VZCZCXRO4471
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHVI #2003/01 2081501
ZNR UUUUU ZZH
R 271501Z JUL 07
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 8179
INFO RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUCNMEM/EU MEMBER STATES
RUEHBS/USEU BRUSSELS
RUEHFT/AMCONSUL FRANKFURT 8128

UNCLAS SECTION 01 OF 02 VIENNA 002003 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EB/TRA AND EUR/AGS 
PARIS FOR FAA (LLIU) 
FRANKFURT FOR TSA (ABROWN) 
 
E.O. 12958: N/A 
TAGS: EAIR AU
SUBJECT:  LATEST AVIATION DEVELOPMENTS IN AUSTRIA 
 
REFS:  A) 06 VIENNA 3464  B) 05 VIENNA 2197 
 
 
Summary 
------- 
 
¶1.  New non-stop services from Austria to the U.S. include a Delta 
Airlines Atlanta-Vienna flight and an Austrian Airline's (AUA) 
Vienna-Chicago flight.  AUA has increased the frequency of its 
Vienna-Erbil, Iraq flights, and added new destinations, such as 
Astana, Kazakhstan.  AUA's has intensified its cooperation with the 
Russian airline alliance AiRUnion, as well as with its Star Alliance 
partner Air China.  Following a Euro 130 million loss in 2006, AUA 
recently announced a much lower than expected loss of Euro 8.6 
million in the first half of 2007.  AUA expects to turn a profit by 
¶2009.  As part of its long haul fleet restructuring, AUA has 
acquired a fourth Boeing 777-200.  Vienna International Airport 
remained the number one departure and transfer airport for Central 
and Eastern Europe and Southeastern Europe in 2006.  The debate in 
Austria about a fuel tax remains dormant following an initial spurt 
of support from prominent politicians earlier in 2007.  End 
Summary. 
 
 
New Non-Stop Services to the U.S. 
--------------------------------- 
 
¶2.  After an interruption of seven years, Delta Airlines has added 
Vienna to its flight destinations.  Beginning on May 22, Delta began 
operating five non-stop flights between Atlanta and Vienna per week, 
using Boeing 767-300 aircraft.  Vienna's hub function for connecting 
flights to Central and Eastern Europe and Southeastern Europe 
(CEE/SEE) was an important reason to take up the Vienna route, 
according to Gail Grimmett, Delta's Vice President for Revenue 
Management.  On May 29, Austrian Airlines (AUA) started non-stop 
service between Vienna and Chicago six times a week.  Chicago is 
AUA's third U.S. destination in addition to Washington and New York. 
 
 
 
AUA - New Destinations and Cooperations 
--------------------------------------- 
 
¶3.  AUA recently increased the frequency of its Vienna-Erbil, Iraq 
flights from three to four weekly flights.  On May 15, AUA started 
regular service three times a week to Bourgas, Bulgaria's largest 
port on the Black Sea.  Starting August 3, AUA will initiate service 
to Astana, Kazakhstan three times a week.  As of October 31, AUA 
plans to restart its service to Colombo, Sri Lanka and Male, 
Maldives, two destinations that the company stopped serving in early 
¶2007. 
 
¶4.  In February 2007, AUA started cooperation with AiRUnion, an 
alliance of several Russian carriers: Kras Air, Omskavia, Samara 
Airlines, Domodedovo Airlines and Sibaviatrans.  AUA considers 
AiRUnion's extensive route network, stretching from Moscow to 
Central Asia and the Pacific, as an ideal supplement to its current 
flights to Moscow, St. Petersburg, Yekaterinburg, Rostov on the Don, 
and Krasnodar.  As a result of this alliance, AUA, after 48 years at 
Moscow's Sheremetyevo Airport, has switched to Moscow's Domodedovo 
Airport.  According to AUA, Domodedovo will function as a hub for 
passengers transferring onward via AiRUnion's route network in the 
east. 
 
¶5.  On July 2, AUA announced it will increase cooperation with Star 
Alliance partner Air China by adding Shanghai, Guangzhou and Wuhan 
as new code share destinations via AUA's daily Beijing flight. 
 
 
AUA Not Yet on Safe Ground - Profit in 2009? 
-------------------------------------------- 
 
¶6.  On July 23, AUA announced that losses for the first half of 2007 
had been much lower than expected at Euro 8.6 million, compared to 
losses of Euro 61 million in 2006.  Nevertheless, AUA CEO Afred 
Oetsch recently dampended hopes for a swift turnaround, indicating 
that 2007 will be a transition year.  He added that cost-cutting 
measures, which AUA implemented in 2006, would first show benefits 
in 2008.  According to Oetsch, AUA expects to make a profit and pay 
a dividend in 2009. 
 
¶7.  In 2006, AUA's operating results improved, but were still 
negative.  Debt sunk from Euro 1.1 billion to Euro 716 million. 
AUA's debt-to-equity ratio improved from 191.6% to 91.2% due to the 
November 2006 capital increase (ref A).  However, at Euro 130 
 
VIENNA 00002003  002 OF 002 
 
 
million, AUA's loss in 2006 was on par with its 2005 loss.  AUA's 
decision not to hedge against rising fuel prices accounted for 
additional costs of Euro 76 million in 2006.  In 2007, AUA began 
hedging against rising fuel costs. 
 
 
AUA Puts New Boeing 777-200 Into Operation 
------------------------------------------ 
 
¶8.  On June 5, AUA began operating with its new Boeing 777-200, 
"Spirit of Austria."  "Spirit of Austria" is AUA's fourth 777-200 
and will operate on flights to Washington, Delhi, Bangkok and Tokyo. 
 Acquisition of the Boeing 777-200s is part of AUA's move towards 
purchasing only Boeing aircraft for its long haul fleet.  AUA has 
already sold its four Airbus A330s and leased out its two Airbus 
A340-300s (ref A). 
 
 
Vienna International Airport - Number One CEE/SEE Hub 
--------------------------------------------- -------- 
 
¶9.  In 2006, Vienna International Airport (VIE) maintained its 
position as the dominant departure and transfer airport for CEE/SEE, 
offering 45 destinations in the region.  Moscow was the most 
traveled CEE destination with 114,000 passengers from Vienna in 
¶2006.  VIE continues to seek expansion opportunities 
internationally:  VIE holds 50% in Malta International Airport 
(directly and through a consortium); 66% in Kosice Airport, 
Slovakia's second largest airport; and 25.2% in Friedrichshafen 
airport, Germany's fourth largest regional airport.  VIE's efforts 
to obtain shares in the Bratislava Airport failed in 2006, when the 
new Slovak Government stopped the airport's privatization.  VIE was 
also unsuccessful in its attempt to obtain the Antalya airport in 
Turkey.  VIE has announced it would be interested in a share of 
Prague's Ruzyne airport, when the Czech Government privatizes the 
airport. 
 
 
Austria's Debate on Airline Fuel Tax Dormant 
-------------------------------------------- 
 
¶10.  The debate in Austria about imposing a tax on jet fuel has been 
rather mute in recent months, following a flurry of positive 
comments earlier in 2007 from prominent politicians, including 
Chancellor Alfred Gusenbauer and Vice-Chancellor and Finance 
Minister Wilhelm Molterer.  Likewise, there has been no follow-up 
discussion to the March 8-9 European Council conclusions, which 
called for including aviation emissions in the EU's Emissions 
Trading Scheme.  Austria strongly supports inclusion of aviation 
emissions in the ETS. 
 
MCCAW