AIRLINE SAVED BY 'LUCK' OF RED TAPE

TRAVEL MONITOR

Format calls: DLINE, XHEAD, CREDIT, ENDBad bets on hedging fuel prices have cost many global airlines dearly but Kazakhstan's national carrier, Air Astana, freely credits the ''luck'' of bureaucratic, tax and legal considerations for staving off what would have been a financial disaster.

''It's better to be lucky than good,'' said president Peter Foster, in announcing a small profit of US$2.3 million for March 2009 compared with a loss of $500,000 in March 2008. Even though the global financial crisis and the February 2009 devaluation of the Kazakh currency, the tenge, meant losses in January and February, the airline still made an overall profit in the first quarter.

Mr Foster said the situation could have been worse had the airline rushed to hedge the price of fuel early. When oil prices were soaring, he said, banks were ''throwing themselves at us to hedge. Many said

[airlines] were all doing it.''

However, due to legal, tax and bureaucratic constraints at both the government and airline levels, ''it all took time. By the time we really wanted to hedge, the oil price had peaked and was coming down. The longer this went on, the fuel price kept going down. We were professional in hedging without ever doing it.''

Akshat Beisenbayev, first vice-president for finance, said the airline only signed its first hedging deal on April 15 this year with Citibank. It is limited to 75% of planned fuel consumption in the first year, 50% in the second and 25% in the third. Very specifically, says Mr Beisenbayev, ''No speculative trading in derivatives is permitted.''

Asked if he felt in hindsight that the banks had been giving bad, self-serving advice, Mr Foster said, ''They were aggressive in pushing their product. They just pushed it in a way that involved speculative elements.''

He said Air Astana had seen this crisis coming. ''The crisis came early to Kazakhstan in the form of the real estate crisis. There is a lot of real estate activity in this country that got affected when the sub-prime crisis hit the US. We then put in a whole range of cost-saving measures ... Then we got hit by fuel increases in June, July August last year.''

Mr Beisenbayev said it also helped that Air Astana was debt-free. All of its aircraft are on operating leases.

Although the airline is not under finandhcial pressure now, it will be in mid-2010 when it will need to finance pre-delivery payments on new aircraft. Its fleet will grow to 23 when it takes delivery of three Brazilian Embraer 190s and cuts back on some short-range Airbus aircraft, its workhorses. Air Astana will be the first in Asia to use the Embraer 190.

Said Mr Foster: ''Our international routes have been very hard hit, so we have no need

[at the moment] for new long-haul aircraft. The Embraer will have 22 seats fewer than the A319 but deliver enormous savings in operational costs and fuel consumption.''

He said future growth strategy would concentrate on cities in southern and southeastern Russia. ''This we regard as our surrogate home market. ...

[W]e will develop a unique position in the market that no airline can match.''

By that time, he said, Air Astana would be better placed to decide whether to join a global airline alliance.

In a separate interview, Azat Bekturov, Kazakhstan's vice-minister of Transport and Communications, has called for a ''time-out'' on open-skies policies, which he said can be detrimental to the survival of airlines from developing countries.

Mr Bekturov was speaking in the context of an open-skies agreement with the United Arab Emirates. Although it seemed to be a good idea at the time, he said that in hindsight Kazakhstan regretted signing the agreement and would not repeat the mistake.

The minister said the fragility of the current operating environment had strengthened the case for open-skies policies to be reviewed. ''We are a young state. We have other responsibilities like cross-subsidising the non-profitable routes that have to be flown by Air Astana for the sake of national cohesiveness.''

Kazakhstan is the world's ninth largest country but has only one city with more than 1 million people. It is still recovering from the collapse of communism and faces many development decisions. It also faces the same external shocks that affect airlines worldwide.

''Such circumstances have only made a stronger case against open skies.''

Imtiaz Muqbil is executive editor of Travel Impact Newswire, an e-mailed feature and analysis service focusing on the Asia-Pacific travel industry.