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Georgia’s three international airports have benefitted from a liberal aviation policy, which has led to a period of rapid traffic growth. As highlighted in the first half of this report, total passenger traffic in Georgia increased by 26% in 2016 and is projected to grow by another 40% in 2017.
Passenger traffic at Georgia’s main gateway, Tbilisi International Airport, increased by 22% in 2016. Tbilisi traffic has grown from only 700,000 in 2009 to 2.3 million in 2016. The airport has been operated by Turkey’s TAV since 2007.
Georgia’s other two international airports, at Batumi and Kutaisi, grew even faster in 2016. Batumi also has been operated by TAV since 2007, while Kutaisi has been government owned since it opened in 2012.
Kutaisi is marketed as a low cost airport – the first of its kind in former Soviet republics – and has experienced an accelerated rate of growth since the opening of a base by Wizz Air in Sep-2016. Georgia’s investment in Kutaisi, and decision to pursue an LCC model for the new airport, represent another example of a liberal and innovative approach in a region dominated by legacy thinking.
Georgia has emerged as one of the world’s fastest growing air travel markets in the world, driven by a booming tourism industry and a liberal aviation policy. This small country at the crossroads of Europe and Asia recorded passenger traffic growth of 26% in 2016 and expects even faster growth of approximately 40% in 2017.
Visitor arrivals increased by 8% in 2016, driven by a 40% increase in arrivals by air. Visitors now account for 75% of Georgia’s total passenger traffic and tourism contributes to more than 7% of the country’s GDP.
This is the first half of a two part report on the Georgia aviation market, providing a case study on how a liberal approach to aviation can have a significant positive impact. Other former Soviet republics, as well as small countries in other regions, can potentially learn from the Georgia example and stop protecting their national airline.
The Turkish leisure airline SunExpress and its German subsidiary SunExpress Germany have historically had a fairly low profile, certainly among European air travellers. Nevertheless, their combined total of 7.9 million passengers puts SunExpress in the top 20 European airline groups in 2016, ahead of Brussels Airlines.
Jointly owned by Turkish Airlines and Lufthansa, SunExpress and its German counterpart brought about a consolidated result that fell into loss in 2016 as passenger numbers and revenue both declined. When the observer scratches beneath the surface of the headline figures, a picture of significant strategic change at SunExpress Germany starts to emerge.
The larger Turkish SunExpress has maintained its focus on Turkey-Germany routes, whereas SunExpress Germany has abandoned this country pair. It has instead developed leisure routes from Germany to elsewhere in Europe and in North Africa, in spite of not having an obvious competitive advantage in those markets. Within these new market areas, SunExpress Germany has undergone substantial changes in its route portfolio. Lufthansa wetleases capacity from SunExpress Germany for its Eurowings low cost operation and this may help to make some sense of these outwardly random network changes.
Azerbaijan Airlines (AZAL) is planning to pursue major expansion over the next few years as the former Soviet republic emerges as a tourist destination and potential transit hub. A large part of the growth will be under low cost subsidiaries; AZALJET was established as an LCC brand in Mar-2016 and already serves 15 international destinations, and the group is planning to launch Buta Airways as a second LCC by the end of 2017.
AZAL plans to expand its network from 27 international destinations currently to 33 by the end of 2018 as Amsterdam, Bangkok, Dushanbe, New Delhi, Tashkent and Warsaw are added. Fleet expansion includes two additional E190s in 2017 and 10 737 MAX aircraft from 2018.
The government owned airline has ample opportunities for growth, but should simplify its fleet and adjust its multi brand model to focus on a single LCC. The fleet currently consists of 24 aircraft spread across eight types and two (soon three) brands.
China Airlines is weighing an order for Airbus aircraft that it expects will result in the French state granting traffic rights to allow China Airlines to fly to Paris, providing competition to China Airlines' local competitor EVA Air – the only nonstop operator on the route.
Since a 2016 government change in Taiwan, China Airlines – long a sleepy government airline – has shown greater interest in growth. However, Europe is not a strong market for the airline. In Paris there is opportunity to work with fellow SkyTeam member Air France. This potentially makes Paris less costly for China Airlines than its planned resumption of service to London.
China Airlines is once again planning a narrowbody order to replace and supplement its existing 737-800 fleet. The order will reflect how optimistic China Airlines is about the turbulent cross-strait market.
The A320neo is favoured, and it is unclear whether an order might also mean that China Airlines exercises its six options for the A350. China Airlines has received five of a 2008 order for 14 A350s. The correlation between Airbus aircraft orders and French traffic rights is sensitive, but this is hardly the first example. Taiwan and the US, home to Boeing, have an open skies agreement.
A little more than four years since CEO Craig Kreeger took the helm at Virgin Atlantic: it has refocused its network even more strongly on routes across the Atlantic, replaced around one third of its fleet with new and more efficient aircraft, successfully developed a joint venture on UK-US routes with its 49% shareholder Delta Air Lines, and improved its focus on financial performance. It has also launched and then closed its UK domestic operation, Little Red.
The publication of Virgin Atlantic's 2016 annual report in late Mar-2017 demonstrated that its profitability is improving, but remains very slim in margin terms.
This report takes the opportunity to assess Virgin Atlantic's progress since CAPA published a report analysing its business in Mar-2013, shortly after Mr Kreeger's arrival. Much has been achieved since then, but genuinely sustainable profitability remains to be achieved.