Ukrainian International Airlines or UIA has made a loss for the second year in a row, the company’s head Yuri Miroshnikov said during the airline’s annual press conference on Feb. 6.
Still, the news wasn’t all bad: the company was able to increase the passenger volume by 15 percent, carrying over 8 million people in 2018, Miroshnikov said.
Miroshinkov said the company also serviced over 3.5 million transfer passengers using Ukrainian airports as a stopover.
But it’s been a rough two years for the airline. After recording a $387 million net profit in 2016, the company struggled to remain profitable in the face of a rise in competition – primarily from budget airlines. In 2017, the company recorded a $304 million loss, and Miroshnikov acknowledged that the situation hasn’t improved in 2018, although the company’s financial report for 2018 is yet to be published, and the size of last year’s loss is not yet known.
Low fares are a big part of the problem, Miroshnikov said.
According to Miroshnikov the average price of an hour of flight for passengers dropped from $55 in 2013 to $33 in 2018. The main reason for the cheaper fares is the rise in competition, primarily due to the expansion of the schedules of budget airlines.
Ryanair, the Irish low-cost airline, which entered Ukraine on Sept. 3, is now offering tickets for as little as 10 euros, while Wizz Air, a Hungarian budget airline, expanded its Ukrainian network, and now offers 41 destinations from three Ukrainian cities compared to just 16 flights from Ukraine in 2015.
And Miroshnikov said there were a number of other factors squeezing UIA’s finances. The company, according to its management, is renewing its fleet. But delays in buying four new Boeing 777-200s have cost the company $20 million, said Miroshnkov.
Another crucial problem, Miroshnikov said, is the fuel excise tax, with the company forced to pay $30 for each ton of fuel. According to him, since companies such as Ryanair or Wizz Air don’t pay taxes in Ukraine, these airlines are given an advantage.
Yevgen Treskunov, the co-founder of Aviaplan, an independent aviation consulting firm, agrees, saying the fuel excise tax is a substantial overhead considering that UIA buys around 400,000 tons of fuel per year.
Added to that, aviation fuel in Ukraine is more expensive than on the European market. Treskunov said Ukrainian companies have to buy at least 50 percent of their fuel in Ukraine, where prices are 15-50 percent higher than in Europe. This puts a heavy burden on Ukrainian-based airlines, including UIA, he said.
In 2018, UIA launched four new flights, to Delhi, Toronto, Cairo and Venice. While international flights remain profitable, domestic flights are uneconomic, with Miroshnikov saying his company can’t compete with cheap train fares.
Ukraine’s flag carrier experiences financial losses for two straight years.
However, Treskunov says that domestic flights have their value in that they connect regional passengers with Ukraine’s main hub, Kyiv’s Boryspil International Airport, which increases revenues from UIA’s international flights.
All the same, Miroshnikov believes that UIA should get support from the government, in the same way as state railroad administration Ukrzaliznitsia does, so that it can compete with both international air companies and domestic road and rail transport.
“The government should always support their own (domestic companies)” said Miroshnikov.
Currently, UIA is trying to maximize profits by copying the practices of budget airlines – food isn’t now included in the price of a ticket, and since Jan. 15 passengers with oversized baggage have had to pay a 15 euro fine.
Miroshnikov said the market forced these policy changes on the airline, but both passengers and the media have asked why UIA’s fares haven’t fallen substantially as well – ticket prices comparable to those offered by Ryanair and Wizz Air are only offered by UIA if passengers book six to eight months in advance.
Looking ahead, Miroshnikov said his company was not planning to expand its fleet or the number of flight destinations in 2019, with the only exception being the addition of Izmir, Turkey in late spring.
Instead, the company will focus on upgrading its fleet and regaining profitability, he said.
“We see this year (2019) as a year of stabilization,” Miroshnikov said.
