Kazakhstan flag carrier Air Astana plans to launch LCC FlyArystan in the first half of 2019, in response to a rapidly changing local and regional airline business environment.

The management team will be led by Tim Jordan, a British-Australian national with more than 15 years senior LCC management experience at Cebu Pacific and Virgin Blue.

The low-cost unit will begin operations with a fleet of Airbus A320s.

Air Astana president & CEO Peter Foster told ATW in an exclusive interview that four A320s—configured in an 180-seat all-economy class—will be transferred from the Air Astana fleet.

“Looking to the future, we would expect a combination of more A320 classics and possibly neos. The fleet is expected to grow to at least to 15 aircraft by 2022. This is a conservative estimate,” he said.

He said FlyArystan will offer low airfares—approximately half of what Air Astana offers—on mostly domestic routes, which is expected to expand to regional international routes in the mid-term.

“There are three local competitors here in Kazakhstan—International LCCs Wizz Air [Hungary], flydubai and Air Arabia—that operate to both Almaty and Astana, and we can expect new entrants from China, southeast Asia and India,” Foster said.

Air Astana has comparatively low operational costs. “Our system unit cost is 5.7 US cents per ASK, which is competitive; however, the short-haul unit cost is 6.7 cents. We plan for FlyArystan to operate at a unit cost 35% lower than that,” Foster said.

FlyArystan will operate from multiple bases in Kazakhstan, which will be announced—along with routes—in the coming months.

Although FlyArystan will be an LCC with very different service procedures to those of Air Astana, Foster said that as a division of Air Astana, there will be no degradation of airline safety or reliability standards.

However, asked if the new carrier could cannibalize some Air Astana business, Foster said this will be an issue and has been considered.

“Of course, there will be some spillover from Air Astana to FlyArystan and the business plan takes that into account. The overall effect on the group, however, will be positive,” Foster said, adding the risk of doing nothing is much greater. “If we do nothing, we can expect our core markets to come under increasing LCC threat. FlyArystan will be good for the mid- to long-term prospects of Air Astana.”

All safety standards and regulatory processes to which Air Astana is subject will automatically apply to FlyArystan.

The project will be entirely self-funded. FlyArystan will require no capital from shareholders, and no state subsidies or external financial support of any kind.

“We are in discussions with service providers and intend to follow a classic LCC distribution model,” Foster said.

Foster estimates FlyArystan will have a small loss in 2019 “and is expected to be profitable from 2020.” He added, “It is not only a defensive move but a developmental one. The frequency of domestic air travel by Kazakhstan citizens is comparatively low. This is despite a growing economy and middle class and in a country where huge distances between cities make travel by road and rail very lengthy. There is substantial internal migration—many people living and working in bigger cities are from quite distant regions.”

In 2017, Air Astana posted a net profit of $39.1 million, returning to profit after its first-ever loss in 2016. The airline carried 4.2 million passengers and recorded a 12% year-over-year passenger growth.

Kurt Hofmann, hofmann.aviation@netway.at