Autumn increase of tariffs

On Aug 29, Kazakhstan's Nursultan Nazarbayev International airport unilaterally increased its costs for cargo processing in domestic routes by 50 percent. The decision made favorable to the air harbor, however, obviously will have a reverse effect on the rest of the market players. Tariff increases for an additional 11 services at Astana’s main gateway will lead to drastically skyrocketing of air carriers’ spending with the beginning of the new year.

It's worth noting that by Order No 449 of the Civil Aviation Committee at the Investments and Development Ministry of Kazakhstan, dated Aug 29, the tariff for handling goods on domestic routes service escalated by 50 percent, from 9,640 Khazakhstani tenge ($26.25) per ton to 14,506 Khazakhstani tenge ($39.50) per ton.

Astana airport justifies its decision by the need for modernization and unprofitability of this service with the tariff remaining unchanged for almost eight years.

But the question is, why is such a lucrative business (according to financial report of Astana International airport) seeking modernization of its services to the cost of its consumers, rather than using its own funds or additional investments? Air carriers' attempts to receive information on the cost of modernization of freight transportation services and cargo handling services to date have been unsuccessful.

The legitimacy and validity of the issued order also is questionable. Article 174, Paragraph 1, of the Entrepreneurship Code of the Republic of Kazakhstan prohibits the action (inaction) of market entities occupying a dominant or monopolistic position, including such as the establishment and maintenance of monopolistically high prices. Article 175, paragraph 2, of the Code clearly defines that the price exceeding the means for the production and sale of goods and income is considered monopolistic. Consequently, experts conclude that Astana airport's actions are contrary to the norms of the law and the procedure for tariff escalation itself was carried out in violation of the requirements of the law. This included timing of the notification regarding a public hearing and incomplete information about a public hearing in the announcements. The main thing, according to experts, was violation of the core principle of public hearings - the transparency of the formation of prices for goods (work, services), described in Paragraph 18 of the rules on pricing on socially significant markets.

And it looks like the tariff policy of the Astana airport will not get any ‘softer’. Similarly, in January this year, the airport unilaterally increased fees for a number of its services on all international routes. Thus, a service of "ensuring the take-off and landing of an aircraft on international routes" increased by 30%, "ensuring aviation security on international routes" by 100%, "basing of aircraft" by 157% and service of "over parking of aircraft" by 188%.

Now, according to an airport notice to domestic air carriers dated Aug 22, beginning Jan 1, this list will expand by 11 additional services related to ground handling. And the range of price growth is quite big - from 45% to 314%.

The increase in the handling fee for domestic flights will increase the cost of Air Astana alone by 18.5 million tenge per year. And with the increase of the remaining tariffs the company's expenses will soar by 1.5 billion tenge per year.

But air carriers are forced to accept such an aggressive tariff policy. They do not have an alternative choice in the form of another airport. For comparison, in many local and foreign airports with similar passenger and freight traffic, the tariffs for the cargo handling service are lower on average by 63 percent: in Almaty, 5,250 Khazakhstani tenge; in Karaganda, 5,973 tenge; in Bangkok, 9,999 tenge; and in Istanbul 14,537 tenge.

Other reasons may be behind the increase in tariffs, experts say, namely, loan obligations to the JSC Development Bank of Kazakhstan.

Anyway, the consequences of all these price metamorphoses can be very sad and worsen the condition of civil aviation in Kazakhstan. Air carriers, in an effort to pay for their expenses, will be forced to increase tariffs on passengers departing from the capital city of Kazakhstan. Experts warn that existing routes might be closed and passenger traffic might drop.

It is hoped that the route chosen by the Astana airport will not lead to a point of no return.