KC’s Cargo Biz is Developing From Infancy to Maturity

The Tenge depreciation must have caught KC by surprise. “Originally, we forecasted 14 percent traffic growth in fiscal 2014,” says Richard. However, with the currency losing much of its value the self-imposed figure went down to nearly zero.
To make the best of the rather sobering situation the management decided to sideline two of their 30 aircraft comprising fleet and to engage in the charter market to compensate for reduced scheduled traffic.

Please also view our video with Richard Ledger.

Profitable from the first day of existence
Simultaneously, the KC managers decided to increase fares in international routes.  An adjustment however, that excludes domestic flights caused by a price curb imposed by the government, the majority owner of KC (51%). The British defense and aerospace company BAE Systems is holding the remaining 49 percent. 
As result of these and some other managerial and operational alignments things have turned to the better meanwhile. It won’t be 14 percent since the Tenge is still weak, but “we’ll achieve a growth rate of nearly six percent this year,” predicts Peter. This together with the upping of fares should enable the carrier generating a profit in the region of $20 million this year. Sufficient to secure the airline’s positive financial tradition also in 2014, because never since its inception in 2001 Air Astana has been in the red, confirms Richard Ledger. 

Broad catchment area
Air freight is not really standing on top of the carrier’s business activities but is a valuable contributor to the total annual turnover of $800-plus million. “In a way we are still in the infancy, but we expect this segment to grow continuously in the near future,” states Germany’s Head of Sales, Sven Gossow with reference to General sales agent Kales who is responsible for KC’s cargo biz throughout Europe. Kazakhstan is an unbalanced market attracting a lot of imports but without contributing much to exports. For KC’s cargo people however, the picture is much broader. “Our catchment area includes the southern parts of Russia, China’s western provinces and neighboring CIS states like Kirgizstan, Uzbekistan or Tajikistan” Sven tells. That’s a region with a lot of economic activity. “The central Asian market is one of the fastest growing worldwide,” he says, citing IATA figures. In this light, “we are located in a very favorable geographical position.”

Small but significant
Air freight accounts for about five percent of the carrier’s total annual turnover. It won’t be much more in the next two to three years due to the limited capacity offered by the fleet. Currently, KC operates only three cargo friendly passenger aircraft – their Boeing 767s. The other 27 are all single aisle airplanes, like the 13 members of the A320 family, Air Astana’s nine Embraer 190s or their five Boeing 757s. All have in common that they cannot accommodate much freight in their holds.
Capacity-wise things will ease slightly once three Boeing 787-8s, which are available between 2017 and 2019, will join the fleet.
According to the airline’s Head of Communications, Bella Tormysheva, there are two additional routes that will soon be served, with Bangkok starting this December and Paris to follow in April of 2015. “Both roundtrips will give our cargo biz presumably an additional push,” she expects.

The Eurasian Union is far from a harmonized aviation policy
As for Air Astana’s competitive position in its home market she finds very clear words. “We are totally in favor of a liberalized aviation environment, but oppose state subsidized carriers taking over the passenger and cargo business step by step.” Words that are aimed in particular at Russian carrier Aeroflot that cashes in the Royalties demanded by Moscow from European airlines crossing Siberian air space on flights between the EU and the Far East. With Kazakhstan being a member of the Eurasian Customs Union the country has committed itself to an open sky policy, enabling airlines from Russia and Belarus, the other two Union participants, to fly to any place in the country as often as they wish. Despite its verbal commitment, Kazakhstan’s government is opposing the treaty coming to full life. Why, explains KC’s Head of Sales, Richard Ledger: “We need an equal playing field within the Customs Union before fully liberalizing aviation.” According to him this includes abolishing any state aid channeled into the coffers of a carrier, the development of a comparable ground infrastructure at airports and the role of feeder traffic coming from external markets. Finally, Richard mentions the size of the home market a carrier is operating in. “All these factors have to be considered when deciding on traffic rights, routes to be served and number of frequencies,” he notes.
Given this, it doesn’t seem very likely that the open sky treaty targeted by the three Eurasian Union member states will be realized soon.

Heiner Siegmund