In 2019, Kazakhstan became the fastest-growing domestic aviation market in the world. With its vast landscape, economic development, and strategic location, the country is the perfect storm for a strong aviation industry. However, this growth has become at risk, due to government efforts to privatize the industry and suffocate local operators. What is the Kazakhstan aviation environment, and what can we learn from it?
We begin by looking at the big picture of why Kazakhstan has had so much growth in recent years. The country has a population of around 18 million people. However, they are spread across a colossally sized country that rivals most of the nation-states in the world today. The country is not known for its highway system, and it never experienced much of a rail revolution. With a huge country and a stretched-out population, aviation transport is perfect. Then we need to consider its international location. The country is located in the middle of Central Asia and is between Europe and East Asia. It is also within distance of the Middle East and, over the North Pole, North America. This surprisingly makes it the 'center' of the world, with most destinations equally distant away. Perfect for the country to get a reputation as a mid-way hub.
And this is something that the country has taken advantage of. Kazakhstan's government is credited with allowing certain nationals a three-day visa wavier to land, rest, and explore a little bit of its country. This applies to Chinese, and most recently, Indians, who are traveling through the region. This transfer market has become incredibly popular, rising from only 20,000 passengers in 2010 to over 1.6 million by the start of 2020.
“The transportation of transfer passengers is showing unprecedented growth”
Kazakhstan's Civil Aviation Committee said in a statement.
But the country doesn't just owe its aviation growth to its physical location, but also because of its airports and airlines. The country has two airports in Almaty and Astana that collectively handled some 10.2 million passengers (in 2019), roughly 73% of the country's air traffic. Both airports are owned outright by the government. A country having twin cities connected by a domestic route can lead to a lucrative domestic sector, like New York and Los Angeles or Sydney and Melbourne. This strong demand has created several local scheduled airlines:
These local airlines have also been responsible for finding new ways to grow the local market, with national carrier Air Astana creating a low-cost subsidiary called Fly Arstan that added a million seats to the market by 2020.
“We expect that in 2020 Kazakhstan will be one of the fastest-growing domestic aviation markets in the world. With domestic seat capacity already growing at 33% in October, we have already seen the significant positive impact and growth that FlyArystan has had in the cities where we operate. As our fleet continues to grow, we expect that in 2020 Kazakhstan will be near the top of the world in domestic aviation market growth. That will be great news for FlyArystan, the Air Astana group, and, most importantly, for the people of Kazakhstan”
The above section does give the impression that the country's aviation growth is based on a series of lucky factors. However, the government has been heavily involved in the development of this aviation industry for some time.
“The traffic growth is attributable to the launch of new routes, both domestic and international, as well as lower fares, improved transfer connections, and infrastructure development”
the ministry explained to media in 2019.
However, an unmentioned factor that has a huge impact has been the role of subsidies. The government wishes to encourage population mobility around the country and has authority over 14 different domestic routes to be subsidies. These are not trunk routes like Almaty and Astana, but rather from one of the hubs to regional centers like Kokchetau, Petropavlovsk, Ucharal, and even a route to Tokyo for the 2020 Olympics. That latter subsidy has since been redirected to domestic routes.
"Owing to the suspension of flights to Japan as a result of the COVID-19 crisis, the ministry had decided it would be in the public's best interests to redirect the funds to the domestic Kazakh market where demand is currently strongest"
A government statement to Ch-Aviation
However, a big issue currently underway is the privatization of several National Welfare Fund "Samruk-Kazyna" assets, including Air Astana, Qazaq Air, and the two key airports of the country Almaty and Astana. The government is moving forward with plans to sell the airlines despite the slowdown due to the coronavirus, although these assets actual sale dates have been pushed back to 2022 by the earliest. As for the airports, the government has already sold 100% of Almaty to TAV Airports, who plans to invest USD150 million to USD200 million into constructing a new terminal and the upgrade of infrastructure.
Why is this a concern for the local market? So far, many of these routes to regional areas have been subsidied by the government. With this knowledge, a private operator (who also controls the fuel at the airports) can put on the squeeze on the airlines through fees, knowing that the government is there to pick up the bill.
Additionally, the government introduced a new open-sky agreement to international carriers to operate routes to all country airports. These airlines can also operate fifth-freedom routes onwards if a local carrier does not already serve the route. The issue is that many of these routes might be future lucrative opportunities for local airlines, and the government is cutting off that future by allowing an international airline to intervene. It might attract outside investment, but at what cost to the already subsidized airlines.
All of the above scenarios in a very different world nine months ago before the world changed thanks to the coronavirus forever. How has the landscape changed since then?
Kazakhstan's role as a wayfair stop between Asia and Europe is in doubt, with less traffic than ever traveling between the two, and foreign tourism has plummeted to a new low. In fact, current government restrictions prevent those from France, Spain, China, Japan, and others from entering or passing through the country - effectively suspending the silk road in the air.
The matter onwards is incredibly complex and likely will have greatly changed due to the current aviation crisis affecting the world. For more information about Kazakhstan or want to be involved in the region, get in touch with Eways Aviation. With our local connections and tailored knowledge, we can be your guide and partner to one of the world's fastest-growing aviation regions.
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