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Special Report - Kickstarting Growth in Eastern Europe

Special Report - Eastern Europe 

Can Eastern Europe recapture former growth rates despite struggling economies to the west and strong, global players to the East?

Aviation figures paint a challenging picture for Europe as a whole. Although the 2011 profit  forecast for the region has been revised upward to $1.4 billion, earnings are expected to plunge in 2012 to just $300 million—below every region except Africa—in the face of negative economic trends and the resurgent debt crisis.

A capacity increase of 4.8% has overtaken the 3.9% growth in demand. Taxation in the UK, Germany, and Austria adds to the challenge. but Europe is a big, diverse region. What may be true of the major players in the west doesn’t necessarily hold for relatively smaller players in the east. Just a few years ago, traffic for the likes of Poland and the Czech Republic was booming and the future looked bright, as membership of the European Union and low-cost travel made their mark. According to the economist intelligence unit, in 2007 GDP growth for Eastern Europe was running at nearly double that of the world average (7.6% versus 3.9%).

More recently, the global financial crisis took its toll and, like the rest of the world, Eastern Europe tightened its belt. in 2010, the region fell below the world average in GDP growth (3.3% versus 3.8%). it will surpass the global average once again but the bounce back is expected to be relatively modest as the economic squeeze continues and fears over the European emissions trading scheme intensify.

The Czech Republic has a positive outlook, for example—the national deficit is expected to run at about 45% of GDP, which is very healthy compared with many other countries. but traffic growth of about 6.3% until 2014 is not as robust as previous growth spurts, based on GDP growth of around 3.1%. Eastern Europe is also developing some issues of its own.

In Hungary, a strong government is busy on a nationalization program, which includes flag carrier, Malév. International opinion hasn’t swerved it from its path and that may yet affect its markets.

By contrast, Romania is selling off 20% of its national airline, and is more unstable politically. However, GDP growth of 4.7% in 2013–2015 is on the cards if the country joins Schengen later in the year. That is by no means certain though, due in part to French objections. Traffic is forecast to grow close to 8% over the next three years but Schengen will play a crucial role.

According to Veselin Peykov, executive Director of Sofia airport, Bulgaria’s fortune is strongly connected to its property market. “Bulgaria alone holds a very attractive property market,” he says. “lots of foreigners appreciate the opportunity to buy real estate at lower rates.” Bulgaria too expects to join Schengen soon, and Peykov believes this will stimulate freight as well as passenger traffic. Capacity rather than demand could be the issue going forward. “Passenger traffic continues to grow at high rates,” says Peykov. “This tendency might present a challenge for airports and require them to expand infrastructure to meet this growth.”

For Poland and Ukraine, the kickstart to former glory could be the 2012 soccer European championships (euro 2012). They are jointly hosting the tournament and have been busy upgrading their infrastructure. Warsaw’s Frederic Chopin airport is a case in point, and will have a new pier as well as resurfaced runways and taxiways.

Poland is already one of the powerhouses of the eastern European region. Its economy is expected to be stronger in the short-term thanks in part to euro 2012 with longer term GDP growth slowing to around 3.5%. Traffic should grow over 7% on average up to 2014 and
will be especially strong next year. Andrzej Kozlowski, lot polish airlines spokesperson,
warns, however, that fragmentation of Europe’s airspace and capacity constrained airports are a concern.

It all adds up to a complex future, as Eastern Europe contrasts its potential with the micro-management of the European Union as well as a looming financial double dip.

More articles in this report

Regional Awards
Eastern Europe has seen its fair share of IATA Eagle Awards in recent years. Prague Airport was awarded an Eagle earlier this year for its transparent, effective, and constructive consultations with airlines. Prague Airport has frozen its charges until March 2012, developing its commercial revenues to ensure a quality service isn’t compromised.

Technical development has played a big part in Prague’s success. For example, Prague was the first airport in the world to use the Wheeltug, which uses electric motors when helping aircraft taxi between the terminals and runways.

Also recognized by IATA was the airport’s positive approach to environmental issues. “I am proud that even a small country like the Czech Republic stands side-byside with the most improving, customeroriented, and technologically advanced airports of the world,” says Prague Airport General Director Miroslav Dvorak.

Meanwhile, Bulgarian Air Traffic Services Authority (BULATSA) received specific mentions in the 2009 and 2011 Eagle Awards for its industry agreement with IATA on a five-year plan for a reduction in air navigation charges.
BULATSA is continuing this progress by proposing to reduce its en-route charges by 5.5% for 2012.

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