Central Asian Aviation: Ready for Take-off!
As the aviation industry hits its stride post-COVID, air traffic in Central Asia has outperformed regional and global trends. Passenger volumes in most of the region recovered to pre-pandemic levels as early as 2022. In comparison, the rest of Asia was still 9% lower than 2019 as of Q1 2024. A number of factors has contributed to this growth, and the region, situated at a crossroads for regional and global air travel, is well positioned to realize its true potential both as a destination for tourism and business. In this article, we look at what has underpinned the region’s recent success, why the path forward looks promising, and what various stakeholders need to do to ensure Central Asian aviation reaches its full potential.
The region’s growth is driven by economic and regulatory factors
Central Asian aviation is buoyed by a promising macroeconomic environment, with all countries in the region outpacing global and Asian real GDP growth rates in 2023. In fact, all Central Asian countries saw GDP growth above 5% in 2023, compared to the global growth rate of 2.74%. Most notably, Tajikistan has had a real GDP growth of over 8% annually since 2021 and had a positive GDP growth during the COVID-19 pandemic, while the global GDP shrunk by 2.94% in 2020. This positive economic environment has allowed the local population to travel more and has encouraged further investments in trade and tourism industries, such as proposed railway networks to neighboring countries.
The macroeconomic environment facilitated a 7.6% increase in regional traffic between 2019 and 2023, driven to a large extent by low-cost carriers (LCCs). Consequently, the share of passenger traffic coming from LCCs increased from 5% to 11%. Before 2019, most LCCs operating in the region were foreign. To compete with these foreign LCCs, FlyArystan was established as a subsidiary of Air Astana and has now grown to operate 20 aircraft. This has also improved connectivity outside of the region, further strengthened by Central Asian countries adapting their visa schemes to allow more nationalities to visit visa-free. Notably, nine times as many passengers flew from Vietnam in 2023 compared to 2019, and traffic from India increased by 19% during the same period. If visa-free travel continues to expand, the positive momentum is likely to persist.
This positive economic situation encouraged several new airline launches. For example, Air Samarkand, Silk Avia, Qanot Sharq, and Panorama Airways all launched within the last three years. Uzbekistan, in particular, has the most new-market entrants, which can be attributed to the country’s liberalization efforts. While this does not always lead to success, it demonstrates favorable conditions for new airlines and explains the improving international connectivity for Kazakhstan, Uzbekistan, and Kyrgyzstan. Given that the European Union has lifted all restrictions on airlines from Kazakhstan due to renewed compliance with flight safety regulations, this international connectivity is likely to further develop.
Several factors support continued promise of growth
The positive economic situation in Central Asia does not show any signs of slowing, with the region forecasting robust long-term passenger growth rates, outpacing Europe, the Middle East, and Russia by 2030.
Figure 3: Forecasted growth in passenger volumes (%)
Sources: Oxford Economics, Lufthansa Consulting
Additionally, the region is poised to benefit from a young demographic, with over 90% of the population under 64 years of age and at least 30% younger than the age of 15. In contrast, only 18% of Russians and 15% of the EU population are under the age of 15. This youthful population will soon enter the workforce, boosting economic prospects. However, the situation is less favorable in Russia and the EU, where aging populations pose significant economic challenges.
Figure 4: Age distribution of population, 2023
Sources: World Bank, Lufthansa Consulting
Furthermore, Central Asia is in a unique geographic position on major trade and passenger routes, with the opportunity to develop transit traffic. The region would offer a strong competitive advantage, lying more directly on major routes between Europe and Asia, or Africa and Asia, compared to large hubs in the Middle East and South Asia. However, this is a highly competitive market, with several established hubs or newly ambitious ones seeking the same traffic flows. In order to be able to compete successfully, Central Asian airlines will need to be in top commercial and operational shape.
Figure 5: Geographic advantage of Central Asia on sample routes
Sources: Lufthansa Consulting, OAG Mapper
However, certain factors need to fall in place to realize this promise
Central Asia has significant potential for growth by increasing passenger volumes from both tourism and transfer passengers. Current forecasts are positive, presenting market players with an opportunity to capitalize on the situation. However, the region’s success is not guaranteed, as various factors will influence the trajectory of its aviation industry.
Airlines and airports need a stable environment in which to operate effectively, making political and regulatory stability crucial. Additionally, governments should work on opening new markets for airlines to serve, for example by expanding existing bilateral agreements. A significant step in this direction was Kazakhstan’s decision to extend its Open Skies policy until 2027, allowing foreign carriers to operate fifth freedom flights on routes where no Kazakh airline currently operates. Combined with a clear tourism strategy, the region can attract a high number of passengers in the coming years.
To adequately accommodate increasing passenger numbers, the region should invest in enhancing its existing infrastructure to boost capacity and performance. This will not only attract more tourists and airlines, but also create jobs and draw in foreign investment. Additionally, airlines in the region should improve their performance through operational professionalization, ensuring that they meet the high standards set by competitors as well as operate efficiently and profitably. This is particularly important when it comes to demonstrating the region’s viability as a transfer hub. Finally, airlines should continue to develop partnerships with other carriers, enabling them to reach more passengers as well as gain greater market presence and distribution reach in the global market.
The future of aviation in Central Asia is certainly bright – it now falls to decision-makers in the region to put in place the right policies, incentives, and regulations to support this potential.
Authors:
Felix Ackermann is Associate Consultant in the Solution Group Network and Fleet Management at Lufthansa Consulting.
Arvind Chandrasekhar is Associate Partner and heads the Solution Group Network and Fleet Management.
Felix Ackermann Arvind Chandrasekhar