“You don’t buy an airline, you buy the market”

A quotation from today’s news (resource: ATW Online)

CEO Alfred Oetsch said Austrian is facing growing competition on its routes to Eastern Europe and that in order to defend its critical Focus East strategy and “keep our position strong,” it will “consider whether to buy or take shares in one of the carriers in Eastern Europe.” He did not provide further details, but airlines from countries like Romania, Bulgaria or Moldova may be among the most likely targets. “You don’t buy an airline, you buy the market,” he said. AAG already holds 22% of Ukraine International Airlines and will increase its stake “whenever it is possible,” Oetsch revealed. “Just like we started our cooperation with AiRUnion, where we use Moscow Domodedovo as a hub, we would like to develop Kiev into a hub for us as well”

Mr Oetsch’s statement is a reaction on an earlier speech of Karim Makhlouf, CCO of Sky Europe who considered Austrian to be the weakest hub carrier in Europe, adding: “That is why we will attack them.”

Competition in the Central and Eastern European region is becoming stronger and stronger. Let’s analyze this situation a little bit deeper. First take a look at the allinace member airlines:

– Austrian Airlines (Austria): Member of Star Alliance, recently started cooperations with Air Union, the new owner of the neighboring country’s flag carrier, Malev

– Adria Airways (Slovenia): strategic partner of Star Alliance, emphasis is more on charter flights

– Croatia Airlines (Croatia): strategic partner of Star Alliance

– LOT (Poland): member of Star Alliance

If we take a look at a map, we will see that from geographic point of view Star Allaince’s weak point is the Eastern region: Romania, Bulgaria, Moldova, ex-Soviet countries, especially the Baltic countries.

– CSA (Czech Republic): member of Sky Team

– Aeroflot (Russia): member of Sky Team

Sky Team’s strategy in the region is perfect. Geographcally this is the ideal situation for an alliance.

– Malev (Hungary): member of oneworld allinace, owned by Russia based Air Union

Oneworld’s weak point is also Eastern Europe – same situation as for Star Alliance. So the questions that can be raised here are: Which alliance will be supported by Air Union, who started cooperation with Austrian not long before they bought Malev? If Kiev is the target for Austrian, am I correct that this question has already been decided and Air Union will support oneworld? If Kiev is the target – are they approaching Aerosvit? Well, it would be a good decision from their side. But if their cooperation with Air Union will go on, I would prefer Moldavian Airlines (same owner as Carpatair) to Aerosvit.

Besides strong network carrier competition, there are also some low costs who try to gain market in the region. There is Sky Europe with hub in Vienna/Bratislava and Wizz Air with hub in Budapest and Katowice and recently Ryanair, Easyjet, Air Berlin and many other Western European low cost airlines have started operation in the area. Again there are uncovered territories such as Romania, Moldova, Bulgaria, Ukraine. Definately Ukraine is the biggest market among these and it has a good hb role as well: the ex-Soviet countries can be easily reached through Kiev. The situation is the same with Moldova, although there are language concerns when it comes to hub role in their case.

After all this we are excitedly wating for the next announcements of Mr Oetsch and we will see what markets they will buy.


2 Responses to ““You don’t buy an airline, you buy the market””

  1. 1 balint01 June 14, 2007 at 3:31 pm

    I also read this article the other day, and the same sentence stood out for me as well!
    They (Austrian) are already working with Ukraine International Airlines, so it would make sense for them to keep that cooperation and maybe invite them to Star. On the other hand, Aerosvit also from Ukraine would then be up for SkyTeam or oneworld. In Bulgaria, there is only one airline, which may also become linked with Star in my opinion. The bigger question (and the third biggest market after Russia and Ukraine from those mentioned in the article) is Romania. Their flag carrier (Tarom) is already some sort of a SkyTeam associate, and would make a logical addition to that alliance as a full member in the near future. Moldova is a very small market, so I would classify it as “nice to have,” but I don’t foresee any serious competition between the major Alliances to get Moldavian on board…
    But the biggest question is indeed AiRUnion. Aeroflot (the biggest Russian Airlines) is already gone to SkyTeam, so I personally believe there will be a huge competition between Star and oneworld to get AiRUnion (as the second in passenger volumes) on board. Just for the record: the third biggest Russian Airlines, S7 chose to follow more of a low-cost model, than the traditional airline business, so they are not really suitable for any of the alliances…

  2. 2 szafi June 15, 2007 at 2:13 pm

    Yes, you are right. S7 is out of the game, Air Union is the big question. But whoever will loose them, will have to go for a Ukrainian connection for sure. I thought about it a litle bit more and everything else is out of game for them. It’s the Russian and ex-Soviet countries’ business they have to win and Ukraine is the closest country to this position after Russia.

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