INSIGHT: Ukrainian domestic air travel market on a slow climb

Dniproavia uses its 50-seat Embraer ERJ145 regional airliners on both international and domestic scheduled routes Dniproavia uses its 50-seat Embraer ERJ145 regional airliners on both international and domestic scheduled routes (Photo by Dniproavia)

By Sergiy Khyzhnyak

Ukrainian airlines increased their domestic capacity by 5% in May 2016, but the domestic market remains largely unappealing to local carriers. Only three of them fly passengers within the country, and six out of the eight existing routes are served by just one operator. The largest of the three carriers, Ukraine International Airlines (UIA), accounts for 84% of all the domestically available seats.

Existing Routes

Unfortunately, the actual figures for passengers carried by Ukrainian airlines cannot be published without their consent. The Ukrainian state aviation service collects such information for statistical purposes, but may only make it public in generic form, i.e. as combined data for at least three different carriers. For this reason, the number of seats available and the number of flights performed are the only indicators allowing for an educated guess at the actual size of the market.

In May 2016, the Kyiv-Kharkiv city pair became the busiest domestic air route in Ukraine, with 18,200 seats available. UIA flies to Kharkiv twice daily from Kyiv’s Boryspil airport. It is the only carrier serving that city pair.

In fact, only three Ukrainian airlines out of around a dozen registered as commercial air carriers operate on the domestic market. These ate UIA, Dniproavia, and Motor Sich. For six out of the eight existing domestic city pairs, UIA is the soleoperator. It has competition only on the Kyiv-Zaporizhya (Motor Sich) and Kyiv-Dnipro (Dniproavia) routes. It should be noted that Dniproavia has close ties with UIA.

Air services between Ukraine’s regional airports are also underdeveloped. In fact, the only domestic route not originating, ending, or stopping at Kyiv used to be the Dnipro-Lviv city pair, served by Dniproavia. All the other routes connected Kyiv’s Boryspil and Zhulyany airports with regional destinations.

UIA as the primary carrier

As per the Ukrainian Air Code, a carrier is required to apply for a permit to perform scheduled and charter flights. With international routes, airlines are officially assigned city pairs via diplomatic channels. The same rule applies to domestic flights, but here the permit is more of a formality. Ukraine’s domestic air market is totally open to local carriers. As a rule, all Ukrainian airlines that hold national air operator’s certificates and have no outstanding debts to the special aviation fund have no problems obtaining such permits.

The special aviation fund is part of the country’s budget, and is replenished by way of charging government fees for the administrative services rendered by the State Aviation Service, including certification services and the issuance of permits and clearances. A significant portion of the fund’s revenues comes from the fees levied on all departing passengers ($0.5 on domestic routes and $2 on international routes).

UIA firmly dominates the domestic market. From its Boryspil hub, it serves six regional centers: Kharkiv (around 390 km away from Kiev), Lviv (500 km), Dnipro (380 km), Odesa (440 km), Ivano-Frankivsk (475 km), and Zaporizhya (430 km).

These are the only city pairs within the country capable of generation the minimum necessary passenger traffic (in essence, they are Ukraine’s largest regional centers). In addition, the airports serving the aforementioned regional cities are equipped to service the UIA aircraft types.

UIA contributes 84% to the overall domestic capacity. In May of this year, the carrier increased the number of seats available domestically by 2% year-on-year, to 67,000. The airline benefits from the hub-and-spoke model and route network first introduced in 2013. More than half of all of UAI’s domestic passengers fly to their destinations with a stopover at Boryspil.

The other players

The other Ukrainian airlines are mostly focused on point-to-point services, but this market has considerably declined over the past few years.


In May 2012, the peak year for domestic air services, the country’s total domestic capacity stood at 130,000 seats (63% more than in May 2016). Back then, scheduled domestic flights were performed, among others, by UIA, Motor Sich, Aerosvit, UTair-Ukraine, and Wizz Air Ukraine. The latter three have since left the market. Discontinuation of air services to Donetsk, Luhansk, and Simferopol, combined with a reduction in the population’s paying capacity, economic recession, and depreciation of the national currency, have all contributed to a significant market slowdown. At present, the price of a domestic air fare often exceeds the average monthly wage in the country.

Whether or not passengers now prefer less expensive modes of transportation merits special analysis. Overland domestic transport services have long been favored by Ukrainians, first of all due to the peculiarities of the country’s geography.

A train will get you from Kyiv to most of the major regional centers inside eight hours. There is a network of convenient InterCity and InterCity+ daytime high-speed trains, operated by Ukrainian Railways, which take three to six hours traveling between Kyiv and some of the regional centers such as Dnipro, Zaporizhya, Lviv, and Kharkiv.

Further development of domestic air travel is also being affected by the appealingly low intercity coach and train fares, and by the population’s low paying capacity – the average monthly wage across the country stands at around $200. By paying just $10, you can take a train across the entire country, covering in excess of 1,000 km.

On the other hand, it would be wrong to conclude that Ukrainian overland and air transport compete against each other, as is the case, for example, on Russia’s Moscow-St. Petersburg route. The air fares and traveling times are, after all, incomparable to those offered by the railway system. Rather, these are two separate markets. Only between 2% and 5% of the Ukrainian population use air services often. Besides, Ukraine’s relatively small area (the country stretches 1,316 km from east to west and 740 km from north to south) is not particularly conducive to the development of domestic air services. The only possible exception is the city of Uzhhorod, the administrative center of Zakarpattia Region, located some 650 km to the southwest of Boryspil. Uzhhorod is separated from the rest of Ukraine by the Carpathian Mountains, making overland travel significantly more time-consuming.

Ukrainian carriers have repeatedly stressed that domestic air services remain loss-making. They primarily blame the high price of fuel at Ukrainian airports, prohibitively expensive loans, and the requirement to sell 65% of their revenues in foreign currencies to the state (and then having to buy foreign currencies again in order to pay service bills abroad).

The local airlines also regularly call on the government to waive the current 20% VAT on domestic routes. However, the potential effect of such a measure is unclear. The problem is that demand for air travel, especially on the domestic market, lacks price elasticity, meaning that a 10-20% cut to air fares will not generate any significant passenger numbers. This measure alone is not going to be enough for people to start flying more often. Most likely, domestic air services will only take off as the population in general becomes well off.

We should note that the Ukrainian government has no tangible plan in place for developing domestic air travel. The topic has been actively discussed for a long time, but no practical steps are being made in this direction. UIA’s domestic business model appears to be optimal for the time being, with its mix of point-to-point routes and feeder services to the Boryspil hub.

UIA firmly dominates the domestic market.

UIA firmly dominates the domestic market. (Photo by Boryspil Airport)

Plans for the future

Despite all the difficulties, the Ukrainian domestic market has been demonstrating a modest growth. All the country’s carrierscurrently serving domestic routes have announced plans to launch new destinations.

On July 12, UIA will inaugurate a Kyiv-Chernivtsy service, to tap both into direct and transfer passenger traffic. Air transportation on this route has a significant advantage over railway services; a train takes around 15 hours to cover the distance. UIA will be flying the route with one Embraer ERJ145, which is to be wet-leased from Dniproavia.

Dniproavia, for its part, launched the shortest domestic route on May 20, between Lviv and Ivano-Frankivsk, which takes just 25 minutes to cover the 130-km distance between the cities. This is, in effect, a positioning flight: the carrier ferries its its aircraft to Ivano-Frankivsk for the onward service to Brescia, Italy. From the commercial standpoint, air services on this route are inexpedient: the two cities are well served by overland transport, with tickets several times cheaper than the Dniproavia fares.

Motor Sich on June 6 launched a twice-daily service between Kyiv and Odesa, primarily targeting holidaymakers traveling to the Black Sea resort city. The carrier also inaugurated a four-time-weekly service between Kyiv and Uzhhorod with a stopover at Lviv (until now, Motor Sich flew point-to-point on this route). The Lviv stopover is expected to generate more passenger traffic. The airline’s new timetable provides for connections between all its flights starting or ending at Kyiv’s Zhulyany, enabling passengers to fly between Zaporizhya, Lviv, Odessa, and Uzhhorod.

Fleet in brief

UIA operates domestic routes with Boeing 737-300, -500, -800, and -900 airliners, which seat between 135 and 215 passengers, and also with 104-seat Embraer E190s. All of these aircraft are also used on the carrier’s international scheduled and charter routes for better fleet utilization.

Dniproavia operates domestically with Embraer ERJ145 regional airliners; Motor Sich uses Antonov An-140 jets and An-24 turboprops, seating 48 to 52 passengers.

In order to further develop the domestic air market, Ukrainian carriers might want to renew and expand their regional fleets. Also, the lion’s share of domestic passengers are businesspeople, who are very sensitive to departure times and flight frequencies. They prefer to fly to Kyiv from regional airports in the mornings and return to the capital in the evenings.

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