Home' Asian Aviation : AAV Feb 2015 Contents 20 AsianAviation | FEBRUARY 2015
family aircraft (including four A321s and one A319),
five Boeing 757s, three 767-300ERs and nine
Embraer E-190s. Three 787-8 Dreamliners are on
Though not a large carrier by global standards, Air
Astana’s geographical location has fostered a “unique
footprint” across the CIS region. The network consists
of 12 domestic points (Kazakhstan is the largest
landlocked country in the world), seven in Russia, five
in Europe, two in the Caucasus, 11 in Asia and two in
the Middle East. Its dual-hub strategy entails western
points primarily connecting with Astana, while South-
east Asian points focus on Almaty.
Profitability has been achieved every year since
launch, and 2014 should be no exception. Operating
profits of about US$90 million are expected, Foster
says, with the audited full-year results due in March.
He credits the airline’s consistent financial
success to a mixture of “defensive growth” and
“micromanagement” across the business.
“We’ve just been very careful. We are cautious
people by nature,” explains the chief executive, who
has held the top job since 2005. “We try to keep
overheads low, aircraft utilisation high, and we just
have an extremely careful attention to the budget.
Not just on an annual basis, but on a monthly basis.”
Even with the most meticulous oversight,
however, events beyond management’s control can
throw a spanner in the works. That was the case
in February 2014, when the government devalued
the tenge, Kazakhstan’s currency, by 19%. The
subsequent revaluation of Air Astana’s balance
sheet translated to a “one-day, one-hour loss of
US$48 million”, slashing projected net profits.
“But it’s a paper loss, it’s a foreign exchange loss
by virtue of the accounting requirement to revalue
your debt,” Foster emphasises.
“What we had been very worried about was that
the tenge’s devaluation would result in a demand
stall. That’s what really worried us, and that’s the
reason we cut back a lot of planned capacity in
February. But, in fact, what happened was that the
Kazakhstan market stayed flat for the year.”
With demand holding up, Air Astana absorbed
the shock of the devaluation by tightening its cost
structures and tapering growth projections.
A cost-cutting programme initiated in late February
coincided with the renegotiation of several contracts
for aircraft spares and maintenance C-checks.
Together with fuel savings on its new winglet-
equipped 767-300ERs and sharklet-equipped
A320s, the airline slashed unit costs by 8% against
a mere 2% dip in revenue. The delivery dates for its
first two 787-8s were also pushed back to 2019,
meaning that all three units will now arrive that year.
Collapsing oil prices had a further sting in the
tail, with Foster admitting that Air Astana has been
“caught on our hedges”. The airline is locked
into paying US$75-85 per barrel for its hedging
contracts, which account for about 15% of projected
fuel-burn. At the time of writing, Brent Crude was
trading at US$47.
But 2014 also ushered in some positive surprises.
In April, the European Union (EU) removed all
operational restrictions on the flag-carrier within its
Air Astana was already exempt from the blanket
ban imposed on Kazakh carriers by Brussels
in 2009, but it was nonetheless prohibited
from growing capacity on the continent. Those
constraints have now been lifted, with European
transport commissioner Siim Kallas declaring:
“When countries do what it takes to ensure the
safety of their aviation industry, it is important that
the EU recognises these efforts.”
Despite welcoming the development, Foster stuck
by his mantra of caution. Raising European capacity
would have contradicted the airline’s strategic
response to the tenge’s devaluation, so services to the
continent remained static. The only change was the
re-alignment of London flights from Almaty to Astana.
It is a theme that was played out elsewhere in the
network, with global capacity rising by just two or
three per cent last year.
Expansion will be back on the agenda in 2015,
but at a noticeably gentler pace than in recent times.
“We’re bigger now, so the growth will slow a little
bit,” Foster confirms. “We have been on compound
growth of about 13% over the years [excluding
2014]. That’ll slow to around 7% for the next five
years, with the exception of 2017, where because
of Expo in Astana we expect 14%.”
Most of the additional capacity will be targeted
at existing markets. Seoul and Abu Dhabi are both
considered ripe for expansion, especially if metal-
neutral joint ventures with codeshare partners Asiana
and Etihad can be struck.
Bangkok has already been strengthened by the
December 2014 launch of a twice weekly service
from Astana, complementing the Almaty link.
But expectations are muted when it comes to
brand new markets. Foster predicts that just “one
or two” destinations will join the network in the near
future. Paris is “the one we really want”, he says,
confirming that a thrice weekly service from Astana
will begin in March. Tokyo is meanwhile in his sights
for 2016, pending a commercial agreement with
either All Nippon Airways or Japan Airlines.
“Japan is a very difficult market to go into on your
own. We’re unknown there,” Foster admits. “Japan is
crucial to us for long-term development.”
While other destinations will be considered —
Mumbai has potential following the signing of a
“We try to keep overheads low, aircraft
utilisation high, and we just have an
extremely careful attention to the budget.
Not just on an annual basis, but on
a monthly basis.”
president, Air Astana
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