Business Czech Airlines start to count cost as strategy switch unravels
Czech Airlines shifted its strategy to concentrate on flights to Russia and former Soviet states as the West European market turned sour. For several years the switch paid off but now the market to former Soviet states is also depressed.
The comment from the man who launched his own trans-Atlantic carrier taking on British Airways unfortunately applies to Czech Airlines as it struggles with a downturn in the passenger market to Russia and other destinations in the former Soviet Union. Czech Airlines refocused its strategy around three or four years ago, switching its emphasis from flights to Western Europe to Eastern Europe with the avowed aim of becoming a bridge between West and East.
At the time, the strategy made a lot of sense. Passenger totals between the EU and Russia were rising at annual rates of 10-15%. What’s more, while airline ticket prices in the EU were plunging with the ever growing penetration of low cost carriers on the market as Europe’s aviation market liberalization, those to the East were holding up very well.
The reason behind that was that the passenger market between the European Union and Russia and ex-Soviet states was governed by the old bilateral aviation rules which basically meant that each country select one carrier, exceptionally more than one, for flights between their two countries. The happy result for the chosen carriers was that prices could be kept artificially high for both sides.
Czech daily Mladá Fronta Dnes pointed out on Tuesday that during these ‘good time’ Czech Airlines was able to earn twice the amount on flights between Prague and Moscow as on routes of similar distance between EU destinations. Moves to create some sort of wider EU-Russia aviation area that might have boosted competition have so far foundered and in current cool relations cannot be regarded as realistic.
Now though the fares are still high, but passenger numbers are on a downward slide. Part of the problem is the current conflict in Ukraine and EU-Russian tension and linked to that is the depreciation of the Russian rouble, which is now trading at around five year lows against the euro and most other European currencies.
Czech Airlines flies to nine destinations in Russia from Prague and also to Moscow and St. Petersburg from the western spa resort of Karlovy Vary. Added to that, there are flights to most of the capitals of the breakaway former Soviet republics.
Overall passenger figures from Prague airport show that numbers are down by 5.6 percent to the former Soviet states in the first six months of the year. The most important route to Moscow is, fortunately, one of the least affected with the drop there amounting to 2.5 percent. Passenger numbers to St, Petersburg has slipped by almost 10 percent but numbers are less than one percent down to Ekaterinburg. Passenger figures for Armenia have plummeted by more than 40 percent in the first half of the year, to Uzbekistan they are down just over 30 percent, and to Kazakhstan by just over 25 percent. Ironically, perhaps, the figures for Ukraine show a drop of just over 16 percent.
Most routes have been retained, but Czech Airlines has where possible put smaller aircraft on some of them and curbed frequencies to take account of the lower demand. The Czech carrier has limited scope to juggle its fleet with only one long-haul Airbus 330 and most of its other aircraft composed of mid-range Airbus 320 and 319 planes.