DEVELOPMENT AND TRENDS OF THE COMPETITIVE ENVIRONMENT IN THE MARKET OF AIR TRANSPORT SERVICES IN THE REPUBLIC OF

PhD student Dumitru NICULĂIŢĂ, ASEM During 15-20 years the air transport has become a more accessible way to travel. The policies of markets liberalization within the European Community have resulted to increasing competitiveness in the market of air transport services in the European Union. As a result of this competition, the land transport had to reconsider development strategies by modifying and improving services. Thus, the beneficiary of this competition, between the various means of transport, is still the ultimate consumer – the passenger. The competition is one of the major factors which contribute directly and effectively to improve the quality and reduce the prices. Key words: civil aviation industry, air transport, airlines competition, trends, competitive strategies.

The civil aviation industry in the Republic of Moldova is relatively young, dynamic and flexible. The development of this sector has essentially contributed to place the air transport on first place according to the criteria of safety, speed, number of passengers, etc. Aviation is one of the few areas that are in constant evolution and this denotes the positive trends of development. National air carrier activity knows an important evolution driven by economic growth, involvement of Moldova in the international exchange of goods and of course in international tourism. The main goal of the present research is to show the importance and value of air transport for the economy of our country. 1. The role of the European air transport market in the global context The globalization of the airline industry, accompanied by liberalization of the air transport sector in Europe and in some parts of Asia, has encouraged a new force in a relatively stable industry. This dynamic has led to the emergence of a lot of low cost competitors, to the fundamental restructuring of the existing airlines and the airline industry consolidation. The consolidation was represented first by a wave of mergers and acquisitions and then by creating global competitive alliances (Star Alliance, Sky Team, Oneworld). These two phenomena are interrelated, intra-industrial consolidation survivors formed global alliances which have demonstrated the effectiveness in most of the time. The demand for global air transport is concentrated in three main regions: North America, Europe and Japan (along with countries heavily industrialized in Southeast Asia), which, together, comprise 75 percent of international air traffic. Concerning the inland airline transport, USA represents the biggest market share with over 55%, followed by the members of the E.U with 25 % of the global domestic demand. In 2015, according to the International Air Transport Association (IATA Annual Review 2016) and the International Civil Aviation Organization, ICAO, airlines throughout the world have transported 3.5 billion people-an annual growth of 6.8% and 51 million m. cof cargo – recording an increase of 1.2%. This was possible due to the efforts of the 10 million people working in this branch of the economy that have managed a fleet of 26,000 aircrafts with an average of 100 thousand flights per day into a global network of 51 thousand routes [6]. In 2016 the European countries recorded a market share of approx. 26.4% of total passenger traffic carried by air. European airlines are expected to generate a net profit of 5.6 billion dollars by the end of 2017 that is lower than 7.5 billion recorded in 2016. However, airline operators expect to achieve a net profit margin of 2.9% and $5.65 profit per carried passenger. It is a significant gap between the performance of carriers in the region and the performance of those North Americans with an average profit of 19.58 USD/passenger. Transport capacity is expected to increase by 4.3%, compared to an increase in demand estimated at only 4%. European region is subject to intense competition and the growth is hampered by high cost, tax regulations and high charges. Also the terrorist threats remain a real risk, but despite of this thing passengers' confidence is starting to return after the tragic incidents of recent times. The average annual growth of the world economy during the period 2004-2023 was estimated by Airbus at 2.9% for industrialized countries, and at over 4% for developing countries. In this context, both Boeing and Airbus believe that traffic measured in R.P.K. – Revenue Passenger Kilometers will record an annual average increase of 5.3% [5]. The geographical configuration of the European market represents an advantage compared to the US market. It started from the existence of a “European corridor” that extends from London to Rome, which includes such metropolis as Paris, Brussels or Frankfurt, concentrating approximately 50% of the main 166 European cities, on only 20% of the territory of the old continent. More than that, half of the European capitals are concentrated within a polygon representing less than 10% of European territory, 20% of the population and more than 25% of gross domestic product. All the airlines that have operations in this corridor are privileged. 2. Development of air transport services market in the Republic of Moldova At the moment, the civil aviation branch in the Republic of Moldova comprises 13 companies having the air operator Certificate: public company “”. “” LLC, mixed enterprise “TeraAvia”, mixed enterprise “Classica Air”, “” LLC, mixed enterprise “Valan International Cargo”, “AIM AIR” LLC, “Megaviation” LLC,. “Oscar Jet” JSC, “Pecotox” LLC, “Air Stroc” LLC, “Fly One” LLC, “Fly Pro” LLC and 3 companies holding the authorization of air operator providing air opera- tions: mixed enterprise “Valan International Cargo”, “Pecotox” LLC, public enterprise “Moldaeroservice”. Certified airlines run regular flights (3 companies), charter flights and air work operations. During the year 2016, national and foreign airlines transported 2 206 266 passengers in total, representing a decrease of 0.9% compared to the year 2015 (2 226 441 passengers). The allocation of the share of passenger transport between domestic and foreign airlines that have regular flights to/from the Republic of Moldova is 51.1 and 48.9% From 13 certified airlines 3 offer regular passenger transport to/from the Chisinau International Airport: • Public Airline “Air Moldova” • Airline “Fly One” LLC and • Airline “Tandem Aero” LLC. Also, during the year 2016 a total amount of 2130,1 tons of cargo and 644.2 tons of mail were transported. Compared to the year 2015 shipments of goods recorded a decrease of 4.5% or with 100.8 tons less and shipments of mail have registered a decrease of 2.5% or with 16.7 tons less. Analyzing the evolution of main economic indicators characterizing the air transport it is clear that they had a tendency to decrease [2]. Over the past 6 years, aviation had the following evolution: Table 1 Evolution of the main indicators of the national air transport Indicator 2011 2012 2013 2014 2015 2016 Aircraft takeoffs 15 022 16 113 16 858 19 756 22 468 22 033 Carriage of passengers 1 046 086 1 220 506 1 321 236 1 781 166 2 226 441 2 206 266 Carriage of goods 2068,5 2022,4 2309,75 2243,1 2230,9 2130,1 Transport of mail 597,7 743,0 642,1 680,4 660,9 644,2

All the indicators have suffered small decreases in the last reporting year.

Figure 1. Annual evolution of passengers transported from the Republic of Moldova

167

3. Trends in the global competitive environment and competitive strategies adopted by airlines in the Republic of Moldova. A recent study performed by the media company SeeNews attests a spectacular growth of the air traffic in 2016, throughout the south-eastern region of Europe. According to the study, the increase is due to the strong expansion of low-cost airlines, notably in Bulgaria and [4]. Moldova is the only country with one low cost airline. Bulgaria is the country that has the market with the strongest growth in the region, closely followed by Romania. Moreover, the two countries are the only ones in which national air carrier operator lost the first position at the expense of some low cost competitors. The annual increase in the number of passengers is 25.4% in Bulgaria, 21.6% in Romania and 14.8% in Macedonia. The increase is more spectacular as it is much higher than that recorded by Hungary (12.9%), with the strongest market growth in Central Europe. The study shows that Moldova has recorded one of the lowest increases in the region of only 1.1%. Romania, as the market of offering air transport services has become quite accessible for low cost airlines. The low cost flight operators found good time to expand their business in Romania. As consequence the number of passengers carried by Blue Air, Ryanair and Wizz Air has increased by nearly 40% in the first half of the 2016 compared to the same period of the previous year. The low cost carriers have had a strategy of rapid expansion in Romania. They set up new bases at airports, increased the number of external routes and began to carry out domestic flights. At the same time, problems with terrorism in other countries brought more tourists in Romania. That means that flight ope- rators have not only carried many Romanians abroad but, in the same time, they brought more foreigners to Romania. It means that new routes launched from and to Romania have managed to generate the expected traffic. Wizz Air launched six new routes this year. Wizz Air is currently the largest airline in Romania, managing to exceed the number of passengers carried even by the public operator TAROM. Recently Wizz Air has announced the wish to reach a record number of 6 million passengers transported in Romania by the end of the year. The second largest low-cost carrier Blue Air, still not exceeding TAROMby the number of passengers, but having larger number of airplanes than the public company Also, Blue Air was first attacking the TAROM's monopoly on domestic flights. The podium of the low-cost airlines from this country is completed by Ryanair. The Irish company recently entered the Romanian market and to catch those from Blue Air and Wizz Air it began to implement an aggressive expansion strategy based on cheap flights and increasingly various destinations. Airlines reduced ticket prices due to cheap kerosene. Recent statistics carried by GoEurope show that Romania has the cheapest domestic flights in Europe, only 7 euro per one hundred kilometers. Companies have also special offers also on external flights. Cheapest tickets, combined with the effects of economic growth have made the demand for internal and external flights to grow. In the same time, the INS indicates that in the first seven months of the year 5.7 million foreigners came to the country, almost 13% more than previous year. Most of them continue to visit Romania for business or for cheaper medical treatments. Also, the number of overseas tourists scared by terrorist threats in other countries increased. Of course, the purpose of the visit for airlines is irrelevant as long as the number of passengers increases. 4. Conclusions on market development of air transport services in the Republic of Moldova The increase in air traffic is mainly determined by economic growth but also on the development of international trade and the lowering of the prices of the tickets. While global economic growth continues to support the increasing demand for air transport, the high level of the prices charged by traditional airlines causes a limitation of it [3]. If until recent time, passenger air transport could be divided into two broad categories: companies operating air liner flights and charter flights whose consumer segments were never strictly delineated. The entry of low-cost companies introduced the new element that initially led to a diversification of target segments. Low cost companies showed their effectiveness fully in this regard, traditional companies seeking currently to rethink and adjust the cost structure so that it becomes more efficient and, consequently, they could provide the same quality services at a lower rate. Increasing importance of reduced prices as an incentive for demand is the main feature that will influence future developments in the air transport industry, which is highlighted by the success of low cost airlines. Another determining factor for success is the expansion of the global network of destinations, the network served by companies which carry out regular transport services. Low cost companies showed their effectiveness fully in this regard, traditional companies seeking currently to rethink and adjust cost structure so that it becomes more efficient and, consequently, that they could provide the same quality services at a lower rate. 168

There is just one low cost airline, Wizz Air, on the market of the Republic of Moldova. It recently opened an operational center at Chișinău international airport, this being the lowest presence of low cost companies in South Eastern Europe, reveals the study made by SeeNews. On the market of the Republic of Moldova the category of consumers of air transport services in the majority are young people aged between 25 and 35 years old who prefer to be transported from or Iași purchasing airline tickets at low-cost flights. This option is offered by local travel agencies which thus place the touristic package at a quite attractive price level. Also the airlines operating in Chisinau offers are attractive to consumers from the eastern region of Romania despite the fact that the Iași international airport is in continuous development and airline operators present in Romania shall continually expand the flights from the capital of the Republic of Moldova. So part of the passengers arrive in Chisinau to fly on the routes operated by Russian airlines to cities of Russia (Moscow, St. Petersburg, Krasnodar) or by the European (Istanbul, Frankfurt and others). Another important moment, which will further boost the market value of air transport services in the Republic of Moldova is the liberalisation of airspace that will contribute to the improvement of services offered to consumers through more attractive prices and new experiences of travelling by air promised by new airlines, that regularly demonstrate the interest in Chisinau, as a flight destination.

References: 1. “Evoluția Aviației Civile în Republica Moldova”. Chișinău 2014. Publicația Autorității Aeronautice Civile. 2. Civil Aviation Authority, web page: https://www.caa.md 3. Studiu. ”Rezervele pieței serviciilor de transport aerian de pasageri din Republica Moldova” Radu Bezniuc. 4. Raportul See News privind analiza piața serviciilor de transport aerian low-cost din Europa de Sud- Est, 2017: https://seenews.com/reports/Industry%20report/budget-airlines-in-southeast-europe-2017- 150445?gclid=CKuos6fkq9MCFakW0wodJFcBLg 5. http://www.iata.org/pressroom/pr/Pages/2017-02-02-01.aspx 6. http://www.iata.org/pressroom/pr/Pages/2016-12-08-01.aspx 7. http://www.icao.int/sustainability/Pages/FactsFigures.aspx 8. https://ec.europa.eu/transport/modes/air/aviation-strategy_en 9. http://www.iata.org/publications/Documents/iata-annual-review-2016.pdf 10. http://www.iata.org/whatwedo/Documents/economics/IATA-Economic-Performance-of-the-Industry- end-year-2016-report.pdf 11. https://www.strategyand.pwc.com/trends/2015-aviation-trends

169