Denys Kostrzhevsky: Kyiv Airport to double capacity next year
Chairman of the Board of Directors of Kyiv International Airport Denys Kostrzhevsky's exclusive interview with the Interfax-Ukraine News Agency (Part 1)
- You have been Chairman of the airport's Board of Directors for several years. What can you say about this period? Have you faced any challenges?
- It's a long story. I have been engaged in the development of Kyiv Airport since 2010. It has always been interesting, but it was hard only at the beginning. There was utter desolation, nothing flew. There was no water in the fire hydrants, and the airfield was under reconstruction. The most difficult thing was to maintain the personnel of the idle enterprise and pay them salaries.
Master-Avia built and opened Terminal A for international flights in 2012 and Terminal D for domestic flights and Business Terminal B for business aviation and private flights in 2013. The capital's airport has been rebuilt and today it is Ukraine's second airport in terms of passenger traffic, and municipally owned enterprise "Kyiv International Airport" ranks second among of the capital's largest taxpayers.
We forecast an increase in passenger traffic in the next few years, and this is connected with new large-scale airport reconstruction by Master-Avia. In 2019, the airport's capacity for arrival and departure will be doubled. By now, the zone of arrivals of international flights has been re-equipped and expanded. In middle of May this year, the airport is starting large-scale reconstruction of International Terminal A.
- What exactly is being done? What are deadlines and costs of the project?
- The airport earlier used Terminal D only to service domestic flights. Unfortunately, domestic passenger traffic has decreased significantly. It has almost vanished. It was decided to re-equip some of the facilities to service arriving passengers of international flights. I cannot elaborate on the exact cost of the reconstruction as it's in the pipeline, but it's about UAH 20 million.
We've built two galleries that connected Terminal D and Terminal A, doubled the number of passport control booths, significantly increased the area for the stay of passengers, doubled the number of luggage delivery belts.
About 9,000 square meters of additional space is planned to be added to Terminal A, which will double the number of check-in counters to 40. Also, the number of passport control booths, aviation security control points will double. As a result, the number of passengers to be served will simultaneously grow by 2.5 times. Now it is about 700 passengers per hour, it is planned to increase their number to 1,500 people.
- In your opinion, is it better to manage a private or state airport, for example, such as Boryspil Airport?
- I have no experience in managing a public facility, but, in my deep conviction, the state should not run any business. In all developed countries, the state is limited to ensuring equal competitive conditions for business and does not interfere in it.
If the state enterprise is managed by state managers, then this creates unequal competitive conditions for the rest. The state will always have a competitive advantage at its enterprises, having fiscal, security and any other levers of influence on the competitive environment at its disposal.
I am convinced that the state should not be engaged in business. The function of the state is the regulation, redistribution of public funds for the development of infrastructure, and doing business has nothing to do with the state.
Boryspil is an example of the government's interference in the price policy. I would even call it an attempt to put pressure by dumping, and this has nothing to do with competition. Well, it is difficult to manage such enterprises, as on the one hand the manager must meet the business criteria, but on the other, the criteria of the state official, and these are two incompatible functions. Either you are a businessman or an official whose task is to regulate business. Herein lies the problem.
And let's return to the development of Kyiv Airport. The next stage for boosting passenger traffic, profits and payments to the budget will be the reconstruction of a runway and an airfield. The runway is currently operated for about a decade, and it is gradually becoming dilapidated. In order to ensure flight safety, it is necessary to overhaul the runway in the next two to three years with the closure of the airport for a year.
Here we are faced with the fact that the runway now belongs to a municipal enterprise, that is, the city's community, and only that enterprise can do the repairs. In order to raise private financing for the reconstruction of the runway (and this is logical), it is necessary to either transfer the runway on concession terms or lease it out to a private investor on condition of reconstruction. This is our task for the next two to three years: to ensure the reconstruction of the runway either at the expense of the municipal budget, or with the involvement of a private investor.
- Let's talk about communication with government officials? Do they often understand what you want from them?
- Officials are a large group of people who work in many sectors. Each department has dozens of officials who we have to contact with. It is impossible to say that it goes smooth with all or not. Something is better, something is worse, sometimes it's a dead end, but nevertheless we reach compromises, making expediency and common sense our guidelines. Communication proceeds.
- How many times did you want to leave your post to work in a traditional private business?
- Not a single time. As our business is private. I have never thought about leaving the airport.
- And what about work with low-cost airlines. A year ago, Ryanair first wanted to enter, you put forward absolutely opposite terms, explaining that it was inexpedient from the economic point of view to make a series of concessions. From today's viewpoint, do you consider that position to be winning?
- At the time when Ireland's Ryanair entered into negotiations, six low-cost companies had already been working with our airport, they pursued an absolutely understandable pricing policy in the segment of low-cost transportation by air. Now we are negotiating with two or three more companies that are about to enter the market.
There is a price that an airline pays per passenger departing from an airport. It is not a shot in the dark – it's a result of detailed economic calculations and is approved by state agencies. These are airport fees. A government official checks the accuracy of economic calculations to prevent super profitability. Profitability is about 15%, the rest is net cost. This price is set then. At Kyiv Airport, the price was set at about $24 per passenger and all the airlines that work with us are happy with the price. At the same time, there is a transparent system of discounts – the more flights an airline carries out, the lower its rate is. With large volumes of traffic, the rate can almost be halved, and this is logical.
When a new airline comes, which has not carried out a single flight, asks for a discount from $24 to $7, we understand that there is no economic profitability for the airport. Our position was simple – one can not pay $7 for what costs $24. Yes, you can buy at a lower rate, but if there is a system of discounts thanks to a significant passenger flow. Ryanair did not like it, they wanted to get $7 per passenger from the very first day, and we could agree to these terms.
What happened in Boryspil is just a vivid example of state pressure on business to please political ambitions. And what was accepted at that airport is regarded by us as dumping in relation to other market participants, because the $7 rate does cover the costs of the enterprise.
- It should be really hard for a manager under such conditions. Could you please tell me whether you would agree if you were offered to head Boryspil or a similar state-owned facility?
- I do not hold government positions, and I always openly say this. I'm not interested.
- Do you think it's necessary to change anything in the management of Kyiv Airport?
- As passenger traffic grows, the load on all airport services increases. With the increased load, there are all kinds of options for optimizing technological processes. You can go in two ways. The first way is to higher more personnel in proportion to an increase in the number of passengers. The other is to introduce new technological solutions that will allow you to provide more services with the same number of employees. This applies to electronic check-in counters, automatic luggage check-in and other technological improvements. This is an endless process.
- How do you think whether the initiative of investing money in the airports of Bila Tserkva, Hostomel, and others is justified?
- You can build everything, its economic feasibility is most important. If the business sector is involved in the development of any industry, they always calculate possible costs and possible profits in order to understand the payback. When the state is engaged in the investment process, there should be no issue of payback in principle. The state should build infrastructure facilities – roads, ports and airports, but they should be managed by private businesses, then it will be justified from the economic point of view.
If we talk about prospects for the development of airports in the 40-60-kilometer area around Kyiv on the right bank of the Dnieper, I believe that a large modern airport like Boryspil is needed. Its possible location is a marketing issue. Of course, it should be where logistics is better, where the geometry of aircraft traffic is better. Such an airport is needed, the question is whose money will be used to build it. If it is public money, it is good, but it is important not to have another Boryspil, but an airport that operates on a competitive basis and is managed by a private business.