The development of the air transport industry in Kazakhstan reached new levels this year with – as instructed by Nursultan Nazarbayev, the country’s first president – the May launch of FlyArystan, the Central Asian country’s first low-cost carrier (LCC). FlyArystan is part of the Air Astana group, and its emergence has marked another important step in the development of Air Astana, the region’s leading air carrier.
In early November, Peter Foster, the president and chief executive of Air Astana, spoke to ATO.ru, Russian Aviation Insider’s sister publication, about the carrier’s challenges and growth drivers.
Mr Foster, we have seen how the airline has been strengthening its positions in the international market: Air Astana has switched its Moscow airport and will now fly from Domodedovo whilst, in December, FlyArystan will start flying to Zhukovsky. In addition to these developments, what else is happening and what are the greatest challenges facing you at this time?
You are right. The development of a route network is always the result of a huge effort. Negotiations with Domodedovo lasted for about three years but we are glad that everything has worked out, with Air Astana having transferred services to the airport on 27th October.
On a separate subject, we must accept the fact that, since 2015, not only the Kazakhstani tenge, but also all local currencies in the region, including the rouble, have been devalued. As a result, airlines have suffered a fall-off in consumer demand, since it is more expensive for people from the region to travel overseas. Airline expenses have also increased, which affects the price of airfares, while purchasing power is diminished.
The aviation industry is US$-denominated, with maintenance, jet fuel and aircraft payments being processed in that currency. If the local currency devalues against the dollar, it presents a serious financial challenge for airlines. For Air Astana, it means that we have to undergo more extensive cost-saving measures and add efficiencies in order to remain profitable. But this is our long-term strategy, as Air Astana has been built on a non-subsidised and unsupported profits principle.
Air transport in Kazakhstan appears to be a story about social responsibility. Government authorities seem very worried about the cost of air tickets. How do you work under such pressure?
Of course, you are absolutely right. The total population of 18 million people in Kazakhstan is dispersed over a very wide area and the distances between major population centres are huge. In such circumstances, air transport has an enormous social element to it. It is understandable that the government would be very concerned about transportation. We are also interested in increasing the mobility of the population. Therefore, both Air Astana and especially FlyArystan can offer a wide and growing network of domestic routes at extremely low airfares. [For example] the cheapest airfare for flights between Nur-Sultan [formerly Astana] and Pavlodar aboard FlyArystan with a special offer starts at only 999 tenge, which is equivalent to US$2.50. Not all the tickets are sold at this rate, but the average price for FlyArystan flights is extremely low. So this is effectively our contribution to social responsibility on air transport in Kazakhstan.
Let’s turn to talking about transit passengers. According to your 2018 results, the share of transit passengers increased by 40 per cent, primarily due to the three-day visa-free regime for citizens of China and India. What about Russia?
Russia is a crucially important market for us. In fact, a major part of our transit passenger traffic is from China and central Asia to Russia, as well as traffic on the routes between India and Russia. Another significant part of Air Astana’s transit passenger flow is from Russians traveling to south-east Asia, India and China. This is a three-way system: Russia, India and China. This really is the core of our transit passenger traffic, our network business.
What transit passenger traffic growth are you expecting this year?
The market that has been showing the most dramatic growth this year is India. Air transport there has been growing rapidly, so India is a real opportunity for us. Of course, the routes to China have been showing continuous growth too, which also creates serious competition between air carriers. The Russian market goes through ups and downs, with Aeroflot having a strong position.
Six months have passed since the launch of FlyArystan flights. How would you assess the project: is it working seamlessly or are there failures?
If we talk about efficiency, then FlyArystan became profitable after only 53 days of operation. Low-cost carriers traditionally have a higher margin than full-service airlines and therefore it is much easier to manage the low-cost airline. That is why it is more efficient. Nevertheless, the development of the low-cost carrier has exceeded our expectations. However, I would not want to pronounce any premature judgment on it because too little time has passed and the airline is very small with only three aircraft in operation. We are delighted with the initial results, but we need to keep this in perspective. We will really only be able to call it a successful project at this time next year, when we will grow to 10 aircraft.
I understand your desire not to excessively praise the success of the project so far and I hope that when it turns one year you will have a clearer picture of FlyArystan’s progress. Let’s now talk about something that is important for both FlyArystan and Air Astana. How are you managing the problem of a lack of professional maintenance, repair and overhaul (MRO) personnel in Kazakhstan?
In March 2019, we entered a five-year contract with S7 Technics for the maintenance of Air Astana’s aircraft. The Russian MRO provider performs C-checks on our single-aisle A320-family aircraft and our wide-body Boeing 767. Some of the work is performed at Domodedovo, to which we have now moved to develop our code sharing agreement with S7 Airlines. Our aircraft maintenance process works very well. Moreover, it should be noted that in November 2019, the first C-Check will be carried out in Kazakhstan with the support of S7 Technics.
As for the numbers of available professional personnel, is the company suffering from a shortage of pilots and from difficulties with their training?
The lack of commercial airline pilots is a widespread problem. We have our own Ab-initio pilot training programme, where we have trained about 300 pilots since 2009. We support it, pay for it and it is entirely an internal initiative. But, of course, attracting the required number of pilots remains a challenge.
Mr Foster, we’ve discussed the historical challenges and growth drivers at Air Astana. In 2020, you will have been at the helm of Air Astana for 15 years, which is impressive. What do you consider your greatest achievement?
I think that the reason for Air Astana’s success lies in an extremely effective management team. We have a genuinely multinational team that has been in place for many years. This team is permanent and includes people with so much experience from so many countries. Different cultures and experiences complement and contribute to the development of the airline. This, I think, is the key to our success.
Is there something you have not managed to achieve, even though you really wanted to?
I would struggle to find any area of achievement that is lower than my expectations. Clearly, as I mentioned before, the economic challenges that started in 2015 have been much more intense, with currency issues and greatly increased competition. We have seen changes in the Russian market after the bankruptcy of Transaero [the country’s second biggest airline]. Aeroflot is obviously a much stronger competitor than Transaero had ever been. Our industry is never standing still and the successes of the past are no guarantee for the future either personally or professionally.
What has working in Kazakhstan taught you?
Many things! I have learned a lot from working in Kazakhstan for over 14 years, starting from a management culture that is significantly different from the western one. Here decisions are not made hastily, but more carefully than in Europe. When I graduated from the university and entered the airline industry in 1982, it was inconceivable that I might end up running an airline in what was obviously then in the Soviet Union. The experience has opened my eyes in terms of culture, history and customs, all of which continue to fascinate me.
And what exactly is the difference between managing an airline in the CIS and one in western Europe?
Over the last 25-30 years, the former Soviet Union countries have emerged from a system that was very centrally controlled. It was a philosophy that was very influential on the management style of companies in this region, even after the collapse of the Soviet Union. This is changing rapidly, but the fact that the system was centrally controlled remains quite a cultural thing.
In the west, and I should not talk [much] about the west as I spent most of my time in the east, but from my personal point of view management is more of a bottom-up experience. The management techniques that I have learned over the years require much wider decision making and are much more inclusive on all levels. It is [becoming] much less centralised. In my time at Air Astana, I have tried to marry these two different cultural aspects and I think this has been successful so far.
Just a few weeks after this interview, at the 2019 Dubai Airshow, in a bold and surprising development, Air Astana announced its intention to acquire 30 Boeing 737 MAX 8 aircraft with a list price value of US$3.6 billion to serve as the backbone of LCC FlyArystan.
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