisi, Georgia.
Our future is as a network carrier and that is what we are concentrating on,” said Foster, acknowledging that the airline is currently having to contend with what amounts to a “significant recession” across the CIS. “It is a revenue challenge, not a cost challenge as we have low costs and are very efficient,” said Foster.
While Air Astana’s flights to Europe and Asia are doing well, Foster said that traffic within the CIS is down, “but not disastrously if you strip out Moscow.” Domestic flights have been hard hit, and these now account for only around 25 percent of yields and traffic volumes (down from 60 percent). With three more carriers in the domestic market vying to grab a share of the 17 million population with price wars, market conditions look set to remain tough.
We do not compete for high volumes at very low prices. It is not worth our while. We are talking zero fares,” said Foster, referring to competitors. For instance, a one-hour forty-minute flight from Almaty to the capital Astana can sell for as low as $30.
Plans are also afoot to strengthen service to the Chinese destinations of Urumqi and Beijing. A code share with a carrier to the U.S. could also possibly figure in Seabury’s recommendations as initial discussions are taking place between theU.S. and Kazakh governments on a new air services agreement. But Foster accepted that this may not be easy to reach agreement on, not least due to strictU.S. Department of Homeland Security rules governing security standards for airports with direct service to the U.S. This would require a tough probe not only of the main Astana airport, but also any airports with feeder services into Astana.
In May, Air Astana became embroiled in a bizarre standoff with the Civil Aviation Authority of Mongolia (CAAM) after its plan to launch direct service from Astana to Ulaanbaatar was blocked. The airline accused the Mongolians of breaching ICAO’s Chicago Convention, stating that permission to begin flights from June 2 had been suddenly rescinded in April.
CAAM refuted this allegation, maintaining that Air Astana had not satisfied its requirements for securing a Mongolian air operator certificate. Air Astana denied this claim, and when AIN pressed CAAM for further explanation for the situation a spokesman said that the agency would make no further comment beyond pointing to a press report about alleged terrorist activity in Kazakhstan.

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