The firm orders include three Boeing 787-8s plus options for three additional aircraft, plus firm orders for six Airbus A320s with options for three additional aircraft. The first of the new Airbus A320s will be delivered in 2012 and the first Boeing 787-8 will join the fleet in 2016.
The order, according to Air Astana president Peter Foster, is in line with the carrier’s strategic business plan, which has seen five years of solid growth with a current fleet of 18 aircraft, including two 767-300ERs, two A320s, two A321s, three B737-700/800, four 757-200 and five Fokker 50 types, serving 25 domestic routes and 22 international routes.
The plan is to bring the total fleet to 63 aircraft by 2022. The Fokker 50s will remain in the fleet until 2010 when they will be replaced by either the Airbus A319 or a new 70-80 seater regional jet, for which either Bombardier or Embraer are the most likely candidates. A decision is expected this year.
Foster says the airline is looking at leasing additional 767’s and A320s to bridge the gap until the delivery of the new aircraft in 2016.
“There are a lot of A320’s around for lease, but 767s are in desperately short supply,” he says, adding that the airline has an issue with interim wide-body capacity before the new generation aircraft arrive in 2016.
They are negotiations for some 767s which could join the fleet at the end of this year or early 2009. “The operating lease market for 767s has tightened up enormously and we are looking at virtually a doubling of the operating leaserates since 2004.”
Aiming for regional domination
Foster says Air Astana’s aim is, “to dominate the region, like Singapore Airlines and Cathay dominate their regions. We are by far the strongest carrier in the area, so we intend to operate the home market strategy right around our borders, that is to say western China, Kyrgyztan, Uzbekistan, Tajikistan and Russia. In order to do that we’ll operate an A319 or a regional jet.”
Air Astana is a joint venture between the state-owned investment company Samruk State Holding (51 per cent) and BAE Systems (49 per cent). Asked what prompted UK-based BAE Systems to acquire the 49 per cent stake in Air Astana, Foster said BAE Systems’ former chairman, Dick Evans, saw “a great opportunity in a country which at that time was clearly going to be developed” when the off er was made to him by Kazakhstan’s president Nursultan Nazarbayev, who has ruled the country since 1991.
“I am sure that Evans regarded the investment as a very good, long-term prospect,” said Foster, adding that the former BAE Systems executive, who has meanwhile retired from the company, is now chairman of Samruk State Holding.
Public listing in the cards
Foster reveals that one of the midterm strategies is to take Air Astana public within the next 18 months with the primary listing on the regional financial exchange in Almaty and “almost certainly” a depository receipt listing in London. The IPO will mean that the shareholding of both stake holders will dilute to some extend, Foster added.
“The capital requirement that we have for the airline, not so much in terms of aircraft purchases, is for other things that we want to do, such as the construction of a maintenance hangar in Almaty or Astana, an aviation school and in-flight catering units in Almaty and Astana.
“This will require significant investments of around US$60 million to US$80 million and we will use our IPO for that purpose.”
Foster admits that the airline is predominantly focused on passenger transport and the cargo and mail product is limited to containerised cargo on the A321 and B767 (containers and pallets) and bulk load cargo on the B757 and A320.
Foster says that the airline’s multi-national management team has “informally kicked the idea around of setting up our own cargo operations.”
The problem with cargo is that it is very imbalanced, so the only way we could do cargo effectively, would be by operating a transit cargo system for West-bound cargo and inbound cargo operations for East-bound cargo.
For example, we would need to negotiate with the Chinese aviation authorities a string of very good traffic rights into China, so we could carry east-west cargo via Kazakhstan. That is what Lufthansa Cargo is doing, which is operating 52 flights a week carrying cargo to Asia via Astana.
“Having our own cargo services would be a huge project in its own right, which is not only complicated by traffic rights, but also by the ability these days to get the necessary freighters. Given the huge demand on us to develop our passenger business, it is something, quite frankly, that we don’t have the time to concentrate on,” he said.
Healthy cargo potential
Having said that, Foster acknowledges that there is a lot of potential in the cargo business. “One only has to look at the current operations of cargo operators such as Lufthansa, Aeroflot, Cargolux and the integrators like FedEx and UPS, which all have a major presence in Kazakhstan.”
Following the introduction of services to Almaty in August last year, Cargolux in November added Atyrau in West Kazakhstan as its second gateway in the country.
Kazakhstan’s financial and commercial hub is Almaty, while the administrativecentre is the capital Astana.
Although Almaty will continue to grow, new international flights will also be run from Astana.
Foster says that in recent years the airline has launched direct services from Astana to Istanbul, Dubai, Frankfurt, Moscow and Prague.
Several other services will be launched from Astana this year and the hub will gradually be build up although several of the new Astana flights are routed through Almaty, says Foster, addingthat Astana has a newer airport and is therefore more conducive to transit andtransfer business.
Eventually, Air Astana will operate a more “classic” hub-and-spoke system with domestic flights, which are timed to connect with the carrier’s international services.
According to Foster, Almaty airport is “on the edge” of its capability with several of its services being sub-standard, such as baggage handling. “In addition, all luggage is required to be individually checked by Customs, so it’s a real nuisance.”
Ultimately, the airport will need to be expanded and a new terminal is planned for completion in the next two to three years. Meanwhile, a new cargo terminal has been constructed, but as with many cargo facilities around the world, the fear is that its throughput capacity may be too small to accommodate any significant growth in air cargo.
“We would like to see international service providers such as Swissport, SATS, LSG or others to start third party services, but in order to do that the government must abolish the monopoly of airport service providers at all three major airports in Kazakhstan. To me the question number one is when that decision will be made.”
Alternatively says Foster, Air Astana would “absolutely” welcome participation in a joint venture, even with the current owners of the airports, and a third party service provider.
Demand driving network expansion
Air Astana’s current network in Asia includes six flights a week to Beijing, twice a week to Seoul and thrice-weekly to Bangkok. Although the number of flights is still lower than those to Europe, Foster says that “Asia is by far the fastest growing of our international markets.
A year ago, the airline only had two flights a week into Bangkok and they were only seasonal flights. Beijing was operated three times a week, so the capacity into Asia doubled and the demand is very substantial.”
Asked how the market will further develop, Foster says the target is to increase the Bangkok and Seoul flights to a daily service, while Beijing will grow to ten flights a week.
“We’re looking at operating four times a week services to Singapore and to Hong Kong on the same basis. Depending on the availability of slots, we’d like to operate to Japan.”
Covering Australia, where there is potential traffic from the mining industry, would have to be through a codeshare agreement with an Asian carrier, says Foster.
“We ourselves would not fly to Australia, so in order to serve Australia effectively, we have to have an agreement with an Asia-Pacific carrier. At the moment that is Thai Airways. If it could be Singapore Airlines, that would be helpful and from Hong Kong as well. We’d like to see how that develops.”
Foster recognises that, compared with the relative monopoly the carrier has on routes to Bangkok, Beijing and Seoul, there will come a time when Air Astana will lose marketshare.
“Of course we realise that Singapore Airlines, THAI, Cathay and others will come here eventually. The current situation is not really a monopoly, it is just that the Asian carriers have chosen not to fly to Astana or Almaty. But they will be.”
The country has an “open skies” agreement with the UAE and Foster “fully” expects that, in addition to the current services of Air Arabia, there will be more UAE carriers operating to and from Kazakhstan.
This will create further competition for Air Astana, which currently operates services from Almaty and Astana to Dubai.
Despite being the flag carrier of an oil-rich country like Kazakhstan, Air Astana is facing an ever increasing fuel bill, which currently represents 23 per cent of its operational costs.
“However, the rise in fuel prices is a double-edged sword, because obviously the country’s principal source of income is oil and therefore the US$100 a barrel is making Kazakhstan richer, which is helping us as an airline, although it is hindering our operational costs. Fuel surcharges on tickets and cargo are only applicable for international services.
We can’t apply them on domestic routes because of the freeze on domestic air fares, which the company imposed when it took over the domestic routesfrom Air Kazakhstan.”