VZCZCXRO3736
PP RUEHIK
DE RUEHSL #0485/01 3240925
ZNR UUUUU ZZH
P R 200925Z NOV 09
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 0266
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUEHSL/AMEMBASSY BRATISLAVA 0313

UNCLAS SECTION 01 OF 03 BRATISLAVA 000485 
 
SIPDIS 
 
STATE FOR CA/OCS R. DOWELL 
STATE FOR EEB/TRA J. BYERLY AND M. FINSTON 
STATE PASS DEPT OF TRANSPORTATION FOR STEPHEN HATLEY 
STATE FOR EUR/CE J. MOORE 
AMEMBASSY PRAGUE FOR B. ROCKWELL 
USEU/BRUSSELS FOR M. CATON 
AMCONSUL FRANKFURT FOR FAA 
 
E.O. 12958: N/A 
TAGS: EAIR ECON PGOV LO
SUBJECT: SLOVAKIA'S CIVIL AVIATION HITS BOTTOM, FAILS TO BOUNCE 
 
REF: BRATISLAVA 388 
 
BRATISLAVA 00000485  001.3 OF 003 
 
 
¶1. (SBU) SUMMARY: A toxic brew of incompetence, economic 
recession and predatory airlines has left Slovakia's airports 
largely empty and on the verge of financial collapse.  Following 
the failure of discount airline SkyEurope this fall (reftel), 
Bratislava's airport has watched its passenger levels fall 60% 
from their peak a year ago, even as it builds a new terminal 
that will double capacity.  Ryanair is the only realistic hope 
to increase traffic in Bratislava in the near-term, but the 
low-cost carrier is playing hardball in its negotiations to 
establish a regional hub.  Industry sources believe that the 
country's other major airport, in the eastern city of Kosice, is 
in danger of being shut down by its Austrian majority owner. 
Passenger levels in Kosice are currently less than half what 
they were a year ago, and airlines have lately been shifting 
routes to the cheaper Poprad-Tatry airport in northern Slovakia. 
 END SUMMARY. 
 
 
A BLEAK OUTLOOK FOR BRATISLAVA AIRPORT 
 
¶2. (SBU) Two years ago, with Slovakia's "economic miracle" 
boasting double-digit growth and a new highway linking 
Bratislava and Vienna nearing completion, the government-owned 
Bratislava Airport decided to double its capacity by building a 
new passenger terminal at a cost of 100 million euros.  The 
airport, whose volume had grown six-fold since 2002, saw an 
opportunity to position itself as a low-cost competitor to 
Vienna's airport, reasoning that Vienna residents would be 
willing to drive an extra 45 minutes for lower fares.  According 
to Zdenek Schraml, CEO and Chairman of the airport's Board of 
Directors, this hasn't happened.  Schraml told us that "very 
few" Austrians fly out of Bratislava and there is little 
likelihood that this will change anytime soon, adding that he 
believes the Slovak government should give up its "unrealistic 
dream" of Bratislava becoming an international air hub. 
 
¶3. (SBU) Schraml presented an astonishingly bleak outlook for 
the airport, which in recent months has seen its first and 
third-largest tenants--SkyEurope and Seagle Air--cease flying. 
Although numerous airlines announced the intention to add 
Bratislava routes in the weeks after SkyEurope's failure, 
Schraml told us that Ryanair is his only remaining hope. 
Budapest-based Wizz Air had appeared likely to take over many of 
SkyEurope's routes, but Schraml told us that they suddenly and 
without explanation withdrew their interest last month.  The 
airline went even further just yesterday, announcing that it 
will cease to operate out of Bratislava entirely.  Several 
knowledgeable industry sources have told us that Ryanair and 
Wizz Air, which reportedly have some common investors, have 
agreed not to compete against each other in Bratislava. 
 
¶4. (SBU) Further complicating matters for the airport, its 
outdated facilities leave it completely unable to attract cargo 
or long-haul flights.  Schraml told us the Slovak government 
failed to realize that the expanded capacity of the new terminal 
would also require increased apron and hangar space, along with 
other infrastructure improvements.  The airport's longest 
runway, at 3200 meters, is too short for most cargo flights, 
leaving it unable to compete with Vienna's airport for this 
lucrative sector.  Schraml claimed that the airport needs 300 
million Euros in capital improvements--above and beyond the new 
passenger terminal--and there is currently no financing 
available for any of this, either from the Slovak government or 
the EU.  Even worse, Vienna is building a new terminal of its 
own (although construction has been stalled since the summer) 
that would vastly increase the airport's capacity when 
completed, further weakening Bratislava's position. 
 
¶5. (SBU) According to Schraml, Ryanair has taken full advantage 
of its dominant bargaining position.  He told us that while the 
airline is clearly interested in establishing a hub in 
Bratislava, their negotiating strategy has been to keep the 
airport off-balance by saying contradictory things and remaining 
silent for months at a time.  Ryanair has yet to respond to the 
airport's three-month-old letter asking what airfield 
improvements it would need in order to establish a base in 
Bratislava--but the airline did find time a few weeks ago to 
negotiate through the local media by planting news articles 
apparently intended to pressure the airport to cut its landing 
fees by as much as 70%.  Schraml told us that he is unable to 
negotiate effectively with Ryanair because he doesn't even know 
 
BRATISLAVA 00000485  002.3 OF 003 
 
 
what they want. 
 
 
GROWTH IN AN UNLIKELY PLACE 
 
¶6. (SBU) The one bright spot for Slovak aviation has been the 
expansion of local airline Danube Wings into some of the markets 
previously served by SkyEurope.  Interestingly, the upstart 
airline has largely ignored the Bratislava and Kosice airports, 
instead concentrating its operations at the much smaller 
government-owned Poprad-Tatry regional airport, located in 
northern Slovakia at the base of the Tatra mountains.  Many in 
the aviation sector are skeptical that the Danube Wings business 
model can work.  Tomas Kika, former Spokesman for SkyEurope, 
told us that the planes flying Danube Wings' longer routes, such 
as Poprad-Manchester, are largely empty, and the company 
survives only because it is being subsidized by Eurofunds. 
Arpad Agocz, the Commercial Director of Danube Wings, admitted 
to us that the airline receives support from "regional" sources, 
but he declined to tell from whom or how much. 
 
¶7. (SBU) A former SkyEurope pilot who remains active in the 
domestic aviation sector told us that Danube Wings cut its 
salaries by 30% several weeks ago, and he expressed doubt that 
the airline would survive the winter, even though this is 
presumably its high season.  Agocz, on the other hand, was very 
upbeat about the company's outlook, although it should be noted 
that much of Danube Wings' strategy as he presented it seems to 
rely on a partnership with Czech Air, a company with more than 
its own share of problems. 
 
¶8. (SBU) Schraml, who was formerly Director of Privatization at 
the Ministry of Transport, told us that privatization of 
Bratislava Airport is "probably the only answer," although he 
added that there is no indication that the government is willing 
to do this.  Kosice's airport, for its part, has had a 
disastrous experience since being partially privatized several 
years ago.  It relied far too heavily on SkyEurope, which at the 
beginning of this year accounted for 2/3 of the airport's 
passenger traffic.  Already ill-equipped to deal with 
SkyEurope's failure, the Kosice airport was dealt a further blow 
when around the same time Poprad-Tatry slashed its landing fees 
and began to compete for the remaining carriers serving the 
Slovak market.  Poprad, a dingy town about two hours by car from 
Kosice that serves as the gateway to the Tatra ski resorts, is 
the only other viable commercial airport in the area.  By all 
accounts, the Kosice airport has been very slow to respond, and 
Profit Magazine air industry analyst Jan Blazej told us that it 
is quite possible it will be forced to close. 
 
 
COMMENT 
 
¶9. (SBU) It seems almost inevitable that Slovakia's aviation 
sector will soon be dominated by Ryanair, which is clearly 
biding its time while domestic pressure builds and the 
government becomes desperate to bring traffic to the gleaming 
new terminal in Bratislava.  The irony for PM Robert Fico is 
that by halting the planned privatization of the airport several 
years ago, he has actually weakened its bargaining 
position--Ryanair undoubtedly realizes that it can make 
expensive and onerous demands of the Slovak government to which 
a private owner could never afford to agree.  The government has 
already taken considerable criticism for renewing SkyEurope's 
license shortly before it shut down, a decision which allowed 
the airline to book flights through the spring of 2010, 
ultimately leaving customers holding 280,000 worthless tickets. 
Given all the pressures on the government, it seems likely that 
it will ultimately accede to whatever Ryanair demands, and 
Slovakia will once again enjoy a full slate of international 
routes from Bratislava--although only at great hidden cost to 
Slovak taxpayers. 
 
¶10. (SBU) As for the Kosice airport: should the worst come to 
pass, it seems unlikely the Slovak government would allow it to 
remain closed for long--in fact, Fico may secretly hope that it 
will go out of business so that it might be renationalized and 
reopened under government control.  Eastern Slovakia has largely 
been left out of the Slovak economic miracle, in no small part 
because of its problematic transportation ties with western 
Slovakia and Europe beyond.  The loss of its commercial air 
links would make the situation far worse, and it is unlikely 
 
BRATISLAVA 00000485  003.3 OF 003 
 
 
that Fico would allow that to happen. 
EDDINS