The modernization of the Lvov airport ahead of the 2012 European football championship caused concern among many experts in the industry. Experts feared that the costly infrastructure that was created for the championship would remain unused after the championship, that maintenance of the airport terminal would be expensive, and that the cost will not be recouped because passenger traffic will not be very high. Nevertheless, the airport has managed to stay afloat, attract new carriers, and report positive financial results for the past two years. The Lvov airport’s General Director Roman Hontarev discusses the situation at the airport with the Center for Transport Strategies.
Passenger traffic through the airport increased by 21.7% in 2013. How did you manage to achieve this?
Firstly, passenger traffic increased as a result of attraction of new carriers. Airline companies have increased capacity on their existing routes by replacing their aircraft with higher-capacity ones. The summer charter program has also been expanded significantly. All these factors led to the increase.
How have the political events in the country affected the operations of the airport?
We are currently not seeing a decline as a result of the political events. However, we have been seeing a significant increase in passenger traffic on domestic routes in the past two weeks. This indicator has risen by approximately 50% compared with the previous year.
Has the rise of the dollar affected the operations of the airport? Some Russian airlines have limited the sale of tickets for flights to Ukraine because of this
In fact, I do not understand why Russian carriers are so worried about this. No tariffs in Ukraine are published in the national currency, and tickets are always sold at the current exchange rate. As for Lvov, we worked with the Russian airline company UTair, which operated flights to Moscow. Its UTair Ukraine subsidiary currently operates on this route, and we are not seeing any interruption of sales of tickets to Russia or changes to the timetable. The volume of traffic on this route remains at the level it was before these events.
What was the airport’s financial result for 2013?
Many predicted losses and a sad fate for the Lvov airport after the new infrastructure was built. However, I want to say that we ended both 2012 and 2013 with positive financial results. We earned net profits of about USD 18 million in 2012 and about USD 20 million last year.
What is the capacity utilization of the new terminal?
Actually, the indicator of the capacity utilization of the infrastructure appeared specifically during the hosting of Euro 2012. There no such thing in aviation, but there exists the concept of terminal capacity per year and per hour. I had not previously encountered a situation in which experts measured the capacity utilization of infrastructure in percentage. However, if we do decide to use such figures, then the capacity of the terminal is 5 million passengers per year and we finished the previous year with the figure of 700,800. Therefore, it is easy to calculate the capacity utilization. However, it is wrong to say that this is a poor indicator. If the capacity utilization of a new passenger complex reached 50% in the first and second years of its operation, the management of the company would have to think about expanding its infrastructure... Therefore, the capacity utilization of the Lvov airport is within the norm. Moreover, we remember that all the new terminals in Ukraine were built on the eve of Euro 2012, when we observed maximum peak loads on the airport on match days. This infrastructure is in full compliance with the requirements of the UEFA (the Union of European Football Associations).
What is the level of demand for commercial space at the terminal, and what proportion of revenues comes from non-aviation operations?
Regarding revenue from non-aviation operations, this is the issue number one today. If we look at it, it is one of the main sources of revenue at all European airports. It constitutes about 50% of the overall revenue. Here, however, this figure does not exceed 15%. In absolute figures, it increased from UAH 5 million to UAH 15 million last year. We understand that this is not such a large sum, but we are trying to increase it by all possible means.
I also want to note that lease is a major source of non-aviation revenue. However, since we are a state enterprise, all the relevant contracts are concluded by the State Property Fund and revenues from them are distributed in the 70-30 proportion. That is, 70% of the money goes to the state budget and 30% to the enterprise. In addition to rent, we have also introduced an infrastructure fee, which is standard practice in the airline business. This fee is not fixed: it depends on the revenue of a commercial facility. Its rates range from 10% to 15%, depending on the specifics of the operations of a commercial entity, and it generates extra income for us.
Did the Ministry of Infrastructure’s order No. 745 of 19 December 2012 help you to attract new carriers? Airport executives treated it with caution because the preferences of a particular company could raise questions at the Antimonopoly Committee, and they asked the ministry for further clarification
We also asked the ministry for further clarification and, together with the ministry, we drafted and approved a program to encourage carriers to use the Lvov airport. In order to avoid complaints from the Antimonopoly Committee, the basic principle of the program was that discounts applied exclusively to new routes launched from the airport and intended for more than six years. We cannot apply them to existing routes. If a new carrier arrives on the established Lvov-Moscow route, for example, then we will not be able to offer it anything.
Thanks to the ministry’s order, we have managed to sign an agreement on using the Lvov airport as a base airport and broaden cooperation with the Wizz Air Ukraine airline company.
Will volume discounts apply on existing routes?
Unfortunately, there is no such discount in the drafted program. We have no provision for it, but we can return to this issue if any carrier expresses the desire to increase the number of its flights on a particular route. For now, airline companies have not shown initiative.
What will 2014 be like, according to your forecast?
It will be positive for the Lvov airport, in any case. As previously mentioned, the Wizz Air Ukraine airline company will expand its network of routes. It will operate its flights on an Airbus 320 airplane with the capacity of 180 seats. The load factor will be at least 70%. Therefore, we expect passenger traffic to increase by at least 16% and we aim to finish the year with more than 800,000 passengers. In addition, we are working with the Atlasjet airline company. Its subsidiary in Ukraine is currently obtaining an Operator Certificate, and it will base two aircraft at the Lvov airport. It is premature to talk about its new destinations before the approval of a timetable is completed.
Of course, we are expecting a positive financial result. The profit will remain approximately at the 2013 level. This is due to several factors: the infrastructure has been transferred completely onto the books of our company. Previously, we only managed the new terminal but it was fully transferred onto our books in December 2013. In connection with this, new items of expenditure and revenue related to amortization of assets acquired free have appeared on our books.