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Azerbaijani Citizens Prefer to Fly through Georgia, AZAL Prefers to Remain Silent

Azerbaijani Citizens Prefer to Fly through Georgia, AZAL Prefers to Remain Silent
Markets Review 

2017 October 02 ( Monday )  15:33:46
Print version
Русский Azərbaycan
Emil Guliyev

High prices for tickets, monopolization and reluctance to let other companies into the airspace of the country, and high taxes and airport fees for companies flying to Azerbaijan have always been arguments of the critics of CJSC Azerbaijan Hava Yollari (Azerbaijan Airlines or AZAL). Now foreign airlines have started talking about it openly, and leaving, slamming the doors, as the Russian company Pobeda did in August.

Victory Loses

As it is already known, the low-cost airline Pobeda (Victory), a member of the Aeroflot group of companies, decided not to renew the flight from Rostov-on-Don to the capital of Azerbaijan in the winter schedule of 2017. A spokeswoman for the carrier, Elena Selivanova, said that the Baku airport tariffs proved to be a barrier for them, and to continue the flights, it would be necessary to increase the cost of tickets.

At the same time, the airline has kept flights to Tbilisi in the winter schedule.

The Turan news agency appealed to AZAL for comments, but here they decided to leave the request unanswered, indirectly confirming the rightness of the Russian low-cost airline.

And then, we have to remember that many experts, commenting on the creation of the national low-cost carrier Buta, have suggested that this is done to eliminate low-cost airlines from Azerbaijan"s airspace. The company Pobeda can be considered the first victim of the new policy of AZAL.

Expensive National Low-Cost Airline

At the first stage, Buta Airways will fly from Baku to Moscow (Vnukovo), Antalya, Kazan, Mineralniye Vody, Kiev, Tbilisi and Tehran. With the beginning of the winter season (from October 29 this year), the company"s route network will replenish the cities of Istanbul and St. Petersburg.

It should be noted that the national low-cost airline does not justify the expectations of the average Azerbaijani either. I.e. the minimum cost for all directions of Buta Airways will be 29 EUR one way. Additional services (baggage, hand luggage, hot meals on board), as well as the choice of seats on the plane on low-cost Buta Airways flights will be offered as options. In other words, 29 EUR in one direction is when the passenger gets on the plane without anything with him.

It is impossible to imagine such a passenger. Therefore, taking into account the euro exchange rate to the manat, as well as the rates of CJSC AZAL, the flight in both directions with luggage with the national low-cost airline will cost at least 170-200 manat.

And this is provided that the passenger is lucky to find the cheapest ticket. As it turned out, there are no such tickets in free sale. They are already sold to travel companies, which in turn offer tickets with their markup. For example, one of the travel companies on its official website reports that tickets to the destinations of Istanbul, Moscow, Antalya, Tehran, Tbilisi, Kiev, Mineralniye Vody, and Kazan with Buta Airways start at 135 manat and this amount does not include anything, even hand luggage.

Price Difference between Baku and Tbilisi on International Airline Flights

AZAL often likes to repeat that taxes and other fees apply to all companies equally, and there is no special approach to any company. In other words, the rates applied to such grandees of passenger transportation as Turkish Airlines and Lufthansa are equally applied to low-cost companies. In principle, the approach is understandable, since large air carriers may remain dissatisfied with a personal approach to low-cost companies. However, experts repeatedly offered to provide the airport in Gabala for low-cost carriers and establish relatively low prices there. In this case, each company would choose between the expensive Baku airport and the relatively inexpensive airport in Gabala. Going beyond the topic, it should be noted that this would help the development of tourism in the regions of Azerbaijan.

Returning to the topic, we emphasize that the expensive taxes and fees at the Baku airport also displease the grandees of passenger transportation, which are forced to set high prices for their tickets. An elementary comparison of the prices for tickets of Turkish Airlines and Lufthansa from Baku and from Tbilisi (taking into account the increased interest of Azerbaijani citizens to fly from Tbilisi, we will henceforth compare the departures from these two airports - Author) will give a complete view of the matter. This explains why many Azerbaijani citizens prefer to cover 500 km between Baku and Tbilisi, wait in hour-long queues at the border and fly to Europe from the capital of Georgia, rather than from the Baku airport.

For example, taxes and other airport charges account for one-fourth of the price of a Turkish airline ticket for the Baku-Istanbul flight, while the same figure for the same company of the Tbilisi-Istanbul flight is 1/6.

Taxes and fees for the Lufthansa ticket on a direct flight from Baku to Frankfurt are about half the price, and at the Tbilisi airport this figure for the company"s flight to Munich is one quarter.

Further, things are even worse. It turned out that the difference in the price of a ticket for the same company flying from Baku and from Tbilisi in any European direction (transit) is at least 200 manat per person. This can be seen if you go to the website of airlines that fly from Baku and Tbilisi and search for a ticket in the same direction for the same date.

In AZAL they like to repeat that Baku airport serves 29 airlines that fly to 53 destinations and the presence of so many companies shows that the critics of CJSC AZAL are unfair.

For comparison, according to the Civil Aviation Agency of Georgia that responded to the request of the Turan news agency, 41 airlines fly to Tbilisi, 23 airlines fly to the Batumi airport, and 5 companies fly to the Kutaisi airport. Taking into account the fact that some airlines fly to several Georgian airports at once, 49 airlines fly to Georgia to more than 100 destinations.

Flights in the European direction from the two countries cannot be compared at all. From the neighboring country you can fly almost in all directions in Europe. One only airline Wizzair flies directly from Kutaisi to 11 cities of eight European countries. From Baku, this company flies directly only to Budapest.

Airport Reports, but Questions Remain

The Baku airport report indicates that in January-August 2017 the airport served almost 2.7 million passengers.

During the reporting period, the share of the national air carrier AZAL accounted for 1.61 million passengers, of which 408,000 were transported on domestic flights. At the same time, the report does not say what percentage of all passengers are Azerbaijani citizens.

CJSC AZAL, where the corresponding request was sent by the Turan news agency, did not want to report this either. Despite a written request, the company completely refused to comment on the issues of interest to the agency. AZAL did not want to answer the following questions:

- How much airport taxes and fees were collected in the period 2016-2017;

- How much was the revenue from the sale of tickets for the specified period;

- How much was paid to ticket sales agents;

- How much was AZAL payment for services.

Opaque National Air Carrier

Opacity is typical of the national air carrier and therefore refusal to answer questions did not cause our surprise.

The results of the financial audit of the Accounting Chamber in CJSC AZAL for 2015 say that there was a violation of the legislation on state purchases twice. At the same time, their amount was estimated by the Chamber at the level of 0.1% of the total financial deviation of the airline for the year 2015.

Turan has already written that in 2015, or in previous years, as well as in 2016 and this year, AZAL has never conducted competitive procurement, which is mandatory for companies with a state share of 30 percent or more. 100% of the shares of AZAL belong to the state.

AZAL, contrary to the law, also shies away from disclosing annual financial reports in the media and on its corporate website.

In AZAL, in violation of the law, there is no Supervisory Board to control the activities of its Board, which consists of seven persons.

Burden for State Budget

In principle, AZAL should become a national pride for the citizens of Azerbaijan, as, for example, Turkish Airlines for Turks. However, the domestic air carrier does not give an occasion for the average Azerbaijani to be proud of it. It would be possible to be proud in case of acceptable prices (as it was noted above, the prices in AZAL are sky-high), when a citizen with average income could afford to buy a ticket.

The second reason for the pride could be if AZAL was the second taxpayer after the State Oil Company and replenished the state budget. As it turned out, it is not. After applying the tax amnesty in early 2017, AZAL"s debt was written off in the amount of 14,475,000 manat. Moreover, AZAL receives subsidies of at least 10 million manat from the state budget every year.

The fact that AZAL is a burden to the state budget is not concealed by members of the government. So, the Minister of Finance Samir Sharifov, speaking to journalists, stated that AZAL is always in the center of attention of the government and constantly receives various kinds of assistance from it.

"It is expressed, for example, in selling fuel on preferential terms, issuing loans under a state guarantee and writing off the company"s debts, which was undertaken in different years," he said.

Falling Rating

AZAL, which was supposed to become the pride of Azerbaijanis, began to lose its international ratings. So, according to the results of the studies of the British company Skytrax, AZAL ranked 71st among the world airlines, having worsened its positions. In 2016, AZAL was at the 70th place.

Among the CIS airlines, AZAL is behind Aeroflot, which took the 30th place (in 2016, the 40th place) and Kazakhstan"s Air Astana, which took the 46th place (in 2016, the 43rd place).

Wizzair Story or Attempted Sabotage

As practice has shown, a lot of criticism of the national air carrier has no result. And judging by several events, it seems that the company"s management can afford to try to sabotage even presidential decisions. The Wizzair story is proof of that. The Hungarian low-cost carrier after two years of work in Azerbaijan (2013-14) ceased to fly to Baku and the reason for this was the already usual obstacle from AZAL.

Then, in 2015, the President entrusted the Minister of Economy Shahin Mustafayev with restoring the company"s flights. It was he, and not the head of the AZAL Jahangir Askerov, who on behalf of the head of state held negotiations with the Hungarian party in April 2015 and told them about Azerbaijan"s readiness to restore the flights of this company. Even after that, AZAL delayed the solution of the issue with Wizzair and launched the process only after the hype raised in the Azerbaijani media.

Unparalleled in World

In general, the complexity of the situation lies in the fact that the airport and the air carrier belong to the same company. Naturally, in this combination, it is difficult for other companies to compete with the national air carrier and the prices for them will be high.

Repeatedly experts stated that to correct the situation the airport should be removed from the subordination of AZAL and should become independent of Jahangir Askerov"s structure, with its pricing policy. In this case, AZAL will have to learn how to compete with other airlines and accordingly lead the pricing policy to normal and make it more accessible. And other companies will no longer depend on AZAL and will cooperate with the airport to adjust their pricing policy.

AZAL Monopoly Prevents Other Airlines

The economist Natig Jafarli also believes the AZAL monopoly prevents the emergence of other companies in the Azerbaijani market.

"All companies wishing to fly to Azerbaijan must coordinate their pricing policy with AZAL and take into account the requirements of this company. Subordination of ground services, fuel sales and security services to AZAL increases the costs of companies and hinders their profitability. Such companies either do not come to Azerbaijan at all, or after some time they are forced to leave this market," he said.

He noted that the monopolistic position of AZAL allows it to dictate prices, as well as work in the absence of competition.

"Recently, the Cabinet of Ministers has set a symbolic price of 1 manat of customs duty per ton of aviation kerosene, so that AZAL could work more profitably. However, despite this, AZAL not only does not reduce prices, but also does not work profitably to pay taxes to the state budget," Natig Jafarli said. -A-