With the declining state of Belarus’s economy, airline industry’s growth prospects are getting dimme

Even though Belarusian Airlines is making more money and becoming increasingly modern, this growth may be unsustainable in the long run as passenger demand declines due to unfolding economic crisis.

Whilst 2014 was a bad year for the Belarusan economy on the whole, it brought in plenty of profit for Belavia, Belarusan Airlines and Minsk National Airport.

Without any competition from low-cost airlines, Belavia has been able to safely modernize its fleet of planes and not lose its grip on the market. Whereas in the past the National Airport looked like a trip back to the USSR, nowadays travelling from Minsk is much more comfortable.

Belavia is just one example of this shift in the industry, and it is making more money and becoming increasingly modern. For instance, passengers will have no trouble checking in using a mobile device and they even offer free meals and beverages, which is rare for short-haul flights these days.

The recent growth in Belavia's profits may be unsustainable in the long-run, however, as passenger demand declines due to the unfolding economic crisis. Belarus’s only national airline will also continue losing its staff to higher-paying Russian airlines.

Even if Belavia struggles, Belarusans can simply book a flight from Vilnius airport, which is a short train ride away from Minsk and is well-connected to the rest of Europe with an abundance of low-cost airlines.

Rising demand and weak competition bolster profits

The plunge in oil prices has bolstered airline industry profits across the globe. The story of Belavia’s rise is more complicated, however. The success of Belarus’s national airline was driven not so much by the falling costs of fuel, but by the rise in domestic demand for travel and discriminatory laws.

In the past, few could afford an international flight from Minsk due to incomes that were, relative to the price of tickets, too meagre to afford such luxuries. But today a growing number of Belarusans are travelling abroad for holiday and business. Many choose to fly with Belavia.

The state-owned company has also benefited from protectionist economic policies. The absence of competition from low-cost European companies such as Ryanair or Wizzair allows Belavia to modernise in a safe and secure environment. According to aviation expert Aliaksei Marchuk, if Ryanair and Wizzair want to fly from Minsk they need to agree to a whole series of burdensome regulations with the National Airport and Belavia.

The most important aspect of this being the fact that Ryanair and Wizzair would have to be serviced on the ground by Belarusan Airlines. This means that Belavia engineers will provide all technical support to low-cost airplanes. Workers from Ryanair or Wizzair will have no right to.

Given the obsoleteness of Belarus’s aviation carriers and infrastructure, modernisation is one of the key first step towards improving the airline’s image. Modernisation has dramatically transformed the appearance of Minsk National Airport. Prior to the 2014 renovations, the majority of comments on Foursquare, a discovery service mobile application, had described the airport as being in a shameful state. Dark and deserted, the airport building lacked escalators, cafes, and resting places. Following the recent modernisation, funded by a loan from China, the airport has obtained a broad range of conveniences, including a gym for customers.

The airport’s external infrastructure is also being improved. Over the next three years, a new runway will be built at a cost of at least $300 million, Aliaksei Marchuk told Belarus Digest.

This modernisation push is being accompanied by an increase in clientele numbers. Over a 10-year period passenger traffic via Minsk National Airport has increased fivefold. In 2014 2.6 million people visited the airport.

Improving Belavia’s image to woo consumers

Belavia had a number of notable achievements in 2014. The airline transported nearly 2 million passengers, a 22.3% increase from the previous year. Its cargo loads grew 9.6% from the previous year.

The company earned $15 million in 2014, making it one of the highest earning Belarusan state-owned companies at present. At the same time, the airline has invested into renewing its ageing fleet. The company acquired two new Embrayer-195 planes and three used Boeing 737-300 planes. In January 2015, Belavia bought a Boeing 737-800; four more Boeings are slated to arrive by 2016. The new aircraft are set to replace Belavia’s older TU-154Ms, thus bringing an end to Belavia’s reliance on aircraft produced in Russia.

Despite the respectable age of Belavia’s current aircraft, the airline has acquired an image as a safe transportation provider. Belavia’s only major accident happened in 2008 in Armenia when passengers and staff were safely evacuated from a plane that had overturned and caught fire during takeoff.

The company’s image continues to improve. In 2014 Belavia finally launched its own online reservation system. Belavia’s customers can now check in using mobile phones. What is more, bucking the current trends of Europe’s low-budget airlines, Belavia’s flights include a free beverage and meal service.

Due to these improvements, Belavia can now compete with low-cost companies that fly out of Vilnius. For example, a round-trip flight from Minsk to Warsaw now costs €99, cheaper than a direct train. One can also buy a round trip flight from Minsk to London for a mere €244.

With some help from Boeing specialists, Belavia has engaged in a rebranding exercise. During the Christmas holidays, Belavia’s stewards were dressed up as Santa Claus and Snow Maiden (Snegurochka), another traditional holiday figure. To improve its image with younger customers, Belavia went as far as hosting a concert by Belarusan rock group J-Mors on a flight to Amsterdam.

Open skies have limits

How much can Belavia grow? Given the deteriorating state of Belarus’s economy, growth prospects are looking increasingly dim. According to various estimates, Belarus’s economy will be in crisis for at least three years. This means that fewer Belarusans will be able to afford holidays in Turkey, Egypt or Bulgaria, which are currently the top destinations for Belarusan charter flights.

At the same time, Belavia will remain unable to offer long-distance flights. The airline currently lacks large aircraft, and the domestic demand for long-distance flights remains insufficient to warrant the airline’s expansion in this direction. Belarusans flying to Beijing or New York will continue to rely on foreign airlines in the near future.

Marchuk told Belarus Digest that even if Belavia were to acquire larger aircraft, the appropriate infrastructure is lacking. The National Airport remains the only airport in Belarus where wide-body aircraft can safely land. If there is bad weather, large airplanes have to be redirected to neighbouring countries.

For many Belarusans with Schengen visas, booking a low-cost flight from Vilnius Airport, which is accessible from Minsk by train and is often called the second Minsk airport due to its proximity, may remain a cheaper travelling alternative.

Competition from Russian airlines will also remain a threat for Belavia. In 2012, Aeroflot tried to buy Belavia, and sought to prohibit it from flying to Russian cities other than Moscow. Since then the parties have reconciled, but an outflow of Belarusan personnel to Russian companies remains a problem. Aeroflot can afford to pay much more than the average $7,000 annual wage of Belavia pilots.

Originally published at BelarusDigest