INSIGHT: Armenian air transport re-emerges

Armenia launched its once-daily return service between the Yerevan and Moscow in August 2016 (Photo by Leonid Faerberg / Transport-Photo Images)

The Armenian government’s 2013 decision to liberalise the country’s air transport market could not have come at a more inopportune time. Three years on, and the emergent Caucasus nation, a former Soviet republic, has seen some dramatic changes to its air transport landscape.

The collapse of Air Armenia in the autumn of 2014, during which air services between Armenian and Russian destinations were provided exclusively by Russian carriers, preceded a bad year for Yerevan’s Zvartnots airport. Armenia’s main gateway reported a decline in all key performance indicators. It served 1.88 million passengers (eight per cent down year-on-year), handled 10,120 tonnes of freight (two per cent down), and accommodated 13 per cent fewer runway movements (9,012 take-offs and landings).

According to a reliable Armenian air transport market source, the stagnation at Zvartnots was partially down to the fact that major foreign carriers considered the government’s open skies arrangement to be insufficient for successfully competing against Russian operators: “For example, Etihad Airways, which has recently left Yerevan, used to offer convenient connections to the US via Abu Dhabi, but eventually lost traffic to Aeroflot with its Moscow hub.”

In addition, air passengers in the Zvartnots catchment area continued to use the rival Georgian airport at Tbilisi, located just 175 km away from Yerevan. Tbilisi served almost as many passengers as Zvartnots in 2015, at 1.85 million (17 per cent up year-on-year).

Nevertheless, the latest statistics published by the Armenian General Department of Civil Aviation (GDCA) look optimistic: In January through July 2016, Zvartnots served 1.066 million passengers (2.5 per cent up on the same period last year) and handled 7,950 tonne of cargo (up 49 per cent). Only the number of runway movements continued to decline, dropping by six per cent to 4,824.

Encouragingly, two new Armenian players have entered this highly competitive market this summer: one supported by Georgian investors, the other in partnership with a Russian airline.

Moscow time

In recent times, Russian destinations, particularly Moscow, have become ever more important to Zvartnots. According to ATO Sourcebook, Russian airlines carried 984,000 people between the two countries’ capitals in 2015, promoting Yerevan to the fourth most popular destination among Russian passengers. After Air Armenia stopped serving Moscow in the autumn of 2014, the Russian-operated flights to that city generated 52.5 per cent of all passenger traffic at Zvartnots last year. The 2014 figure stood at 42.3 per cent, a 10 per cent improvement over two years; and that does not include the burgeoning traffic between Yerevan and other Russian destinations, such as St Petersburg.

When asked in 2015 if the government was planning to support domestic carriers, Armenian Deputy Economic Minister Sergey Avetisyan (now appointed to head of the GDCA), remarked: “State subsidies to airlines are frowned upon internationally and forbidden by intergovernmental treaties.”

National media publications carry a different message though: for a landlocked country historically at odds with neighbouring Turkey and Azerbaijan, an own carrier is considered a matter of prestige and security to Armenia.

Previous attempts at organising full-service national air operations have failed financially. The year 2003 saw the demise of Armenian Airlines, which had just inherited the powerful Soviet-era Armenian Civil Aviation Directorate and even had two widebody Ilyushin Il-86s in its fleet. 10 years on and Armavia ceased operations, followed by Air Armenia in 2014. Then, in 2016, a new Armenian carrier emerged. Known as Armenia, the airline obtained its air operator’s certificate in early 2016 and performed its first revenue flight from Yerevan to Larnaka, Cyprus, on July 5. Armenia was set up with funds provided by senior managers of Georgia’s only current carrier, Georgian Airways.

Crowded marketplace

On August 1, the day Armenia launched its once-daily return service between the Armenian and Russian capitals, seven carriers performed a total of 13 passenger flights to Yerevan from Moscow’s three airports. There were also five services by three airlines to Tbilisi and seven flights by four carriers to Baku, a good indicator of the three Caucasus countries’ approaches to international air services.

A 24 per cent share in Armenia’s capital is owned by Tamaz Giashvili, the founder of Georgian Airways. Another 25 per cent is held by Armenia CEO Robert Oganesyan, also a senior manager at Georgian Airways. Oganesyan is a Georgian citizen of Armenian origin. Ashot Torosyan, a native of Armenia’s second largest city Gyumry, controls the remaining 51 per cent.

According to a source close to the GDCA, Armenian laws mandate that the controlling stake in a national airline is held by an Armenian citizen. The source believes that Torosyan may transfer his stake in Armenia to Oganesyan, who is a relative, after the latter has been granted Armenian citizenship.

Managerial and family connections are not the only common links between Armenia and Georgian Airways. There are also shared aircraft. The Armenian carrier currently operates three: a Bombardier CRJ200, a B737-500 and a B737-700. The 1996-built B737-500 (registration EK-73736, factory no. 26336/2805) was previously owned by Georgian Airways, and the Georgian carrier also formerly operated the CRJ200. The 2008 B737-700 (registration EK-73786, factory no. 35086/2613) was previously operated by Canadian budget airline WestJet.

As of early August, the Armenia B737-500 was mostly flying from Yerevan to Moscow and Mineralnye Vody (also in Russia); the B737-700, from Tbilisi to Moscow under the Georgian Airways code, and also from Yerevan to Moscow, Rodos (Greece), and Tivat (Montenegro).

Georgian Airways has continued to operate the B737-500 after its transfer to Armenia: in early July, the airliner was spotted at St Petersburg’s Pulkovo airport, to which the Georgian carrier operates scheduled flights. It was also seen in Moscow before Armenia started flying there.

The CRJ200, which Armenia used for its first flight to Russia (to Mineralnye Vody on July 18), was not flying in early August as the carrier was still looking for the best ways to utilise the aircraft.

Experts believe the Georgian Airways management considers the new Armenian carrier is a device for ensuring more flexible operations, so that combining passenger traffic on the region’s two highly competent markets will result in an economy of scale.

Khachatryan declines to reveal the management’s business strategy, saying only that the two carriers have a code-share agreement for the Yerevan-Tbilisi route. According to him in early August, Armenia was still using the Georgian Airways booking platform, while planning to launch its own online booking service by the end of the summer.

An own carrier is considered a matter of prestige and security to Armenia (Photo by Leonid Faerberg / Transport-Photo.com)

Cautious business

Armenia will mostly fly to Russian destinations (including Sochi), but is also preparing to inaugurate additional international services to Minsk, Tel Aviv and London. Khachatryan insists that the carrier’s route network will be expanded gradually, though. “We are inaugurating new routes one by one. We are looking for ways to earn money, rather than launching six or seven new destinations at once only to go bust in 1.5 years from now. We are analysing the market thoroughly. This is why our first flight was not to Moscow but to Mineralnye Vody. The same goes for our fleet expansion plans: we do not want to have everything at once, because the results of such an approach might be drastic.”

Khachatryan declines to comment on the Armenian airline’s 2016 passenger number projections: “We have a development strategy, but we would like the public to learn about it as late on as possible. We came to this market because we believe we can make money here. The first operational results will not be drawn before the spring of 2017. Our aim is to position Armenia as a full-service airline. We already have business class, we will have full service on board and we are planning to provide our own catering. Everything will come gradually. The carrier has just started operations, so we will take it step by step, lest we should stumble.”

Northerly wind

In the summer of 2016, another Armenian carrier entered the scheduled air services market between Moscow and Yerevan. Alliance Airlines had signed a strategic agreement with Russia’s Nordwind Airlines, which now operates several daily flights under its own code between Domodedovo and Zvartnots.

Citing Alliance representative David Sargsyan, the Armenian media reported in early June that the carrier was taking B737-800s from Nordwind. It was expected that the aircraft would initially fly from Yerevan (and also from Gyumry, which served just 7,000 passengers in January through July 2016) to Moscow, and subsequently also to Nizhny Novgorod, St Petersburg, Krasnodar, Rostov-on-Don (all in Russia), as well as Beirut and Tehran. Longer-term plans may include Europe and other regions.

Alliance founder and sole shareholder Ararat Sarkisyan said in mid-August that the new carrier was in effect acting as Nordwind’s regional agent, helping the Russian partner fill seats on flights between Yerevan and Moscow. “At present we only perform the return service between Yerevan and Moscow jointly with Nordwind,” Sarkisyan commented. “Whether the Russian carrier will be expanding its presence in Armenia depends on the Russian carrier. The Yerevan-Moscow route is highly competitive, but I believe my airline experience is extensive enough to be able to fill the seats successfully.”

Alliance Airlines helps Russia’s Nordwind Airlines to fill seats on flights between Yerevan and Moscow (Photo by Sergey Sergeev)

According to Sarkisyan, Nordwind currently operates 22 scheduled flights per month to Yerevan under its own code. In May this year, Sergey Goryashko, Nordwind’s deputy CEO, announced that the two airlines’ commercial services considered the Yerevan-Moscow route to be financially promising: “We believe that flights to Yerevan from Domodedovo may be commercially successful.”

Sarkisyan reveals that Alliance Airlines was issued with an air operator’s certificate in October 2016. After all the initial financial matters have been settled, the carrier may order Russian-made Sukhoi Superjet 100 regional airliners: “After we have ironed out the financing issue, I will certainly go for this type, because I know its operational economics well.” In his time, Sarkisyan was among the founders of the world’s first SSJ100 operator Armavia.

By Artyom Korenyako