Nestled between Europe, Asia and the Middle East, Kazakhstan holds many interesting opportunities for airlines, none more so than its flag carrier Air Astana. As CEO Peter Foster explains, the airline is in rude health and has bold plans for the future, including branching out into low-cost carrier operations, reinforcing the business strategy, and standing up in the battle against climate change.
Is cost discipline the main reason for a strong performance in 2019?
Air Astana had a much better year in 2019, especially from June onwards, and many elements contributed to this. Fuel prices were certainly a big help. The average price was approximately 15% lower in 2019 than in 2018.
But we also restructured to bring non-fuel costs down. Our network and connectivity were realigned. In the summer season, we cut back our scheduled services and ran more charter flights to holiday destinations, such as Sharm El Sheikh in Egypt. That was very successful.
Also, once the Pakistan-India airspace issues were resolved, India has been an excellent market for us.
Air Astana is also renewing its fleet and we have a number of new fuel-efficient aircraft that have contributed to our results.
On top of all this, our new low-cost carrier (LCC), FlyArystan, has exceeded expectations.
What was the rationale behind FlyArystan and what difference will it make to Air Astana’s strategy going forward?
Our rationale was originally defensive. Air Astana began operations in 2003 and until 2010 we had a monopoly on domestic routes. The market was deregulated in 2011 and, of course, that led to plenty of competition. By 2018, our share of the domestic market had halved. It was also becoming obvious from examples across the world that the full-service model wasn’t right for short-haul routes anymore.
We studied the market extensively and concluded that an LCC would have a positive effect on the market. We began services on 1 May 2019 with two Airbus A320s and two more were added by December. The response from the market has been far above expectations and load factors are averaging 94%.
How it will work with Air Astana has been the subject of some discussions because we were fully aware that a hybrid model or having the LCC managed by the parent airline has generally proved unsuccessful.
It was decided that the LCC had to operate independently, but despite that the parent airline retains ultimate control. Most decisions, such as what routes to fly, will be made by the LCC alone, which has its own management team.
Of course, Air Astana owns the LCC and it’s absurd to think we would not maximize synergies. We have to make sure that it is the Air Astana Group that benefits overall. But it will be a very light touch.
“Without the right development, air travel in Kazakhstan will not be able to deliver its many benefits”
Are the airframe manufacturers meeting your needs with their offerings and production schedules?
We’re moving to a primarily Airbus neo fleet. A320 and A321 neos will be the bedrock of the Air Astana fleet.
There will be a point where a significant fleet expansion is needed for FlyArystan—which flies A320ceos—but we have not made any decisions on that yet. We’ll decide in 2020.
The new Embraers are entering the Air Astana fleet on schedule. But the neo program is significantly delayed. There are production issues with Pratt & Whitney engines and with the Airbus neo production line, especially in Hamburg where the A321 is assembled.
It means that we have had to delay route expansion plans and we are extending the life of our Boeing 757s far beyond their planned retirement dates. It was expected that the 757s would all be retired by now but it’s likely that a small number will still be operating through 2020.
It’s expensive to maintain the 757 engines, and we haven’t been able to retrain our crews as anticipated.
94%- We began services on 1 May 2019 with two Airbus A320s and two more were added by December. The response from the market has been far above expectations and load factors are averaging 94%
Is the local infrastructure meeting your needs?
As might be expected, infrastructure is a mixed bag. Astana is fine and has been developed but there hasn’t been any terminal expansion at Almaty in the 14 years that I have been in charge of Air Astana. It is a problem that will only become more intense as FlyArystan expands.
There are some discussions about the ownership of the airport but whomever owns it must commit to expanding it. Without the right development, air travel in Kazakhstan will not meet demand and the industry will not be able to deliver its many social and economic benefits.
FlyArystan is based at Almaty at the moment but in 2020 it will have two new bases in Karaganda and Aktobe. There has been investment in these airports, and they may become the LCC’s main hubs.
Looking at your region as a whole, what challenges and opportunities lie ahead?
The region is influenced by the Russian Federation’s economic performance. Their economy has undergone significant restructuring in recent years and that has resulted in a weakness in the ruble, which means currency weakness in the region. In turn, that affects purchasing power and so outbound traffic has suffered.
But the visa situation is improving not only in Kazakhstan but in Uzbekistan too. That has helped inbound traffic.
15%- Fuel prices were lower in 2019 than 2018—Air Astana was one of many airlines to benefit from the 15% drop
What is the secret to your longevity as the Air Astana CEO and has your thinking on aviation changed over the years?
The principle has always been to run a safe, cost-efficient, profitable airline and that has not changed.
Although Air Astana is 51% state-owned, we have always been run purely along commercial lines and there is complete management independence. Behind every decision there is an emphasis on safety, keeping costs low, and ensuring we have a profitable route network. We do not and never have received subsidies of any kind.
But you also need flexibility in your tactical thinking. You must focus on the challenges as they arise. During my 14 years as CEO, those challenges have changed. What motivates me and the team is understanding new issues and overcoming them.
Just a few years back, for example, I would never have imagined we would launch an LCC and yet here we are. Firm principles and flexible tactics would best summarize how we manage the airline.
Is consolidation the only way forward for the industry or can a carrier such as Air Astana still go it alone?
Although we’re not a member of one of the big three alliances, if you look at our global network it is clear that our international destinations are predicated on partnerships. We have a codeshare with Cathay Pacific on our Hong Kong route, with Turkish Airlines on the Istanbul routes, and with Lufthansa on the Frankfurt routes—to name just a few.
The agreement we have just signed with Russian airline, S7, might be one of the most significant for Air Astana. As a result, we have shifted our Moscow operations from Sheremetyevo to Domodedovo. This is an important strategic partnership in our largest foreign market.
Flight-shaming has not yet come to this region, but when it happens it will happen very quickly. Though the industry is doing all it can, it has to do better in getting the story out.
Can the industry win over governments and the public in the environmental debate?
Aviation is a high-profile industry but that is not always a good thing. Other industries can be less proactive than we are and go unnoticed.
And many governments just view airlines as a revenue source. The taxes they impose often reach punitive levels.
But the industry does have a responsibility and it needs a coherent approach to ensure that we can achieve our goals.
Lowering carbon emissions is the main aim and there is a lot of hard work going on. Airframe and engine manufacturers are doing all they can. And many airlines—Air Astana being just one—have been doing their best to renew the fleet and incorporate new, fuel-efficient aircraft.
But though the industry is doing all it can, it has to do better in getting the story out. Flight-shaming has not yet come to this region, but I am sure it will and when it happens, it will happen very quickly. All airlines need to be ready with answers and to be part of the story.