Conflict over Ryanair in Ukraine: Questions Without Clear Answers

Ryanair_Wizz_(7141688277)
Mark Harkin via flickr || CC 2.0

On July 10, 2017, Ryanair, the largest low-cost airline in Europe, announced that it cancels its plans to enter Ukraine due to the failure to sign the contract with Boryspil airport. The decision was a negative blow to the image of Ukraine, which tries to prove that the country is open and friendly to foreign investors. However, the analysis shows that the situation is not that straightforward as it may seem and all involved parties seem to share the responsibility for the failure of the talks. Below, we list some of the still open questions.

Why did Ryanair start selling tickets before reaching agreements with the airports? Ryanair announced the decision to launch flights from Kyiv and Lviv on March 15, 2017, after signing the Memorandum with the Ministry of Infrastructure. Volodymyr Omelyan, the Minister of Infrastructure, said that talks lasted since 2011. Immediately after the announcement, Ryanair started selling tickets. However, it appeared later that the company had not signed contracts with airports and even had not received all international permissions. The publicity regarding the incomplete deal resulted in a misbalanced position of negotiators and the image losses for Ukraine after the deal failed.

Why Boryspil airport was offered as an unambiguous partner of Ryanair after the failure of talks with Kyiv airport ? Many Ryanair flights in the EU are operated from non-central airports, and the same approach could be used in Ukraine. Initially, Ryanair was trying to negotiate the deal with Kyiv airport, a municipal privately operated airport with a new terminal specializing in low-cost flights. The airport already operates flights of Wizzair, another large European lowcoster. According to Pavel Ryabikin, director of Boryspil Airport, the talks with Kyiv airport failed due to high operational costs and inability to offer tariffs low enough to match the business model of Ryanair. According to the Minister of Infrastructure, it was because the operators of the airport were not interested.

Information about the failure of talks with Kyiv airport almost coincided with the deal announcement, and on March 15, at the press conference in Kyiv, the Minister of Infrastructure not only announced the deal, but also named Boryspil and Lviv as state airports that will work with Ryanair.

A possible reason for suggesting Boryspil airport could be the availability of unused terminals. However, Boryspil airport has an officially adopted Development Strategy (2015), according to which the airport is to become a transit hub. It means different development priorities compared to the strategy of becoming attractive to lowcosters. According to the Boryspil’s information, in April 2017, about 30% of passengers were transit passengers, which is about a threshold needed to become an internationally recognized transit hub. It remains unclear whether a transit hub strategy and servicing lowcosters could be effectively implemented in parallel.

There are several other regional airports around Kyiv – a Zhytomyr airport (relaunched in late 2016 and currently operated by Yanair, a regional Ukrainian airline company, located 138 km or 2-hour drive from the center of Kyiv); a Hostomel airport in Kyiv oblast used for cargo flights. However, the latter is definitely less attractive in short run, as it has no developed passenger infrastructure.

What are true service charges at Boryspil airport and are the discounts requested by Ryanair are indeed unacceptable? Pavel Ryabikin stated that Ryanair demanded charges at USD 7.5 per passenger for 5 years, and that it is too low unless the passenger flow generated by Ryanair grows at +150 thousands per year. According to the airport website, the airport charges USD 17 per passenger plus take-off/landing charge per aircraft, plus the system of discounts. The Anti-Monopoly Committee of Ukraine currently investigates potentially unlawful discounts that Boryspil airport provided to the Ukrainian International Airlines, the largest airline company in the country.

What institution could decide on free services (requested by the Ryanair) to the selected private company and is it possible in principle? According to Pavel Ryabikin, Ryanair demanded free services for air navigation, registration desks, taxi slots, areas in terminal, as well as provision of a land plot for a new hotel and other concessions. It remains unclear whether the Boryspil airport could legally make such concessions since it is a state-owned company and, thus, has quite limited maneuver power. It is likely that the decision of the public authorities would be necessary. Moreover, some lawyers questioned legality of several Ryanair requests. According to the Minister of Infrastructure, the Boryspil airport should have signed a base agreement without these concessions and continue talks regarding these additional demands.

Why did the failure to agree with Kyiv result in the cancellation of flights to Lviv, with which the base agreement was signed? In July, Ryanair stated that it skips the entire Ukraine project regardless signed deal with Lviv. Moreover, the majority of flights were planned from Lviv (7 routes), compared to Kyiv (4 routes).

Would the state budget be responsible for losses incurred by the airport in case of (temporary) unfavorable deal? According to Boryspil airport representatives, the requested discounts would result in the airport losses at UAH 2 bn per year, although no background calculations were provided.

The scandal erupted after the Ryanair decision forced the Ukrainian Government to seek the renewal of the talks. To find the solution, the negotiation team comprising the representatives of the Boryspil airport, the Ministry of Infrastructure, and Ukraine Investment Promotion Office was established. Volodymyr Groisman, the Prime Minister of Ukraine, suggested building a new terminal in Hostomel especially for lowcosters, while the Boryspil or Kyiv airports could host Ryanair flights temporary. However, Ryanair has not publicly confirmed resumed talks.

Veronika Movchan
The Institute for Economic Research and Policy Consulting - Kiev