For years, foreign airline companies have struggled to do business in Ukraine. Ukraine International Airlines, owned by billionaire oligarch Ihor Kolomoisky, has exploited its privileges in airport access and the most lucrative flight slots and routes to soar above the competitors.
Change is coming. Several foreign players, including local budget carrier SkyUp, promise to make Ukraine’s skies more crowded and colorful next year.
New arrivals
Andriy Guck, a partner at Ante law firm, believes that the end of UIA’s dominance isn’t far over the horizon.
Since Ukrainians were granted visa-free travel to the European Schengen Zone in June and ID card-only travel with Turkey, foreign carriers have started to circle Ukraine’s tempting market of more than 40 million people.
According to the State Border Control Service, over 355,000 Ukrainians have traveled to the European Union in the six months since the visa-free regime was introduced.
“It only seems that there’s no competition,” Guck said. Ukraine International Airlines “will have to face an open market,” he said. A number of foreign airlines began flying to Ukraine in 2017 — the world’s top airline, Qatar Airways, among them.
Moreover, after years of absence, Georgian Airways and Slovenia’s Adria Airways returned. Italy’s flag carrier Alitalia, Azerbaijan’s low-cost Buta Airways and Italy’s Ernest Airlines were new arrivals as well.
Infrastructure Minister Volodymyr Omelyan, speaking on Dec. 14 at the official launch of SkyUp, a new Ukrainian budget airline, said the government encourages fair competition, and 2018 will be a year of cheaper air travel for Ukraine, with more new carriers coming to the country.
Air Malta has added Kyiv to new destinations in its summer 2018 schedule, which starts on March 26. Turkey’s major low-cost airline, Pegasus, is considering setting up a subsidiary in Ukraine, Forbes reported in mid-November, citing the carrier’s sales and network planning director, Emre Pekesen.
And SkyUp will take to the skies in April, offering affordable charter flights from four Ukrainian cities to 16 foreign destinations in Turkey, the United Arab Emirates, Spain, Italy, Egypt, Albania, Bulgaria and Cyprus.
Lucrative routes
That’s all bad news for UIA. The airline’s notoriously low service and high prices will have to improve or lose out. While it is common for countries to have a flag carrier that is supported by the government level, UIA’s dominance can be attributed to a number of legal and financial reasons, Guck said.
The questions begin with the airline’s obscure ownership. Bilateral air transport agreements signed by the Ukrainian government with other countries require an airline to list a Ukrainian citizen or entity as a majority shareholder and disclose ultimate beneficiaries.
The ownership of UIA, however, is hidden behind a tangle of private companies and offshore firms. In Ukraine, that usually means an oligarch is in charge, and indeed, in an interview in 2015 the head of UIA’s supervisory board, Ukrainian-born Israeli citizen Aron Maiberg, confirmed that the airline’s ultimate beneficiary is Kolomoisky.
Once the number of flights between two countries is set, airlines compete to gain rights to operate them.
Guck said that the current order by the State Aviation Service of Ukraine, which sets out a point-based evaluation procedure, makes it nearly impossible for smaller carriers to compete with UIA.
The airline is a well-established employer and a major taxpayer, with a fleet of more than 30 aircraft and a 10-year lease on the only hangar in Kyiv where technical maintenance of aircraft can be carried out. As a result, UIA holds the rights to operate the busiest and most lucrative routes. And it’s prepared to go to court to defend them.
Two years ago the Ukrainian subsidiary of Turkey’s airline Atlasjet Ukraine (now Atlasglobal) sued UIA and the State Aviation Service, demanding the right to fly from Kyiv and Odesa to Istanbul.
It lost the case. “UIA is perfectly aware of how aviation business works,” said Guck, who represented Atlasjet Ukraine in court. “UIA knows that the only way for any new company to grow is to operate on the busiest routes, and it blocks them.”
Aircraft of the Hungarian low-cost airline Wizz Air flies above Lviv International Airport on April 10, 2015. (UNIAN)
Airport privilege
UIA has also defended its dominance of Ukraine’s main entryway — Kyiv’s Boryspil International Airport. Some believe the airline gets advantageous treatment because the airport’s director, Pavlo Ryabikin, used to be a member of UIA’s advisory board.
Another contributing factor is that Boryspil’s main ground handling service provider, Interavia LLC, is 100-percent owned by UIA. UIA also has a history of abusing its privileged position.
In 2014–2015 the company failed to pay Hr 147 million ($5.4 million) in obligatory fees to the State Aviation Fund. The fee was required from all airlines and was to be included in the ticket price.
“UIA charged its clients an (extra) fee for the fund but didn’t transfer the money to the fund,” the National Anti-Corruption Bureau of Ukraine stated in 2016 on the opening of a criminal case against the airline into embezzlement.
There are also claims that the airline owes a multimillion-hryvnia debt to Boryspil International Airport. All the same, the airport continues to protect its main customer.
Earlier this year, Europe’s leading low-cost airline, Ryanair, gave up its plans to enter the Ukrainian market.
Boryspil International Airport was in talks with Ryanair but then canceled the deal. The Ukrainian airline then filed multimillion-dollar lawsuits against Ryanair, the Ministry of Infrastructure and Lviv International Airport, which had invited the Irish carrier to fly there.
Ryabikin rejects claims he favors UIA. He describes UIA as Boryspil International Airport’s most important strategic partner, which generates 60 percent of the airport’s passenger traffic.
This year the airport served more than 10 million passengers, an all-time record in its 50 years.
At the same time, only one out of four of Boryspil’s passenger terminals is being used.
“Whether we want it or not, we will have to coordinate our plans with them. It is very difficult to work with such a big company, but we have an interest in growing together with our strategic partner,” Ryabikin told the Kyiv Post.
He added that Boryspil “is on the way to reaching a mutually beneficial agreement” with Ryanair.
Protectionism
But any policy in favor of one airline comes at the expense of benefits that Ukraine will gain from more tourists and investors. And besides being a destination, Ukraine strives to become a transit hub as well.
The danger of protectionism is starkly visible in Dnipro, the fourth largest city in Ukraine. The city airport is controlled by Dniproavia, another airline owned by Kolomoisky.
Citing various technical reasons, the airport’s management has forced out Turkish Airlines, LOT Polish Airlines and Belavia, leaving only flights operated by airlines affiliated with Kolomoisky to UIA, Dniproavia, Wind Rose Airlines, and Austrian Airlines.
Deputy Minister of Infrastructure Viktor Dovhan told the Kyiv Post that the government will try to solve the problems in Dnipro through the courts and the Anti-Monopoly Committee.
In contrast, business at Lviv International Airport has taken off under its director, Tetiana Romanovska.
This year the airport served more than one million passengers — the highest number since Ukraine regained independence in 1991. Romanovska’s policy is to bring as many international airlines as possible to Lviv.
Today, 19 airlines fly from Lviv airport to 30 destinations. In 2017, airport officials signed an agreement with Italian low-cost Ernest Airlines, and increased flights by Hungarian low-cost WizzAir.
The airport is now in talks with Ryanair, rejected by Boryspil International Airport, and British low-cost airline EasyJet.
