National flag-carrier Bulgaria Air announced this week a more than threefold drop in profits last year – a precipitous decline that has come at a crucial time for the state-owned airline, with privatisation looming.
The national carrier reported earnings for 2005 at Lv500,000 (255,675 euros) this week, a major fall on 2004’s Lv1.7m profit, while a strategy for selling off the company is due to be discussed in parliament next week.
According to Bulgaria Air’s executive director, Zlatin Sarastov, the earnings slump is the result of a variety of different factors. These include increased fuel prices, a restructuring of the airlines branch and the entry of low-budget airlines into the local market.
The company is not lying down, however, and is pursuing a plan to enlarge its share of the local market while adding three new destinations to its current selection of routes.
The first of the new services will begin in April, when Sofia to Dublin flights will begin, followed in the summer by departures from Dublin to the Black Sea airports at Burgas and Varna. Additional new routes include Milan to Varna and London to Burgas and Kuwait.
Bulgaria Air – which at 30% boasts the largest share of the local airline market – currently offers service to 19 destinations, including London, Paris, Rome, Amsterdam, Brussels, Madrid, Lisbon, Milan and Frankfurt.
The airline’s privatisation is expected to take place sometime this year and is open to investors from the EU and Bulgaria. Earlier reports indicated that air carriers must meet have certified revenues of at least 150m euros for each of the last two years and passenger traffic of at least 750,000.
According to an earlier statement to the press by Transport Minister Petar Mutafchiev, no Bulgarian companies meet the criteria. Financial investor candidates must meet requirements of 250m euros in assets or have equity holdings in excess of 150m euros, in addition to certifying the qualifications of the management team responsible for Bulgaria Air following the privatisation.
The only carrier so far to officially express interest in the privatisation deal is the privately owned Bulgarian carrier, Hemus Air – although there is speculation that Austrian Airlines may enter the sell-off procedure.
Because Hemus Air falls short of the financial and passenger traffic quotas, it must pursue its bid as a financial investor. Hemus is part of a complicated network of parent holding companies which maintain assets well in excess of the 250m euros required.
In addition to the financial and operational requirements, there are also requirements on the origin of the capital of the bidding companies, the secretary general of the Civil Aviation Administration, Mihail Zahariev, recently told OBG.
“When applying to make flights out of the EU, to third parties like Turkey or to Middle Eastern countries, if the company is registered in Bulgaria it must have at least 50% registered Bulgarian or EU capital,” he said. “It cannot belong to third-party citizens from countries somewhere else in the world.”
Zahariev went on to explain that the reason for this is that Bulgaria Air’s predecessor, Balkan Air, experienced some problems that were due in part to its Israel-based ownership, as some Middle Eastern countries revoked permission for it to operate in their countries.
The decision to privatise comes at a key time for Bulgarian air travel. The nation’s largest airport in Sofia is currently undergoing a massive expansion procedure that will add an additional runway and terminal to accommodate increased traffic. In addition, the second and third largest airports in Varna and Burgas are also gearing up for extensive modernisation plans once a stalled tender process is resumed.
The rapid expansion of the major airports is an indicator of the increased traffic Bulgaria has received over the past few years. In Sofia, the number of passengers ballooned from 112m in 2000 to 1.86m in 2005. Even greater increases can be seen in Varna – 691,685 in 2000 to 1.55m in 2005 – and Burgas – 398,015 in 2000 to 1.56m in 2005. If the first two months of 2006 are any indication, the trend looks set to continue unabated. According to Zahariev, Sofia airport saw a 25% increase in movements this year for January and February, which are also historically the slowest months for travel.
More passengers inevitably draw more airlines, and the Bulgarian market is no exception. Low-cost operator WizzAir began flying in Bulgaria in September 2005, and is currently the only low-cost airline with a licence to operate in the country. But that is likely to change soon, with speculation that two of Europe’s largest low-cost airlines, easyjet and Ryanair, are eyeing the Bulgarian market. Major carriers, including British Airways, Air France and Lufthansa, have also been increasing their Bulgarian flights in recent years.
While market-leader Bulgaria Air looks to expand its operations and strengthen its position prior to privatisation, competitors of all sizes from across Europe are looking to cash in on a piece of the action.
