Georgia craves for low-cost carriers
14 October, 2010
Georgia craves for low-cost carriers

Fights at Georgian air-market seem to get cheaper starting this fall. Two new air companies - the Lot Polish Airlines and Turkish Pegasus, - both Star Alliance member-companies, entered Georgian market by three- and in some cases, five-fold cheaper prices. Whether or not new market players will manage to break through the stagnated high-price-balance of Georgian market is a matter of time, both old and new market players believe. However, newcomers hope the revolutionary prices they propose, will force old market

operators to cut down prices to survive competition. Old operators think the new comers came with unrealistic damping prices and will have to jack prices up in a long-term perspective.

Georgian government takes efforts to attract low-cost air-companies to Georgia so as to increase tourist turnover to and from Georgia and yield bigger economic profit ultimately. But its attempt to secure classical low-cost air-companies are not crowned by success as of yet. Negotiations between Georgian government and the Irish-based Ryanair, Europe’s largest low-cost carrier and the 3rd-largest airline in Europe in terms of passenger numbers and the largest in the world in terms of international passenger numbers, are still underway. According to Georgian media, Ryanair refrains itself to enter Georgian market at the moment for it requires higher passenger turnover and more frequent flights than Georgia can offer. Georgian government does not disclose details of the negotiation under the pretext that it can affect interests of Ryanair and that the low-cost carrier giant will trumpet all details after the negotiations are through. Authorities acknowledge that Ryanair can make a breakthrough at Georgian market enabling tourists to take flights to and from Georgia for quite affordable prices varying tentatively between EUR 10-50 against the currently active prices figuring EUR 350-800 at average on international flights.

Irakli Davitadze, Head of the United Transport Administration of Georgia (UTA), believes that negotiations with Ryanair will be successful all in all but he cannot name even tentative date when the biggest low-cost carrier of Europe is supposed to hit Georgian market. What Davitadze can say for sure is that if Ryanair really enters Georgian market it is supposed to offer the market ten-times lower costs and boost much bigger passenger turnover.
“Two things define big passenger turnover in fact: an interest toward the country and low cost on tickets. Interest toward Georgia is big I can say, and if you offer EUR10-20 [on air-tickets] a big tourist inflow is supposed to come to Georgia,” Davitadze explained to Georgian Journal adding that low-cost segment will develop in Georgia gradually along with Georgian air-market and economic development.
Passenger turnover at Georgian airport still lags much behind million at the moment and is predicted to reach million by 2012. Based on nine months’ data statistics of 2010 Georgian passenger turnover accounted for 614 453 that by 10% and 16% exceeds figures of similar period of 2008 and 2009 respectively. August war and economic crisis affected Georgian passenger turnover in 2008 the most successful year to Georgian aviation market when unprecedented 70% growth in passenger turnover was registered against the 50% growth registered at average in previous years, Aleko Gachechiladze, Head of Passenger and Cargo Transportation Department at UTA, told Georgian Journal.
The growth figure dropped after August war. It recovered and exceeded the 2008 data only in 2010. And irrespective it still lags much behind million, the figure coupled with liberalized air-market attracted two new air-companies to Georgia in this fall.
Polish-based Lot and Turkish Pegasus started operation on September 15 and October 10 respectively. None of them appears classic low-cost carriers but they entered Georgian market by revolutionary prices cutting prices three-fold on European directions and by five-fold on Istanbul flights [that is the most demanded flight in Georgia].
If the benchmark price started from EUR 450 on Tbilisi-Istanbul flight implemented by Turkish Airlines for almost ten years, Pegasus offers EUR 79 on the similar direction. According to Levan Elizbarashvili, Representative of Pegasus in Georgia, the price includes all due air-flight-related costs [including cost-free 20 kg hand-luggage] except food. But company offers a choice to passengers: either order food for EUR 10 during purchasing tickets or buy foods for similar EUR 10 during the flight.
“All in all the flight to Istanbul may cost up to EUR 90, while we guarantee absolute safety of flight and comfortable air-plane just like other expensive air-companies can offer,” Elizbarashvili told Georgian Journal. 
Having operated at internal Turkish air-market till 2005 Pegasus decided to enhance its market at international level in 2005 and is already represented at 28 key EU cities. It offers flights from Tbilisi to all EU directions for prices starting from EUR 119. Tbilisi-Rome one-way ticket for example costs EUR 119, Tbilisi-Milan – EUR 120-130, flights to Germany varies between EUR 119-140, to London – EUR 130-140. While Turkish Airline one-way prices on Istanbul flights start from EUR 450 and may reach EUR 700-800 depending when the ticket is booked. Round-trip tickets of Turkish Airline are affordable for EUR 280-700 [economy-class] and business class starts from EUR 900. Lufthansa, that is the most expensive air-company taking the premium segment in Georgia, fixes starting prices on EU directions [via Munich] as EUR 450, and goes as high as EUR 700-800 for economy class. Business class is much higher. American direction costs start from EUR 1000 to Lufthansa and may exceed EUR 2000. Air Baltic that was esteemed the low-cost carrier prior Pegasus and Lot entrance at Georgian market fixes starting prices on EU directions [via Riga] as of EUR 300 per round-trip but it does not include luggage price fixing EUR 20 per kilo. Air Baltic makes available EU flights from Tbilisi for even EUR 50-80 if the ticket is booked by 2-3 months earlier. Meantime Lot makes available round-trip flights to EU for EUR 320 and one-way tickets to US for EUR 575 approximately, tickets can be booked by a week earlier and include all possible flight-related costs including food, Lot Travel agency assures.

“The cheapest costs are fixed by Pegasus and Lot today irrespective that Pegasus does not include food the flight costs are much cheaper ultimately,” Fresh Travel air-ticket agency told Georgian Journal.
Marina Abuladze, Director General of Berika, Official Representation Office of Czech Airlines and Air Baltic in Georgia, thinks prices proposed by new market operators are unrealistic and they will be forced to increase them in a long-term prospect otherwise they cannot work. Georgian Airways, the single Georgian air-company implementing international flights and taking 19% of Georgian market incorporating 18 companies, makes no comment respective to the new price-policy. They suggest waiting and seeing what happens. Georgian Airways implements flights toward EU for EUR 229-333 as a starting price on one-way trips, and plans to offer a sale during winter-time making flights to EU affordable for EUR 100.

Giorgi Lipartiani, Director General of Lot representation in Georgia, believes prices fixed by Lot are quite realistic and not damping, as far as they are in line with Lot price-policy in all directions in the region.
Elizbarashvili also claims Pegasus prices are not damping and pledges to maintain low-cost policy even if prices at the market fall below their current prices in future. Pegasus expects 50% growth in passenger turnover due to low costs that enables the company to go ahead with low prices.  Pegasus plans to add flights toward Asia and Africa gradually.
“I think low costs will attract tourists, a German citizen for example could not dream of flying to Georgia for EUR 119, while I believe he/she was interested to visit Georgia but was reluctant to pay EUR 300-400 for a trip and preferred to go to Spain for example for cheaper price. If I can fly for lower costs other companies also can,” Elizbarashvili believes and presumes that its competitors will be forced to cut down prices.

Davitadze absolutely rules out that the price- damping policy is available at Georgian market been liberal and free of monopolists. He agrees that some air-companies have reserves to reduce prices although cannot say for sure whether or not they will cut down costs.
“Market regulates prices, they will be shaped out according to demand,” He said.

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