Vadym Tretiak: Why Market Liberalization Will Revitalize the Airline Industry

Vadym Tretiak Commercial director of Wizz Air Ukraine 24 October 2014 15:21

The commercial director of Wizz Air Ukraine discusses the company’s results for the first nine months of 2014, the impact of the current crisis on the industry, state support for the airline industry, and new destinations in an exclusive column for CFTS.

What were the company’s results for the first nine months of the current year?

The last two years have been completely different. We started 2013 with two planes and finished it with four. This year, it happened precisely the other way around. The main impacting factor was the devaluation of the national currency by 62% and the fall in demand for low-cost flights. Our position fully reflects the general negative trend on the market. Although, if you look at the results for the first nine months of the year and compare them with the same period of last year, the drop in passenger traffic will be only 8.3%, which is not so dramatic at first glance. However, the third-quarter results show that we served 30% fewer people than we did in July-September of 2013.

Ukraine International Airlines, for example, appealed to the government for help...

I agree with them in the sense that the whole industry needs support today. However, in our view, the support should be in the form of establishment of clear rules and a level playing field for all players. To do this, Ukraine needs to finally sign the Common Aviation Area agreement with Europe, which will determine the future of the domestic airline industry by revealing the stronger players and giving everyone the opportunity to find its own niche. As for direct investment in individual airlines, European practice has shown that this only delays bankruptcy, with carriers disappearing together with public money.

In addition, the government could help us to solve the problem involving payment of foreign-currency bills for fuel, airport services, and others. Currently, airlines are required to sell their foreign-currency earnings and then immediately buy them. This does not facilitate stabilization of the currency market in any way and only endangers fulfillment of our contractual obligations. The only winners here are the banks, which receive a commission for every transaction.

Read also “Interview with Wizz Air Ukraine: officials are not planning to implement Common Aviation Area agreement”

Besides, we pay taxes that are pegged to the dollar. Air navigation fees and deductions into a special fund are calculated in foreign currency. If the government is insisting that all settlements within the country should be performed in the hryvnia, it will be logical for the government to stop pegging taxes to a foreign currency, at least for entities registered in Ukraine. It would help companies to go through periods of crisis with smaller losses.

What other steps can the authorities take to help?

For example, they can lower the airport tax, which account for a large share of the cost of a ticket. We would support granting state-owned airports greater freedom in setting prices and conditions here must be equal for all. It is also necessary to establish clear criteria to make it clear who gets what discounts and for what. For low-cost airlines, airport tax accounts for a larger share ticket costs, along with aircraft lease and fuel costs.

We would support granting state-owned airports greater freedom in setting prices and conditions here must be equal for all

Oil prices are falling sharply on the world market. Prices of petroleum products fell slightly on the Ukrainian retail market recently. Will this affect the price of jet fuel?

So far, the cost of fuel remains without visible changes. However, if fuel becomes cheaper, it will help us to reduce losses in the current year. This is unlikely to significantly affect ticket prices, which, considering the devaluation of the hryvnia, are low. I would also add that our only expensive seats are the last seats in the cabin. Therefore, if you see high prices on a website, this means that a plane is full. Therefore, I recommend that people plan their journeys early in order to be able to buy flights at prices that are really low.

Recently, by decision of the licensing commission, Wizz Air Ukraine won the right to fly to Rome, Barcelona, and Warsaw. When are these flights scheduled to launch?

The decision of the licensing commission was approved by an October 21 order from the Ministry of Infrastructure. It remains to receive destinations signed by the State Aviation Service, after which the difficult process of analysis and planning will begin. We currently have no spare capacity that would allow us to start flying soon. Consequently, it will be necessary to compare the expected results of operations on the new routes with the results of operations on the old routes and make decisions. On the one hand, now is not the most favorable time to develop new routes. On the other hand, we have already completed the summer timetable for 2015, and we need to see how we can integrate new programs into this network.

That is, it will be necessary to return another plane to Ukraine to operate on these routes

If an analysis shows that the new routes and the routes that were obtained previously allow us to fill the third plane, we can talk about returning it to Ukraine. In addition, this aircraft is in use by our Hungarian colleagues. To bring it here, it must be clear that it is more beneficial to operate it here. In general, it will all depend on how events develop in our country.

The airline recently launched Kiev-Moscow flights. What is the capacity utilization, considering the complicated relations between the two countries?

This flight has been in operation for less than one month. It is still in a formative stage. Therefore, it is premature to talk about any outcome. Like any product, it requires promotion and that takes time.

Has Rosaviatsiya granted permission to operate this flight in the winter?

We filed the relevant documents on time, and representatives of Rosaviatsiya (Russia’s Federal Air Transport Agency) have told us by telephone that they see no obstacles to extension of the permit to the winter. Officially, they should confirm this to us before the end of the week. (Rosaviatsiya granted the low-cost airline permission to fly during the winter late on Friday, October 24 - CFTS).

The management of the Kharkov airport has said that it is in talks with a number of airlines, including Wizz Air Ukraine, on resumption of flights. When can you resume operation there?

We are carefully monitoring the market, exploring all possibilities, and constantly holding talks with various airports. The problem of Kharkov today is that insurance companies consider this city dangerous for flights and they are consequently increasing the size of payments. This eliminates all the benefits of flying to the capital of Slobozhanshchina. I think Kharkov will become a very promising market again when the situation in the country stabilizes.

The State Aviation Service recently proposed permitting companies to introduce a separate fee for luggage. What do you think about this proposal?

At first glance, the proposal looks attractive to us. It will allow our company to unify baggage transport rules with European rules, which will allow our passengers to avoid confusion over the different rules of the companies operating under the Wizz Air brand and operate under the same rules. However, we need to wait for the final version because the document has been published only for public debate. After its approval, we will be able to assess its impact on our business and decide when and how we will implement this model.

See also “President of UIA Yurii Miroshnikov: How the Political Crisis is Affecting the Airline Industry”