Yurii Miroshnikov: Why Ukraine’s Skies Should Not Be Opened To Europe Now

Yurii Miroshnikov President of UIA 15 March 2013 13:58

In an exclusive column for the CTS, the president of Ukraine International Airlines, which is the largest airline company in Ukraine, argues that accession of Ukraine to the European Common Aviation Area is premature and justifies the concept for a flagship carrier.

The issue of joining the European Common Aviation Area has been under discussion for a long time, and the debate has now entered an acute phase because many see this move as a panacea. However, it seems to me that removal of restrictions is not a cure-all. It is a complex process of liberalization of the air transport industry. There are many positive and negative examples of such practices.

As for Ukraine, its accession to the European Common Aviation Area is inevitable. However, it is an instrument that is good under certain conditions. If you have a crosshead screw, it will be very difficult to unscrew it with a slotted screwdriver and vice versa. Therefore, trying to apply Open Skies where certain circumstances make it premature and where the other elements of infrastructure, the economy, consumer demand, and openness - primarily openness to the movement of people - are not ready will lead to the same result as an attempt to loosen a crosshead screw with a slotted screwdriver. It will not work!

Why do I believe that Open Skies will not help in the current situation in Ukraine? Because one of the main problems is the low purchasing power of the population. The ability of airline companies to fly is not restricted, although I have to say that restrictions exist de facto in many markets, and this is proof that Open Skies is not a panacea! These capabilities are not being used. Primarily, they are not being used by foreign airline companies, which we are waiting for as saviors. Only 20% of the capacity between Italy and Ukraine is used by Italian carriers. German carriers are not using the opportunity to fly from any point in Germany to any point in Ukraine, except Kyiv.

There are many other examples of cases of opportunities not being used. Why? People do not have money for flights and they also face visa barriers. On the other hand, Ukraine remains an unattractive destination to foreigners: it is little known to tourists and the infrastructure is poorly prepared. Businesspeople have a long list of reasons for not being in a hurry to invest in Ukraine and increase transportation volumes. Even the abolition of Ukrainian visas for citizens of the European Union and a sufficiently large number of countries in 2005 only resulted in a short-term burst of increase in the number of foreign passengers, and it ended quickly.

Open Skies is often associated with low-cost airline companies and this process is viewed as an opportunity to bring them here to offer Ukrainian citizens lower prices. However, excuse me, we already have several low-cost airline companies, but where are the cheap tickets? They do not exist because there is no mass flying, which should serve as the basis for the normal operation of low-cost airline companies and their ability to offer low fares. Another reason is the high cost of infrastructure: airport services, air navigation, and fuel. The monopolization of airports, because of which there is no possibility to choose providers of services and benefit from competition among suppliers, also plays a role.

Therefore, the low-cost airline companies that come here do not develop new routes. They do not do what low-cost airline companies do all over the world, where they offer themselves as substitutes for transportation by bus or expensive trains. In Ukraine, train tickets are cheap and subsidized at the expense of transportation of goods, and no low-cost airline company can compete with them. Therefore, low-cost airline companies occupy the routes that have been tried and tested by classic carriers and slightly lower prices on these routes. In exchange, they remove everything they can from the package of services to passengers and ask for extra money for any little thing!

This means that neither Open Skies not low-cost airline companies will be able to salvage the situation and yield the desired effect if the Ukrainian market is not ready, without an improvement in the living standard of the population, and without removal of the barriers to the movement of passengers. Are there alternatives? For some reason, nobody is discussing the concept of a flagship carrier and everyone is replacing it all with the word "monopoly." However, flagship carriers have nothing to do with monopolies. A flagship carrier is one of the largest carriers in a country and has the highest standards of quality, safety, and service. In addition, it is a company with which the government can conclude a social partnership agreement: it can receive certain preferences in exchange for greater demands from it in terms of quality and safety, operation of flights on routes needed by the government, availability of social tariffs to the poor, and many more. However, this concept is not being considered as a solution, although it works in many countries.

Most importantly, it will no longer be possible to close the skies after they are opened. Liberalization will have unpredictable consequences for the economy. Therefore, this step must be thought through very well, weighted strategically, and considered carefully from different angles in terms of the global interests of Ukraine and its citizens. Only then should a decision be made in the interest of the country, its population, and the aviation industry.

Tags: FlyUIA, avia