Boryspil airport to give Ryanair up to 80% discount for airport fees

Author : Olena Holubeva

Source : 112 Ukraine

Main Ukrainian airport changed the system of discounts for Irish low-cost airline. And now such discounts will be provided to almost all airlines in our country
21:27, 26 March 2018

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The Irish low-cost airline Ryanair, with which the management of the Boryspil and Lviv airports in the presence of President Petro Poroshenko has signed contracts on the commencement of flights, will receive an 80% discount for two airport fees in Boryspil in the first year of work. This is a charge for takeoff / landing, which is $ 10.5 per 1 ton of maximum take-off mass, and a passenger charge is $ 13 per passenger. It was the issue of discounts for port charges in Boryspil that was the main stumbling block in the negotiations with Ryanair. As the participants in the talks say, if the matter had not been resolved, the agreement with the airline would not have been signed up to now. Without a guaranteed opportunity to fly from Boryspil Ryanair would not have enter Ukrainian market. At the first stage of the Kyiv airport, it plans to carry out 10 flights, whereas from Lviv - twice less.

About the fact that Ryanair will be given a discount of 80% for two port fees, found out in an exclusive commentary by the director for the development of the Boryspil airport Maxym Voloshyn. According to him, in order to stimulate airlines that perform regular flights, the management of the airport has the right to apply a discount of up to 80% on airport taxes. This is stipulated by the order of the Ministry of Transport and Infrastructure No. 337 of 2011. At the same time, the airport hasn’t provided discounts for a long time. "It was difficult to develop a model that would suit all carriers," Voloshyn said.

In January 2017, Boryspil drafted a program that offered discounts on new routes. "Ryanair did not like it for a number of parameters, and other carriers also had questions to ask: what to do if we increase frequencies on existing routes? It turns out that we bring additional passengers to the airport, but we cannot count on a discount", said Voloshyn.

Boryspil proposed a different approach, which market participants approved. It involves the provision of discounts for the increase in passenger traffic. Since February 1, a discount of 80% on two port fees was received by airlines, which significantly increased passenger traffic compared with 2017. The program is designed for 4 years and assumes that if in the first year of its operation the air carrier provides an increase of 100 thousand passengers, then a discount of 80% will be retained for it also for the next year. If this increase was not ensured, then the discount from 80% is reduced to 60%. In subsequent years, if the airline has no growth or it was insignificant, the discount can be reduced to 40% and 20%, explained Voloshyn to

"On one hand, we agreed to the Ryanair proposals because, in principle, if there is growth that it promises to provide, we got the conditions that we wanted. On the other hand, we insured ourselves against giving a low price or big discounts in any case, we give them only on the condition of ensuring growth," said the director of business development of the airport, stressing that Ryanair will immediately receive a discount (the airline plans the first flights since October). The base of growth indicators is fixed for 2017, but at that time the airline did not conduct flights. Therefore, the entire volume of its new passengers will be considered the volume of growth.

Note that according to the State Aviation Service of Ukraine in 2017, 32 domestic companies performed 93 thousand commercial flights, which is 17% more than in 2016. Passenger transportation was performed by 18 Ukrainian airlines. The number of passengers carried by them increased by 27.5% - to 10.555 million people. And 93% of them fell on the five largest airlines, namely, Ukraine's International Airlines (UIA), Wind Rose, Azure Air Ukraine, Atlasjet Ukraine, and Bravo. The Wind Rose airline has achieved growth of passenger traffic by 2.5 times compared to 2016, Atlasjet Ukraine has increased passenger transportation by 73.8%, "Bravo" - by 49.9%, "Azur Air Ukraine" by 17.2% and "International airlines of Ukraine" - by 16.5%. UIA clarified that 6.93 million people were transported. Thus, the increase was 1.136 million people, which is quite enough to receive a discount.

In the current situation, the UIA has the biggest profit, because it will not only receive a significant discount. Also, the Aerohandling Company will receive the right to service Ryanair aircraft. Now it also serves a part of the UIA aircraft, said the director of the consulting company Friendly Avia Support Olexander Lanetsky. He also believes that the airline will be able to maintain the growth rate, allowing to keep the same level of discounts in the years to come: "As you know, the airline replaces the fleet with less capacious aircraft by larger vessels." In 2017, the company introduced five Boeing 737- 800 NG with a capacity of 186 seats in a two-cabin layout and completed the operation of three Boeing 737 classic aircraft with 106 seats."

Volodymyr Shulmeister, former First Deputy Minister of Infrastructure of Ukraine, agrees with this statement: "If we are talking about UIA carrying 50% of all passengers at Boryspil airport, they will certainly not lose profit after the introduction of the new system. For them, an increase of 100 thousand passengers is quite achievable. This is only a few percents of the volume of traffic that they are already carrying out. "

According to Shulmeister, Wizz Air will also win (if it enters Boryspil) as well as QATAR airways, which has planned similar growth. "In general, I think most airlines operating at the airport will be able to take advantage of this discount, which will hurt companies that do not have the ability to increase the fleet and open new directions," said the former first deputy minister of the infrastructure of Ukraine. "All the airlines will benefit from the new system of discounts, which will also increase the volume of transportation, through the operation of more capacious aircraft," agrees Lanetsky. He noted that this year Boryspil expects a total increase in traffic volumes + 20%, this is about 2 million people. "If this forecast is justified, in principle, bonuses from the new system of discounts will go if not to all airlines, then certainly to the majority" assured the director of the Friendly Avia Support consulting company.

With all this, it's not a fact that airfares will be much cheaper, experts say. "There are several big articles in the ticket price - in particular, the price of fuel, leasing payments for planes, a salary fund and somewhere in the fifth or even sixth place - airport fees. This is not the most significant article," Schulmeister says. With the current $ 13 port fee, taking into account the discount, the company will save about $ 10. If the ticket was worth $ 200, now it can cost $ 190. Is this a significant discount?" says Schulmeister.

If we talk about Ukrainian airlines, they could get a much more significant price-maneuvering field if the authorities took measures to reduce the price of aviation fuel, Schulmeister says: "Now we have a limited number of suppliers that do not allow the price to drop significantly. It’s better than it was three years ago, when Krebo took almost monopoly positions, and we once made a lot of efforts to get new suppliers of jet fuel into the market.” Note that, according to airlines, the average price of aviation fuel in Ukraine in 2017 was 666 dollars per ton, while in the EU - 586 dollars.

On the other hand, if you multiply these $ 10 discounts for 7 million passengers transported by UIA, you will get a very good amount of $ 70 million savings for the carrier, which it can, if necessary, use for price competition with the low-coster. For the low-costers themselves, this is also a very important point of their business, which they are defending.

And the most important question is how this business model with the distribution of discounts will affect the airport's revenues. In 2017, Boryspil earned about 4 billion UAH (150 million dollars). This year, passenger traffic is expected to grow by 20% - to 12 million people. At the same time, if in 2019 the largest airlines get their discounts on port charges, the state-owned company Boryspil Airport will lose tens of millions of dollars in revenue.

"I do not exclude the possibility that Boryspil airport might suffer as a result of the deterioration of financial performance, because Boryspil has credit obligations that should be serviced, in particular, to the Japanese Agency for International Cooperation for the amount of 19.09 billion Japanese yen (3.64 billion UAH), which were allocated for the construction of Terminal D. In addition, the airport has current obligations that must be closed, on the other hand, I have known Pavlo Ryabikin for a long time and I believe that he would not have agreed to a new scheme if he had not been sure that the economic feasibility for the airport is preserved," says Schulmeister.

However, given the pressure that was put on the airport after the failure of the first talks with the Irish, it is possible that the current concessions were dictated by political will. Whether the financial losses of the state budget will be blocked by the growth of passenger traffic and tourists, who are expected in Ukraine in connection with the arrival of Ryanair - this question is very rhetorical. It is more likely that the image project "Ryanair in Ukraine" will cost much money for our state.

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