Ukraine’s aviation fiasco

Kyiv’s Boryspil International Airport, home to Ukraine International Airlines, accommodated more than ten million passengers last year and expects 20 million by 2023. Photo: Vasiliy Koba (CC) commons.wikimedia.org

However, market dominance by UIA – which provides 67 per cent of capacity at Boryspil, and a whopping 83 per cent of domestic seats nationwide – is antagonising Ukraine’s pro-western government, whose lawmakers are desperate to inject foreign competition and disempower the post-Soviet oligarchs. Enticing Ryanair, Europe’s largest (and cheapest) low-cost carrier, to enter the Ukrainian market has become an obsession for Volodymyr Omelyan, the country’s 38-year-old infrastructure minister.

Fierce opposition

I spoke with Omelyan about his vision for Ryanair lifting business confidence in the country, awakening Ukrainians’ appetite for all things European and building Kyiv’s reputation as a major tourist destination.

“I do believe that Ryanair is an icebreaker for the country,” he told me. “It is not simply a company coming from somewhere to carry passengers. It is a clear signal to the West that, yes, Ukraine is a normal country. It will be a kind of guiding light for all other investors and foreign companies to come here and to work.”

“The second issue for me, and maybe it was even the prime issue, is to let Ukrainians travel,” Omelyan emphasised. “By travelling they change their minds, they change their attitudes towards reforms and towards being European. Right now, we have only four or five per cent of Ukrainians travelling with air carriers. It is a very modest sum, and we would like to increase it to 25 or 30 per cent. But it is only with low-cost carriers – like with Ryanair – that we can make this happen fast.”

“The third issue for me is to bring foreign tourists. Sometimes, in the West, Ukraine is linked with corruption, with bad management, with some other challenges. Ordinary tourists would never pay 500 dollars for an air ticket to discover Ukraine … but if there is an option to fly with Ryanair, to pay five or 40 dollars, they can easily make this choice.”

Omelyan’s wishes seemed to have come true in March 2017 when Ryanair signed a Letter of Intent to launch four routes to the Kyiv Boryspil Airport and seven to the western city of Lviv. Flights were to be operated from Berlin, Budapest, Eindhoven, Kraków, London, Manchester, Munich, Stockholm and Wrocław in the coming winter season with one-way fares starting at 20 euros. However, despite accepting bookings for the routes, Ryanair nixed its plans in July as a result of fierce opposition from vested interests in Ukraine’s aviation sector.

Chief among the airline’s detractors was none other than Pavlo Riabikin, Boryspil’s own director general, who accused Ryanair of exerting “pressure” on the airport to accept unreasonable terms in its Letter of Intent – which he duly shredded and tried to replace with a standard airline contract.

Airport bust-up

Riabikin justified his actions by leaking details of Ryanair’s wish list which included requests for discounted passenger fees as well as tax exemptions and various other benefits. He said he is duty-bound to offer all airline customers “equal terms” and that financial modelling had shown that Ryanair’s proposal would cause the airport to lose money. He also claimed that Boryspil made known its objections last March by refusing to sign the Letter of Intent (both Ryanair and the infrastructure ministry insist that Riabikin raised no such objections).

“We cannot establish unequal conditions,” the airport boss emphasised. “Charges or the principles of discounts application must be equal for both the low-cost and the legacy carriers.” Boryspil’s stance was enthusiastically endorsed by Yuri Miroshnikov, UIA’s president, who accused Ryanair of fuelling “scandal” in order to barge its way into the market. UIA subsequently filed three lawsuits against the Ministry and Lviv Airport, attempting to block further talks with Ryanair while also – somewhat remarkably – seeking financial compensation for its own decision to launch a ticket sale.

This attempt by the flag-carrier to recover lost earnings after Ryanair dangled cheap fares in the market left David O’Brien, the Irish carrier’s chief commercial officer, dumbfounded: “That is absurd, at least to the ears of anybody on this side of the continent,” he told New Eastern Europe. “It says a lot about the perspective of the airline making the claim, that [they believe] there’s an entitlement to high fares, and that there’s an entitlement therefore to rip consumers off.”

Omelyan’s interpretation is still more damning. He accuses the flag-carrier of mounting a “bloody public campaign against me” using the courts, local media and law-enforcement agencies to stain his reputation. Crucially, he places the blame squarely on Ihor Kolomoyskyi, the billionaire oligarch whose Privat Group controls almost all of Ukraine’s aviation sector through its stakes in UIA and Dniproavia (another local carrier). Kolomoyskyi also has a strong hand in Ukraine’s energy, finance, media and real estate sectors, making him a prime target for the government’s crackdown on oligarchs.

“Kolomoyskyi’s main goal, as Ukraine International, was to not let Ryanair fly to Ukraine, by any means,” the minister said. “It was sabotaged. And unfortunately it was done in a very rude way. I don’t want to say there is a hidden deal between Riabikin and Ukraine International, but it is a kind of strange synergy going on between the position of Boryspil Airport and Ukraine International … There is huge pressure of Ukraine International over Boryspil. It is obvious. It is clear. The airport forgets about the country, forgets about passengers. It is only focused on the interests of Ukraine International Airlines… and the country loses a lot of money.”

Omelyan accepts that Ryanair came to the negotiating table with a long list of demands, but says there was nothing “extraordinary or extravagant” about them and that both sides made compromises. He rejects Riabikin’s claim that lower passenger charges would harm the airport financially, and argued instead that increased traffic volumes and retail spending would more than offset any losses.

Empty skies

Asked about suggestions from some quarters that Ryanair should leave Kyiv out of its Ukrainian network, or that it should wait for a new low-cost gateway to be built at the capital’s Gostomel Airport, which is currently used by aircraft manufacturer Antonov, the minister is equally dismissive.

“We cannot tell Ryanair, ‘Okay, we will welcome you to this airport in two years’ time, but we first need to construct a runway, build a new terminal, and only after that you can fly!’” he replied. “To have Gostomel operational, we would need to invest at least 100 million US dollars in infrastructure, roads, bus connections and so on. We would have to invest at least 50 million dollars in a passenger terminal and air navigation infrastructure. What for? Boryspil Airport is two-thirds empty. Zhuliany Airport [the capital’s second airport] is half empty.”

O’Brien says Ryanair has already “moved on” from the debacle, shifting capacity to other markets and focusing on its pilot-rostering crisis. Himself a former resident of Kyiv, he retains a soft-spot for Ukraine and believes that Ryanair will one day return. When it does, he sees the long-term potential for ten gateways and ten million passengers a year.

But the airline executive stopped short of optimism, stressing that all talks have ended and “our confidence in doing business in Ukraine has been dented by the Kyiv experience”. 

Whatever side one takes in the dispute, most agree that Ukraine’s existing air connectivity is sub-standard. Despite being the largest country by area in Europe, Ukraine has no point-to-point domestic links that bypass Kyiv – a consequence of UIA’s strategy of routing all traffic through the capital. Internationally, none of the eight other Ukrainian cities with scheduled flights are connected to Russia, Britain, France, Scandinavia or any long-haul markets. Travellers have better options when flying from Kyiv, with six Asian points south of Russia served by UIA (Almaty and Astana in Kazakhstan; Bangkok in Thailand; Beijing in China; Colombo in Sri Lanka; and Delhi in India). However, New York and Toronto are its only markets in the Americas, and Cairo its only one in Africa.

Empty skies are partly a consequence of low wealth: Ukraine is the second poorest country in Europe, with GDP per capita of just $2,200. But it also has a large population (45 million people) and it is rich in natural resources. Comparisons with Poland, a neighbouring EU state with a population of 38 million, make for depressing reading. Polish and Ukrainian carriers transported roughly the same number of passengers in 2016. Yet foot-traffic at Polish airports during that time surpassed 34 million (46 per cent of which was in Warsaw), whereas in Ukraine the figure was below 13 million (76 per cent in Kyiv). A low penetration by foreign carriers – particularly low-cost carriers – supports Omelyan’s claim that protectionism is hurting the sector. But fixing this is difficult when, by his own admission, oligarchs behave like “a kind of small monarchy, or another small country inside of the country”. 

Regional growth

Even as Ukraine’s flag-carrier battles to keep foreign competition out of the country, Yanair, a privately-owned scheduled and charter operator based at Kyiv’s Zhuliany Airport, is actively trying to bring rivals into its home market. Alexey Yanchuk, Yanair’s owner, has invested in Zhytomyr Airport, a regional gateway 130 kilometres west of Kyiv, that was recertified in 2016 after 25 years of inactivity. The airport presently functions as a maintenance base for Yanair’s six-strong fleet, but it will branch into passenger traffic as soon as runway work has been completed.

“As of now we do not have enough runway, so we cannot invite Ryanair to operate from Zhytomyr Airport,” Yanchuk told New Eastern Europe. “But we plan to make this runway long enough for them. In fact we are open not only for Ryanair but any other airline … Any low-cost carrier who wants to operate from Zhytomyr Airport will have equal conditions with other companies and we are happy to invite all of them.”

Asked about the difficulties that Ryanair encountered last year when trying to launch flights into the capital, Yanchuk was diplomatic in his response. “We really hoped this Ryanair launch [would succeed], because it tells the world that Ukraine is ready for healthy competition, for having a lot of different air companies, not only domestic ones,” he said. “It would be a really great step for the image of Ukraine. It is a real secret why it didn’t [happen]. We think maybe the negotiations were made in a kind of rush, and that’s why it was not properly thought through.”

As well as inviting foreign carriers, Yanair is also planning its own growth. The airline currently deploys two Boeing 737-300s and two 737-400s from Kyiv and the southern city of Odesa, operating scheduled flights to Tbilisi and Batumi in Georgia and Tel Aviv in Israel. Two Airbuses are also marketed to wet-lease partners. With the fleet undergoing rapid change, Europe is now on the carrier’s radar.

“Europe is very interesting for us, especially taking into account the no-visa procedure that we have right now,” said Yaroslav Agafonov, the chief executive of the six-year-old airline. He is eyeing up secondary points like Kraków in Poland and Paderborn and Frankfurt Hahn in Germany, as well as unspecified markets in Cyprus, Italy and Romania. Yanair will also start flying from Lviv in June, and eventually from Zhytomyr when conditions permit.

New hope for 2018

Elsewhere, initiatives to foster domestic competition with foreign help have struggled to gain altitude, with Hungary’s Wizz Air and Russia’s UTair both closing their Ukrainian subsidiaries during the Donbas conflict (Wizz Air still bases three planes in the country under its Hungarian licence). AtlasGlobal Ukraine, a subsidiary of the Turkish carrier, survived the crisis but only serves routes between the two countries. A new domestic airline, SkyUp, will also launch this year, though initially just as a charter operator.

Omelyan thus remains convinced that only low-cost carriers from abroad can invigorate the market. Italy’s Ernest Airlines became another feather in his cap this winter when it launched five routes to Kyiv Zhuliany and Lviv from Milan Bergamo, Naples and Venice. EasyJet and Eurowings are both now in the ministry’s sights.

But it is Ryanair – with its demand-catalysing fares and huge economies of scale – that would have the most transformative effect. Undeterred by recent events, Omelyan is confident of welcoming it back in 2018.

“I want to have the top companies of the world in Ukraine. Ryanair is top, number one in Europe. Why should I go for somebody else?” he asked. “They are very active in Eastern Europe right now, and we should use this momentum to have real competition in the Ukrainian market, to keep prices low and quality higher. Ukrainians cannot pay triple price just to please some oligarchs to make another billion or two,” the minister concluded.

Martin Rivers is an air transport journalist who has written for The Economist, the New York Times and the Guardian.

Ryanair, Ukraine, Ukraine international airlines