While waiting for my flight at Boryspil International Airport (KBP) earlier this summer, I noticed something was different. It is true, Terminal B has been expanded, but this was done at least a year before, and is not what I am talking about here.
I noticed (from announcements made in the terminal) that some passengers – and more than before – travel not to and from Ukraine, but through Ukraine, using KBP as their transfer airport. Does this mean that the gateway to Ukraine is actually becoming a hub, as envisioned by both airline executives and officials over the past several years? Do Ukraine’s airlines pursue the right strategy by trying to channel passengers through KBP? How successful will they be?
The so-called ‘hub-and-spoke’ system is one of the outcomes of deregulation of the US airline market, which happened in 1978. Once the market was liberalized, the airlines discovered they could optimize their operations by routing their passengers via one or several points in their network. This way, it became possible for the airlines to service more cities with fewer flights.
As an example, to connect five cities on the West Coast to the same number of cities on the East Coast, the airline could either offer 25 non-stop coast-to-coast flights, or direct all its coast-to-coast traffic via a hub in the middle, which will only require offering 10 flights (five from the West Coast to the hub, and five from the East Coast, also to the hub). As they now say in the Southern States, “You may go to heaven or hell when you die, but you will have to stop in Atlanta (Delta Air Lines’ hub and the world’s busiest airport) on the way.”
In addition to optimizing their networks, airlines using the hub-and-spoke system were able to both offer higher frequency of service and fill up their planes more. In a very competitive airline business, the carriers have to keep their costs in check, and filling up the airplanes is one way to do so. Economists call this ‘economies of traffic density,’ which translated means “per passenger cost is lower the fuller the flight is.”
Of course, every solution brings about new problems. The ones associated with running a hub-and-spoke system relate to overcrowding of the hub airport (recent research showed that a good portion of flight delays in the US are ‘self-imposed’ by airlines running overcrowded hub airports); and potentially devastating effects of adverse weather affecting the airline’s hub for the airline’s entire network (again, on the US market, I can name three such events this year alone off the top of my head, each of them receiving a lot of media attention).
Let me, however, return to the questions I posed in the first paragraph. So, is Boryspil becoming a hub? There is some progress in this direction, but the number of transit passengers at KBP is definitely small relative to the airport’s total traffic.
I do applaud Aerosvit’s and Ukraine International Airline’s (UIA) ambition for developing sound networks (and it is my impression that Aerosvit is doing more in this respect than UIA), but none of the two airlines will be able to turn Boryspil into a hub alone. Ukraine International has a well-established position in Western Europe; whereas Aerosvit’s primary presence is in Asia, North America and Eastern Europe.
This is a somewhat simplified description, as both carriers fly to the Middle East, and Aerosvit does have some flights to Western Europe, but these facts do not change what I see as the fundamental problem on the way to turning KBP into a true hub.
Specifically, given the current network structure of the two airlines, the lucrative Western Europe–Asia market remains closed to Ukrainian carriers. Instead, in addition to many direct services available, people travel via Moscow, Istanbul, or Helsinki. Moreover, a good number of Ukraine-Asia traffic goes via Moscow – these are people who could be on (yet non-existent) direct flights from Kyiv; and adding transit passengers from Europe is precisely what could make such flights cost-effective.
So, my advice to UIA and Aerosvit is simple – cooperate. Enter into an agreement, which will allow passengers arriving to Kyiv on Aerosvit’s flights from Shanghai, Beijing or New Delhi to hop on Ukraine International’s flights to Amsterdam, London, or Paris. Of course, there will be certain problems that need to be overcome: Schedules will need to be coordinated; potentially higher frequencies will need to be stipulated in air services agreements with some countries.
However, this cooperation will bring higher traffic, fuller flights, more frequent services to existing destinations, and quite possibly non-stop flights to more cities. After all, this will put Boryspil on the map as one of the world’s major airports, and make Ukraine’s airlines more competitive on the global market.
Some may say that instead of cooperation, the airlines should simply merge. While this definitely will make routing passengers through KBP easier, this will also mean less competition on Ukraine’s domestic market. An alliance between Ukraine’s two main carriers, on the other hand, will not produce such an adverse effect.
Operationally, with two runways, KBP looks ready to handle more flights, which is something potential hub status will require. What the airport will need to work on, however, is adding the terminal capacity and simplifying the procedure for handling transit passengers. So far, the latter looks to me like the one I experienced flying via Sheremetyevo last year – works fine if you have very few transit passengers, but becomes confusing and quite inconvenient as more people fly through the airport.
As I think about Ukrainian carriers’ position on the future global airline market, the Europe-Asia and North America-Asia niches look like a natural choice, with traffic channeled via KBP. However, achieving this goal will require cooperation between the airlines, adding terminal capacity to Boryspil, and simplifying transit procedure. Hopefully, several years from now people in London will be sharing their (doubtlessly good) impressions about a recent flight from Tokyo via Kyiv.
Volodymyr Bilotkach is a Research Fellow at the Kyiv School of Economics and Assistant Professor at the University of California, Irvine.
