ERBIL, Iraq --
Upon hearing that Austrian Airlines has launched scheduled
passenger service to the Kurdish city of Erbil in Iraq, the
inevitable first question everyone asks is: "Why?" Sometimes "in
heaven's name" precedes the question, or "in the world" follows.
offered by Josef Burger, the airline's chief commercial officer,
depends on who is asking. He may say, "We are building a sky bridge
between Kurdistan and the world," or "Austria and Kurdistan have
many historical connections," or, "There is a lot of interest in
investing in Kurdistan from the Austrian business community; we're
opening markets, facilitating exchanges."
All true, but
none of these answers is complete.
Since the early
1990s, Austrian, the 13th largest airline in Europe, has been stalled at the
borderline of profitability, its viability in question. Many of its
woes can be traced to its diverse fleet, filled with a variety of
Boeings, Airbuses, Fokkers and Bombardiers (described as "a
butterfly collection" by one critic). This lack of fleet
standardization has driven up its maintenance and operational
Austrian has, for
more than a decade, been viewed as a weak player. Since the
millennium, it has sometimes eked out a percentage point or two of
profit margin, sometimes not. The airline has been involved in
various merger talks and has inspired
rumors of merger talks. (Since taking his position last May,
Austrian CEO Alfred Otsch was observed traveling to Paris
frequently, sparking conjecture that he was in meetings with Air
In this context,
opening a route to Iraq might be viewed as an act of desperation.
It may well be, but it is also consistent with Austrian's
articulated growth strategy.
The airline is
betting its future in part on what Burger calls "the first-mover
strategy." Its short- and medium-haul services have shown
consistent profitability, but its losses in long-haul markets have
more than canceled them out. It cannot expect to see growth in its
long-haul business from Austria's relatively limited and stable
population, nor can it easily compete for long-haul international
service in European skies crowded by much larger, stronger,
behind the first-mover strategy is to identify traffic from
second-tier cities, mostly in Central and Eastern Europe, that have
no point-to-point service to airports offering transatlantic
flights. Austrian then enters these markets and connects them to
long-haul routes through its Vienna hub.
Since Vienna is
the easternmost of Western European capitals, operational costs to
serve these Central and Eastern second-tier markets are relatively
advantageous for Austrian, compared with costs for carriers based
in countries farther west.
looking mostly east for feeder traffic, it can reach out to markets
that are beyond the preferred operational range of low-cost
carriers such as EasyJet and Ryanair.
As a result,
Austrian's route map has recently added red lines connecting Vienna
to cities such as Timisoara, Romania; Podgorica, Montenegro; Lvov,
Ukraine; and Chisinau, Moldova.
It carried 7.1%
more passengers in 2006 than in 2005. In that same time frame, load
factors rose 0.2%, revenue passenger kilometers were up 5.6% and
scheduled availability grew by 5.3%.
were to record levels, and Austrian ended the year ranking fifth in
terms of passenger traffic growth among European airlines. But
additional passengers do not necessarily result in profitability.
The airline had not released its economic results for 2006 by press
time, and Burger would only say that Austrian performed "better
than in 2005," a year in which it lost money. Lack of fleet
standardization, Burger noted, is still a drag on the
Burger outlined a
future in which the airline would address the fleet standardization
problem to reduce cost while boosting yields through the
first-mover strategy. It is no coincidence that Austrian has
targeted countries whose own national carriers -- the only real
rivals for international traffic originating from the second-tier
cities -- do not have service standards as high as Austrian's. As
long as that's true, Austrian can extract a premium fare from
business travelers, and the plane doesn't have to fly
Burger said that
this low-demand, high-yield strategy to feed traffic to long-haul
flights is working.
"Out of the 44
destinations in Central and Eastern Europe, we pioneered a third as
first-mover," he said. "Sixty percent of our business is now
transfer traffic [through Vienna], and of that, 56% is from
numbers are expected to be even higher to Erbil, which falls into the
first-mover category because Austrian's only real competition there
is from a Royal Jordanian Airlines charter that will not interline
baggage for connections out of Amman (not even with scheduled Royal
But the move into
Erbil also fits Austrian's "focus east" strategy, which seeks to
take advantage of its location nearer the Middle East than other
Western European carriers.
It can also
leverage its neutrality. It has, for instance, codeshare
arrangements with both Libyan Arab Airlines into Tripoli and with
El Al into Tel Aviv.
When asked if the
political volatility of the region made shareholders nervous,
Burger replied that the region accounted for only 6% to 7% of
Austrian's traffic and that when, in the past, it had pulled out of
markets because of political instability, as occurred last year in
Beirut, the financial impact was negligible.
the Middle East routes at night, tapping capacity that would
otherwise be sitting overnight in European airports. (Erbil,
currently a day flight, will switch to night traffic later this
encouraged enough by demand for Erbil that he will increase service
from twice to three times a week in March. He hopes to increase
frequency again in 2008. Austrian has secured the rights for daily
flights, should demand rise significantly.
frequency may also give pause to would-be competitors.
to prevent access [to Erbil] for other carriers, but with three
flights, we're trying to close the shop," Burger said. The farther
a competing carrier's hub is from Erbil, "the more difficult it
gets" for the carrier to enter the market, he added.
Burger said he
anticipated that 80% of the passengers to Erbil would be transfer
traffic, with 25% originating in Scandinavia, where a large
expatriate Kurd population lives; 40% from the rest of Europe; and
15% from overseas, particularly from the U.S.
To be profitable,
Burger said that flights to Erbil must average 70 passengers in a
130-seat Airbus A319, a target he predicted the airline would
easily reach by the end of March. "We're here to make money," he
said. "We'll break even the first year. I have no
He added that the
traffic was diversified: a third from ethnic markets, a third
business and a third institutional, both government and
percentage does he believe will be international
"We are not
anticipating any tourist traffic," he said.