"Uzbekistan needs to think not only about a hub, but also about regional connectivity." BCG experts on aviation

"Uzbekistan needs to think not only about a hub, but also about regional connectivity." BCG experts on aviation

Central Asia is turning into one of the fastest-growing aviation markets, and Uzbekistan is increasingly talking about developing an international hub, tourism, and regional airports. But merely increasing the number of flights is not enough: this requires coordinated actions by airlines, airports, the regulator, and the state, according to BCG.

Gazeta spoke with Managing Director and Senior Partner Vasily Triandafilidi about whether Uzbekistan can become an independent aviation market, how airports can transform into economic platforms, how acute the jet fuel issue is, and what is holding back the development of domestic flights.

: Yes, it is quite realistic, but this will require complete alignment of actions by all stakeholders and a clear master plan to achieve a single common goal. Right now, Central Asia is the fastest-growing aviation market in the world. At the same time, much remains to be done.

If you look at Uzbekistan, the number of flights to the country has increased more than fourfold. Today, the aviation market is growing at about 16% per year — almost 2.5 times faster than GDP. In other words, the starting conditions for further development are already very good. turning Tashkent and Uzbekistan into a significant aviation hub.

— Vasily Triandafilidi

: The answer is all of the above. The full-fledged development of an airport is impossible without all these elements.

A strong strategy is needed both from the airline and from the airport. It is necessary to work with the national carrier and design the route network: which passengers are arriving, which destinations are available, and which routes can be developed.

A separate area is MRO, i.e., aircraft maintenance, repair, and overhaul. These are high value-added services that create new jobs. There is also an opportunity for cargo transportation — both in the belly hold of passenger aircraft and through regular cargo flights. This also brings an additional economic effect.

There is also duty free. For example, at Incheon Airport in South Korea, it has become an important part of the value proposition. Many passengers from China choose Incheon partly because they know that the luxury brands they are interested in are presented there. This creates additional economic value for the airport.

: We see reports about the national carrier's plans to significantly increase its fleet in the coming years. When such a volume of aircraft appears in the country, MRO becomes a natural direction for development.

If a technically strong and cost-competitive MRO hub is created, it will be able to provide maintenance and repair not only for the national carrier, but also for other airlines.

The growth of the passenger market, GDP per capita, and e-commerce will stimulate the development of air cargo, the role of which will continue to grow in the coming years.

Uzbekistan already receives about 11.1 million tourists a year. Some of them arrive by land, some by air, and these flows are expected to continue growing. To support this growth and make travel more comfortable and convenient, it is important to develop not only hotel infrastructure, but also leisure and entertainment infrastructure associated with the aviation ecosystem.

That is why the development of all three areas must rely on a clear and coordinated action plan.

: Many successful aviation hubs develop without having a jet fuel cost advantage. A good example is Istanbul: despite the absence of a significant price advantage on fuel, they managed to create an efficient hub and a highly competitive airline here. Transit passengers account for a significant share of passenger traffic — around 40−50% or more.

In other words, competitive advantages do not boil down to low jet fuel costs. They can also be created through faster aircraft turnaround times between flights, efficient operational processes, high standards of service, and high quality of passenger care.

It is important to determine how Uzbekistan can build its competitive advantage. And it does not necessarily have to be tied to the cost of jet fuel.

: The PPP model has been used at airports for several decades and has proven itself well. It is widespread in Asia, Europe, and South America, and to a lesser extent in the US.

PPP has a number of advantages: the private sector can bring expertise, capital, and innovation to infrastructure development.

However, since this is a partnership between the state and business, a number of factors must be carefully considered.

The first common mistake is underestimating project costs, which can subsequently lead to budget overruns. Therefore, it is important from the very beginning to realistically estimate airport development costs.

The second mistake is failing to foresee in the business plan the possibility of actual passenger traffic deviating from the forecast, both downwards and upwards.

Both the state and business must think through both scenarios. If passenger traffic does not reach forecasted values, it is important to ensure the financial sustainability of the private operator and maintain its interest in effective airport management. If passenger traffic exceeds expectations, another risk arises — public opinion may perceive the operator's profit as excessive.

Therefore, the PPP agreement must initially provide for mechanisms to maintain a balance of interests between the state and the private partner, regardless of whether actual passenger traffic turns out to be higher or lower than forecasted.

: It is too early to draw definitive conclusions about the effectiveness of PPP projects at Uzbekistan's airports. The initial indicators of passenger traffic growth and route network development may be encouraging, but for a full assessment, it is also necessary to consider the fulfillment of investment obligations, service quality, airport charges, and financial risks for the state.

International experience shows what results can be achieved with a well-structured partnership. For example, London Gatwick Airport, the second largest in the UK, under private ownership increased its annual passenger traffic from approximately 33 to 43 million people, raised the capacity of its single runway, and significantly sped up security screening. At the same time, airport charges per passenger remained practically unchanged after adjusting for inflation.

This is precisely where the real value of an effectively organized PPP lies: increasing capacity and improving service quality without real-term increases in airport charges for airlines. It is not just about expanding the airport, but about creating additional economic value.

: The short answer is yes, the market can develop. However, forming sustainable demand for air travel for business trips will require a higher flight frequency than two or three times a week.

I grew up in Kokand, and my father worked at the airport. In the 1990s, there was a period when he flew to Tashkent and back almost every day. Even the small regional airport in Kokand had regular air service with the capital back then.

Uzbekistan has objective prerequisites for the development of domestic air travel: a large territory, major urban centers, and significant distances between them, which in many cases can be covered faster by plane than by train or car.

The main constraint today is the affordability of air travel. The cost of an airline ticket for the average resident of Uzbekistan is equivalent to about 25 days of earnings. By comparison, in Kazakhstan it is about four days, and in developed economies it is about one day. In Kazakhstan, where income levels are higher, domestic travel accounts for more than half of the aviation market.

As Uzbekistan's economy grows, public incomes will increase, and along with them — the demand for air travel and the country's transport connectivity. We are already seeing companies from Tashkent holding business events in Bukhara, and businesses increasingly requiring fast connections between cities.

Flight frequency is especially important for business travel. On the most in-demand routes, daily service with morning and evening departures is required so that passengers can travel to another city and return on the same day.

If airlines select the right aircraft types — for example, using regional or turboprop aircraft on certain routes — and ensure convenient connections between domestic and international flights, Uzbekistan will be able to significantly strengthen air connectivity between the country's regions.

: There are several ways to develop air service on remote routes.

For example, India has the UDAN program, under which the state incentivizes airlines to operate flights to certain cities in the country by providing subsidies. This allows supporting the market at the initial stage until demand begins to grow independently.

Another approach is to allow low-cost carriers, as well as possibly airlines operating smaller aircraft, to fly such routes at a frequency that matches existing demand. Similar models are used in many countries.

Different approaches can be combined. However, at the current stage of Uzbekistan's development, air tickets remain expensive for a significant portion of the population: the income level is not yet high enough for mass demand to form.

Therefore, it is important to carefully consider at what stage to start stimulating the development of regional air service, including on remote routes. Doing so before such flights become affordable for the population could result in a negative experience that would subsequently hinder further market development.

It is important to account for regional differences here — primarily population income levels, demographic characteristics, and the affordability of air travel. In Uzbekistan, there are regions where incomes exceed the national average. It is logical to start expanding the route network from these regions, provided there is sufficient demand.

The example of Australia is illustrative: in mining regions with higher population incomes and active business life, air service is well developed, whereas in other remote areas it is much harder to maintain.

Therefore, decisions must be made individually for each route, taking into account population income levels, business activity, and the affordability of air travel.

: International experience shows that in transition economies, demand for air travel often begins to accelerate rapidly as GDP per capita approaches 6,000−7,000 US dollars. In Uzbekistan, this figure today is about 4,000 dollars.

If current economic growth rates are maintained, the country could approach the target level in about five to six years.

However, this is a benchmark rather than a strict threshold. The growth in demand for air travel in individual regions will primarily depend on the level and distribution of population incomes, the affordability of air travel, and the level of business activity.