Air Serbia reaffirms its hub strategy at Belgrade airport

Summary

  • Strong growth in traffic before the pandemic was reported at Belgrade airport.
  • Passenger capacity is approaching 2019 levels, but cargo volume is lagging behind.
  • The impact of LCC was moderate.
  • Political decisions may need to be made regarding the future direction of the country.
  • The ambiguity remains on a proposed new airport.

New track ready by the end of 2022

The new 3,500m runway at Belgrade Nikola Tesla Airport is expected to be completed by October or November 2022.

The works are part of an 80 million euro expansion project, including the expansion of the terminal and the construction of a new control tower, which is scheduled for completion in 2024 according to the CAPA Airport database. Construction Database.

Work will continue until 2024 and a final figure of over $ 1 billion has been suggested as the airport attempts to position itself as a competitor to airports in Vienna, Prague and Budapest, as well as with a view to all cooperation in the Chinese belt and road. Initiative.

Extensive reconstruction of the area in front of the terminal is underway, including modernization of access roads, construction of parking lots and extension of the terminal for centralized check-in and security procedures.

Check-in will be centralized, with around 100 check-in counters, after which passengers will proceed to the first floor for centralized security checks and then proceed to a large duty-free area.

There have been several CAPA articles in the past on the expansion of Belgrade airport and whether or not it can compete with the larger hubs in the region.

The first took place in March 2015 and was anchored on an announcement from Air Serbia that it intended to develop a hub in Belgrade.

See: Belgrade Airport, with the resurgence of Air Serbia, challenges the order of hubs in Central / Southeastern Europe.

The conclusion was: “In five or six years, the Belgrade airport could certainly be able to challenge the accepted order in its part of the world, but there are still many bridges to be crossed. Much of this future will be closely linked to the development of Air Serbia – and there the signs are positive.

The second took place in March 2019, following the privatization of the airport as part of a concession agreement won by the French VINCI Airports; its first airport in Central and Eastern Europe.

See: Belgrade Airport: VINCI Airports winners, challenges ahead

The conclusion was: “Growth has not been as expected… and the road may be longer and more difficult than expected”.

Air Serbia is once again committed to developing its hub and spoke model

The recent announcements regarding the completion of the airport expansion works come by coincidence as Air Serbia reaffirms (mid-December-2021) that it will continue to develop its hub and spoke model, despite the coronavirus pandemic which strongly impacts the demand for such flights.

Air Serbia General Manager for Trade and Strategy Jiri Marek, speaking no doubt on behalf of many small airlines, recently said: “Covid-19 has completely changed the approach to network planning . You don’t really use long-range planning anymore. You are still doing the three-year and five-year plan but, in a way, it is an exercise that you will continue to change and adapt based on external inputs. “

He added: “The network has always been driven by demand and demand is most affected by the pandemic. It fluctuates in both directions. It’s limited whenever you have new travel restrictions, while you have demand spikes when something opens because people still want to travel. The question is how quickly you can adapt to these changes in demand, especially with the network. What we’ve observed throughout the pandemic is that the reservation window is eight to ten days before departure where you get most reservations. The question is how to do a medium or long term planning in such an environment ”.

The airline has changed its internal practices to adapt to fluctuating demand, by tracking bookings on a daily basis.

“What’s going on with the hub and spoke model is super difficult because you don’t just go point to point,” he says. However, we firmly believe that we will stay with the hub and spoke model because it is one of the ways to combat seasonality. “

The seasonal variation between summer and winter is high in Serbia. What Air Serbia has done is focus on some of the high points like Monday, Friday and Sunday, where operations are almost at the same level as before the pandemic, in order to provide connectivity.

At the same time, it has significantly reduced the weakest days, like Tuesday and Wednesday, which were still weak even before the pandemic, by allocating maintenance work on those days and other matters to ensure that on strong days, all resources are available to deliver the product.

The paradigm has changed – “you see an opportunity and go for it”

Commenting on the introduction of new routes, Mr Marek said: “Market reaction is essential. If you want to open a new destination, you don’t do it three or four months in advance with the planning, the calibration, the different GDP entries and so on. Basically, you see an opportunity and you take it. We proved it during the pandemic. We launched a few new destinations and some of them launched within two weeks. I think this flexible model will stay with us for the next five years, where you will still have to react very quickly to any changes that come. The biggest undiscovered truth of Covid is that change is possible and the speed of change is incredible ”.

In other words, Air Serbia will now operate “instinctively” as one would expect from an LCC, and even where apparent opportunities can be observed when a hub and spoke model applies.

So, given the dichotomy of the conclusions of the two previous reports, how is the airport developing?

Before the coronavirus pandemic, and using 2015 as a starting point, the growth in passenger numbers had been stable but unspectacular; but in 2019, and against many other airports, it was strong at 9.2%.

Traffic growth had been strong and pandemic losses less severe than among its competitors

In addition, the traffic collapse in 2020, at -69%, was not as severe as at other airports (Vienna was -75.3%; Budapest -76.1% and Prague -79, 4%), and these losses were almost recovered in Q1-Q32021. (+ 64%).

2019 passenger capacity levels could be reached in early 2022, but freight volume is lagging

When it comes to seating capacity, 2021 has been a better year, with capacity approaching 2018 – or even 2019 – twice already.

If the current trend continues, 2019 levels should be reached in early 2022.

In view of previous comments on the Belt and Road Initiative and Serbia’s desire to be a part of it, as well as Serbia’s support for Chinese foreign policies and previous Chinese interest in China’s development airports in Eastern Europe, cargo volume must also be taken into account.

China will have to trade with countries like Serbia to maximize the benefits of the Belt and Road Initiative, as its options in the Eastern European region diminish.

This cargo volume has decreased as the number of passengers has decreased (-64.7%), but there is still some way to go until 2019 levels are reached.

At the start of the week of December 20, 2021, the available volume was around 67% of 2019 levels.

Air Serbia is in the lead and has codeshare / alliance agreements with several intercontinental airlines

All flight operations at the airport are currently international and Air Serbia is the largest airline in terms of seating capacity, with 38.3% (and 46% of movements).

After Wizz Air, Lufthansa and Turkish Airlines are the second largest airlines in terms of capacity. Air Serbia has codeshare agreements, allowing intercontinental connections in all directions, as well as its long-standing deal with Etihad, which has reduced its stake in the airline over the past two years. All three, along with Air Serbia, are members of Star Alliance.

This is important because direct flights are mainly limited to Western Europe (54%) and Eastern / Central Europe (38%). There is little capacity to the Middle East (6.2%), virtually none to the Americas, and zero to Asia-Pacific. The new track will help in these latter respects.

The impact of the LCC was moderate, helping to justify Air Serbia’s strategy

Low-cost carriers have made inroads in Belgrade. Their total seating capacity currently stands at 28.8%, but this is considerably less than in Budapest (74.2%), Prague (46.4%) and even Vienna (33.9%), where LCCs were almost discouraged until recently.

Of course, these three places are much higher on the tourism wishlist than Belgrade, with tourism being the main driver of demand for LCC.

On the other hand, it gives some support to Air Serbia’s strategy to maximize Belgrade as a hub airport.

Once again however, 77% of the capacities are not aligned (i.e. not attached to an airline member of the alliance) and only 17% of the capacities are represented by Star Alliance, of which Air Serbia is a partner. , alongside Etihad, Lufthansa and Turkish Airlines. .

The use of the airport measured by the hourly arrival and departure capacity is solid, well distributed over the day and balanced in terms of arrivals and departures in a manner appropriate to hub operations in the face of the “waves” of activity.

The graph below is for Friday December 24, 2021, which is expected to be busier than a normal Friday due to pre-Christmas flights.

Political affiliations will influence decisions from now on in

The evidence points to an airport that was starting to realize its dream of becoming an alternative regional hub for passengers – albeit on a small scale – before the COVID-19 pandemic arrived, and a freight gateway airport both in the ‘within its own borders and beyond, which justifies Air Serbia’s conviction that it can continue to achieve its hub aspirations.

However, while this hub only represents Air Serbia and a handful of other Star Alliance members, and although Serbia’s political future is unclear – whether it throws its hat with China or it continues to pursue the goal of EU membership – agreeing on a hard deal and quick strategy is not easy.

As far as the EU is concerned, Serbia was recognized as a candidate for membership in 2003, but the accession process has been long and arduous. Much still depends on its ability or not to normalize relations with Kosovo.

The ambiguity remains on the proposed new airport

Another complicating factor is the announcement earlier in 2021 that a new Belgrade airport is to be built west of Belgrade, with three runways, as part of a national space plan.

See: https://centreforaviation.com/analysis/reports/new-airport-to-be-built-in-belgrade-the-reasons-mired-in-mystery-557076).

It is not yet clear who would finance and build such an airport, but Chinese companies have bid for the Belgrade airport concession and could still find themselves in competition with VINCI, at least in the cargo segment.

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