The AeroSvit and Air Onix airline companies recently left the Ukrainian aviation market. Will this list increase during the current crisis? Reports of impending reduction of the UTair Ukraine airline company’s domestic flights have been all over the newswires. The reports state that the subsidiary of the Russian-based UTair airline company will abandon its short-haul aircraft fleet, which consists of an ATR 72-500 and a Bombardier CRJ-200 aircraft, and that the charter flights that the company operates on medium-range Boeing 737-800 aircraft will be preserved. According to informed sources, the carrier is currently run by a crisis management commission, which will determine the future direction of its operations.
See also: “Air Onix’s Debts: Why the Airline Company is in No Hurry to Resume Flights”
The airline company itself denies reports that it plans to close its domestic routes. "All steps regarding operations on one route or another are regulated by demand. We are reducing some international flights due to a fall in demand on several routes - Kiev-St. Petersburg, Kharkov-Baku, and Kharkov-Yerevan. However, operation of domestic flights will continue," a representative of UTair Ukraine told the Centre for Transport Strategies.
According to him, the carrier added a second flight on the Kiev-Odessa route on March 11 while flights to Simferopol were discontinued last season, and their discontinuation was not connected with the current political events. At the same time, the number of flights on the Kiev-Kharkov and Kiev-Lugansk routes has increased. On the popular Kiev-Donetsk route, a reduction in occupancy is being observed. "We will restore flights as demand recovers," the representative said. Commencement of operations on new routes - Sochi and Riga - has been postponed indefinitely.
Ukrainian airports, for their part, argue that UTair Ukraine has not made major changes to its summer flight timetable. "So far, the company has not officially changed anything," the Lvov airport’s General Director Roman Hontarev told the Centre for Transport Strategies. At the same time, the Moscow-Lvov flight has been transferred to the Russian-based UTair airline and the number of the flights reduced from seven to four per week. The press service of the Odessa airport told the Centre for Transport Strategies that UTair Ukraine has applied for destinations such as Kiev and Antalya for the 2014 summer season and that it has not yet announced any official changes to its timetable. Kiev’s Zhulyany airport said that the airline company has not yet provided its timetable.
However, experts believe that risks for the company remain, given history and the current political situation. As reported, the Russian-based UTair airline company entered the Ukrainian market in 2009, but it began active operations on Ukraine’s domestic market in 2012. At that time, UTair Ukraine offered an alternative to the Ukrainian Aviation Group alliance, in which the Dniproavia airline company was in charge of domestic flights. However, the collapse of the AeroSvit airline company at the end of 2012 virtually cleared this niche for UTair’s subsidiary.
Operation on the domestic market was clearly insufficient to achieve success, and the company decided to try its luck on international routes. Since the departure of the largest carrier in the country freed up about 100 routes that other players were eyeing with great appetite. However, not everyone was able to take a bite of the choicest pieces of cake, and, as a result, UTair Ukraine did not receive the most attractive routes from the licensing commission.
Out of these routes, the company tried not to choose the most unprofitable and launch operations on them. UTair Ukraine’s parent company promised to compensate its financial losses, insisting on the rapid development of a network of routes. As a result, UTair Ukraine began performing Kiev-Tbilisi and Kiev-Vilnius flights, which are questionable from a commercial standpoint. Out of AeroSvit’s destinations, these were used exclusively as sources of transit traffic, which UTair Ukraine could not generate because of its model and smaller scale. At the same time, passengers on direct flights were clearly not enough to recover its costs. As a result, flights to Georgia were unprofitable, flights to the Baltic region were slightly below breakeven, and flights on the Kiev-St Petersburg route managed to break even.
However, in March 2013, UTair Ukraine’s parent company stopped supporting the airline company because of its own problems. Although the leadership of UTair Ukraine’s supervisory board denied this at the time, operations on the unprofitable routes had to be discontinued.
Experts are not ruling out the possibility of the Ukrainian carrier terminating operations not only for economic reasons, but also for political reasons
What will be the fate of UTair Ukraine in such difficult circumstances? Experts are not ruling out the possibility of the Ukrainian carrier terminating operations not only for economic reasons, but also for political reasons. "I am not ruling out a decision by the Ukrainian company’s Russian shareholders to reduce its operations for political reasons. The fact is that the model chosen by UTair Ukraine has a right to exist. Transportation of business passengers between the capital and Ukraine’s largest cities would yield results under an adequate pricing policy. This is especially so because the airline uses the highly efficient ATR-72 turboprop aircraft to perform these flights. Moreover, the company performed the task of transporting passengers from major regional centers of Ukraine to a major hub - the Vnukovo airport in Moscow. Therefore, it made no sense to develop transit flows in Kiev. At the same time, there is no systematic approach to development of other business segments, as evidenced by the chaotic launch of flights on routes on which UTair had no competitive advantage: Kiev-Tbilisi, Kiev-Vilnius, Kharkov-Baku, Kharkov-Yerevan, etc. Perhaps it was these flights that dragged them to the bottom," the Center for Economic Analysis’ Director Oleksandr Kava told the Centre for Transport Strategies.
The FAS consulting company’s head Oleksandr Lanetskyi is also not ruling out the possibility of the Ukrainian carrier discontinuing operations for both political and economic reasons. "The economic and political crisis is now finishing off the business. Therefore, it is necessary to take measures, and the first thing that is being done is reduction of unnecessary costs. Virtually all domestic flights in Ukraine, with the exception of flights on the Kiev-Odessa, Kiev-Simferopol in the summer, and Kiev-Donetsk flights, are unprofitable," the expert told the Centre for Transport Strategies.
However, according to him, the biggest risks for UTair Ukraine are political because the carrier could suffer from the Ukrainian authorities’ retaliatory actions against Russia. "The company itself was created for a single purpose: UTair positions itself as a major network company with a hub in Vnukovo, and it transports passengers there. However, it created this subsidiary because Ukraine protected its market. In light of the current events, the most important risk for this entity is politics. The Ukrainian leadership has not yet decided for itself which symmetrical or asymmetrical actions it will take in response to Russia's actions and which businesses this will affect,” said Lanetskyi.
