Air Astana to launch LCC brand, reducing unit costs by nearly 40% on short haul routes

Kazakhstan’s Air Astana has announced the establishment of a budget brand which aims to become the first true LCC in Central Asia. FlyArystan plans to commence domestic operations in 1H2019 with four Airbus A320s and grow its fleet to at least 15 aircraft by 2022.


Summary:

  • Air Astana has established a low-cost brand, FlyArystan, which plans to commence operations in 1H2019;
  • The start-up will initially operate four A320s which are owned by Air Astana and are being retrofitted to 180 seat single class configuration;
  • The LCC will enable Air Astana to compete more effectively at the bottom end of Kazakhstan’s highly competitive domestic market.

The new LCC will likely start competing in the regional international market by the end of 2019 although its business plan focuses predominately on Kazakhstan’s highly competitive and price sensitive domestic market. It will be a division of Air Astana, operating under Air Astana’s operators’ certificate and KC code.

FlyArystan’s management team and fleet is being sourced from Air Astana. However, it will be managed independently and route decisions will be market driven. For example, Air Astana will not dictate route transfers as is often the case with LCCs that are under FSCs.

It will follow a pure point-to-point low cost model and not pursue any transfer traffic. “Our LCC will be a genuine LCC, with its own management and branding, even though at this point it’s a division of Air Astana,” says Peter Foster, CEO of Air Astana.

Speaking to The Blue Swan Daily ahead of the airline’s formal launch, he said he is confident FlyArystan can achieve unit costs that are on par with some of the world’s most successful pure LCCs despite operating as a division rather than separate company. FlyArystan’s business plan projects CASK of USD4.1cents on the same routes that Air Astana now has a CASK of USD6.7cents, resulting in nearly 40% cost savings. (Air Astana’s overall CASK is USD5.7 cents, which is very low for an FSC.)

The projected savings are being achieved by using higher density aircraft, increasing aircraft utilisation and reducing distribution costs. The decision to pursue a multi-brand strategy came out of a cost cutting exercise that began a year ago in response to increasing fuel prices and intensifying competition in Kazakhstan’s domestic and regional international markets.

Air Astana decided against cutting back service levels, which it feared would alienate customers, and instead pursue a budget brand – which could eventually become a separate subsidiary with its own AOC.

As a group, Air Astana is maintaining the same 10-year fleet plan which was initially prepared three years ago. It has been planning to grow its fleet from 30 aircraft in 2015 to 60 aircraft in 2025. FlyArystan has now been allocated 15 of the total 60 aircraft but will likely end up with significantly more.

FlyArystan’s initial fleet of four A320s are Air Astana owned A320ceos that will be converted from 148-seat two class to 180-seat all-economy. Air Astana has another four leased A320ceos and is discussing lease extensions with the idea of also reconfiguring them for FlyAystan. The full-service brand is transitioning to an all re-engined narrowbody fleet consisting of A320neo family aircraft and Embraer E2s.

CHART – Air Astana already operates A320neos and A321neos and has commitments for more of each type along with A321neoLRs, E190-E2s and 787sSource: CAPA – Centre for Aviation Fleet Database

FlyArystan will become only the third LCC in its region (after Azerbaijan Airlines budget unit Buta Airways and Kyrgyzstan’s Air Manas) but claims to be the first following the classic LCC model. While there is not yet any local LCCs, four foreign LCCs currently serve Kazakhstan – Air Arabia, flydubai, Pegasus Airlines and Wizz Air. Aeroflot LCC subsidiary Pobeda will likely enter the market in the near future and was a major driver in Air Astana’s decision to establish an LCC.

The FlyArystan project has government support, which is critical as Air Astana is 51% government owned and Kazakhstan needs to amend a law requiring all airlines provide 20kg of free baggage for the LCC model to be successful locally. High airport costs and expensive handling companies, which are not currently capable of supporting 30 minute turnarounds, are also challenges that will need to be overcome for the LCC model to be successful in Kazakhstan.