Ukrainian aviation and tourism business is looking for salvation in Europe. Will it work? Oleksandr Alba, co-founder of SkyUp Airlines and Join UP!, shared his thoughts in an interview with Ukrainian Forbes. We put the publication on our website with the permission of the editorial board.
On 22 March, SkyUp Airlines published an open letter to foreign airlines, offering 15 of its Boeing 737 aircraft for wet leasing services. The only condition is that the future partner should not operate flights to Russia and Belarus.
"By using our aircraft, you will help us continue our operational activities during the war and pay taxes to the state treasury, save 1,300 employees," as stated in a statement.
Since the beginning of the war, the aviation and tourism group owned by Yurii (father) and Oleksandr (son) Alba has lost almost all its income. The group managed to retain staff, but reduced salaries to a minimum. "There was money in the account that we can use to support our employees today," says Oleksandr Alba. "Part of the salary fund was covered by loans."
Alba's family business includes SkyUp Airlines, the country's second-largest airline (by number of passengers carried, flights operated, and fleet size), and second-largest tour operator, Join UP!. The share of the latter in 20 years has reached 20% in the tourism market. Until recently, the company was represented in the markets of Belarus and Moldova, they own a network of 150 travel agencies JoinUP! to travel, most of them work as franchises.
Launched in 2018, SkyUp airline startup aimed to service tourist flow of the parent company, Join UP!. However, already in the first year of operation, the founders of SkyUp said that they can be not only a charter carrier, but also a "national low-cost carrier", offering tickets from UAH 500 and a wide network of routes. The model pleased Ukrainians and allowed the airline startup to challenge the long-term market dominance of UIA of Ihor Kolomoiskyi and Aaron Maiberg.
With the start of the war, Ukrainian airlines suspended all flights to/from Ukraine, losing almost all of their revenue. In 2021, SkyUp carried 2.6 million passengers — 7% less than UIA. In 2022, according to Oleksandr Alba, SkyUp hoped to at least catch up with the main competitor. The carrier's revenue was to double to $300 million, and for Join UP! it was by 25% — up to $500 million.
"The open letter ignited a good response," says Oleksandr Alba. Currently, three people are processing incoming commercial requests instead of one. "We expect to utilize to 50% of the fleet by the end of May," he said. "This is the best way to make money fast," adds Andrii Huk, a partner at Ante law firm, specializing in aviation law.
This tactic is also used by other Ukrainian carriers, such as UIA, which is looking for orders for four aircraft (three Boeing 737s and one Embraer 190) parked at foreign airports. So far to no avail.
"The world has not yet recovered from the effects of the pandemic," said Yevhen Treskunov, founder of Aviaplan consulting company. "A reduction in the volume of flights is observed, so there is a surplus of aircraft on the market." Finding a customer is a serious challenge.
But there are chances. Treskunov recalls how after a sharp reduction in air traffic in 2014, UIA managed to provide to "wet leasing" six extra aircraft. "In order to meet the demand in the midst of the high season, which occurs during the summer months, there will soon be many willing to get aircraft with crews," said UIA ex-president Yurii Miroshnykov.
How much can you earn? "It depends on how you agree," he says. "Brokers who work professionally always earn. Airlines sometimes make money, and sometimes… reducing losses is a good option.”
The main expenses, according to Alba, are staff salaries, fuel, and air navigation payments for flights. The company is reconfiguring two planes for humanitarian cargo transportation. One is already involved. During March, SkyUp carried out 21 evacuation flights on the Chisinau — Tel Aviv route, carring out a total of 2,835 refugees to Israel under a repatriation program. Each return flight carried out 6-7 tons of humanitarian goods: mostly medicines, baby food, personal hygiene products.
Alba says there is a need to transport humanitarian aid for Ukraine from Almaty and Astana to Warsaw. It is planned to perform one flight a week from each city.
"SkyUp is the only Ukrainian carrier currently operating on only one aircraft in its fleet," said Bees Airlines CEO Yevhen Khainatskyi. His airline fleet, which has four aircraft, is preserved in France. Khainatskyi says there is a lack of demand for a restart.
International law also hinders the scaling up of foreign program. It does not allow Ukrainian airlines to operate flights between third countries without the consent of local aviation authorities. "We need a separate permit from the countries between which the flight takes place," says Hook. "There are always their own airlines, for which it's unprofitable to let a third party airlines on the market."
Another problem is that conscripts cannot leave Ukraine. SkyUp solved this problem by receiving a reservation for its pilots and some top managers (mobilization postponement).
"Transporting cargo and providing part of the fleet for a wet leasing are tactical decisions that allow us to survive the active phase of the war, but do not solve the problem of survival in the long run," said Hook.
Alba has a plan in case of a protracted war. By the end of July, the company wants to obtain an operating certificate of one of the EU countries, which removes restrictions on flights in European airspace. "It's about registering a subsidiary in Europe," says Oleksandr Alba. The company will also be named SkyUp.
Alba says it is enough to have one EU-registered aircraft and several Europeans among staff to get a European license. But the personnel backbone will be Ukrainians.
Legally, the scheme is as follows. Following the registration of European SkyUp, the parent company will transfer its aircraft to it on a wet lease basis. Operational activities will be provided by the Ukrainian office. "Thus, we will have taxes and jobs in Ukraine. At the same time, we will use all the benefits of the European operator's certificate,” says Alba.
What are the pitfalls? The main barrier is a complex and lengthy certification procedure that takes at least six months. "Another country needs local assistants or partners who know the market," says Hook. "Retraining staff who also need to obtain all certificates and confirm their qualifications."
"Buying a turnkey airline with an existing certificate does not simplify the task," he added. All the same, some time will be spent on restructuring operational processes, retraining and obtaining the necessary permits. "And even after passing the administrative part, you need to look for ways to earn, destinations, loads. It's hard to do that in a new market,” says Hook.
Join UP! has a similar strategy. "While we cannot operate in Ukraine, we are rapidly expanding in Eastern Europe," Alba said.
Focus on the next six months is to expand activities in Moldova, launch regional offices, and sell tours in the Baltic States (Tallinn, Vilnius, and Riga), Kazakhstan. Prior to obtaining a European license by SkyUp, it is planned to deliver tourists of JoinUp Baltic with its aircraft, provided for the wet lease to the partner airline. Afterwards, SkyUp brand will serve the European tourist flow of Join UP!.
In the winter of 2022-2023, Join UP! plans to launch charter flights to Romania, Slovakia, Hungary, Poland, and the Czech Republic.
How much do new projects compensate for pre-war volumes? "I expect that Join UP! will work for 15% of what was planned," says Alba. But this is not the main thing.
Previously, the group focused exclusively on Ukrainian market. Founders of SkyUp and Join UP! are confident that portfolio diversification will make business sustainable and attractive for investment after Ukraine's victory. Why not look beyond the horizon?
"We will continue to expand to the west," says Alba. "The mission is to become one of the biggest players in Europe."