US embassy cable - 05VIENNA2197

UNCLAS SECTION 01 OF 02 VIENNA 002197 
 
SIPDIS 
 
STATE FOR EB/TRA AND EUR/AGS/VVIKMANIS-KELLER 
BRUSSELS FOR FAA/PABDULLAH 
FRANKFURT FOR TSA/ABROWN 
 
E.O. 12958: N/A 
TAGS: AORC, EAIR, AU, ICAO 
SUBJECT:  AUSTRIAN AVIATION SECTOR INTENSIFYING RELATIONS 
WITH CENTRAL AND EASTERN EUROPE 
 
REF: 04 VIENNA 0776 
 
Summary 
------- 
1.  In 2004, the AUA group (Austrian Airlines, LaudaAir 
and Austrian Arrows) carried a record number of 
passengers and operating profits rose by 25 percent.  The 
outlook for 2005 is dim because of overcapacity in the 
European market and higher-than-projected fuel costs. 
Both AUA and the Vienna Airport (VIE) view markets in 
Central and Eastern Europe as a main focus.  In January 
2005, AUA obtained a 62% stake in Slovak Airlines, the 
Slovak national carrier.  Both VIE and AUA will 
reportedly present bids for Bratislava Airport.  VIE also 
aims to acquire a majority position in the Malta 
International Airport, as well as a stake in the Zagreb 
airport.  VIE recorded strong profits in 2004 and 
prospects for continued growth in 2005 remain excellent. 
In June 2005, VIE successfully concluded an agreement to 
begin construction of a third runway, which is critical 
for VIE's expansion efforts.  End Summary. 
 
 
AUA Group - Passenger Record in 2004 
------------------------------------ 
2.  The AUA group (Austrian Airlines, LaudaAir and 
Austrian Arrows) carried 9.41 million passengers in 2004, 
a 10.9% increase over 2003 and a new record.  The 
passenger load factor was 72.8%.  Operating revenues 
jumped by 5.4% to Euro 2.36 billion.  Earnings before 
interest, tax, depreciation and rentals fell by Euro 101 
million to Euro 320 million, but pre-tax earnings from 
operating activities rose by Euro 16 million to Euro 79 
million. 
 
3.  In reaction to weakening business demand towards the 
end of 2004, AUA reduced fees for transfer passengers by 
more than 50% and lowered the fuel surcharge on tickets. 
However, AUA raised the surcharge in May 2005 for long 
distance flights from Euro 17 to Euro 27 per one-way 
flight, while it kept the surcharge for short and medium 
distances at Euro 7 per one-way flight. 
 
 
AUA's 2005 Outlook - Dim 
------------------------ 
4.  AUA expects a negative result for 2005.  This is in 
light of first quarter results, which revealed declines 
in operating revenues, in earnings before interest, tax, 
depreciation and rentals and in pre-tax earnings from 
operating activities.  Overcapacitiy in Europe and high 
jet fuel prices were the main causes for the drop in 
earnings.  First quarter fuel was $481 per ton, 
significantly above AUA's projection of $450 per ton. 
 
 
AUA Takeover of Slovak Airlines 
------------------------------- 
5.  In fall 2004, AUA guaranteed a Euro 5 million loan 
for the Slovak national carrier, Slovak Airlines (SA), 
with Slovenska Sporitelna Bank, a subsidiary of the 
Austrian Erste Bank.  AUA subsequently received seats on 
SA's management and supervisory board, and in January 
2005, AUA obtained a 62% share in SA for Euro 2.8 
million.  AUA's takeover of SA is part of its strategy to 
strengthen its Central and Eastern Europe (CEE) focus. 
AUA already operates a CEE hub out of Vienna, offering 
461 flights weekly to 39 destinations in 23 CEE 
countries. 
 
 
Vienna Airport's Plans for International Expansion 
--------------------------------------------- ------ 
6.  Both the Vienna International Airport (VIE) and AUA 
will reportedly bid on the Bratislava Airport, when the 
Slovak Government privatizes it.  VIE is apparently also 
keen to transform its 40-percent share in Airport Malta 
into a majority share.  VIE has also signalled its 
interest in obtaining shares in the Zagreb airport, when 
Croatian authorities put it up for privatization. 
 
 
Vienna Airport - Strong 2004 Performance 
---------------------------------------- 
7.  Due to strong collaboration with low-cost carries and 
an increase in travel to CEE and long-distance flights, 
VIE's passenger numbers totaled 14.79 million in 2004. 
This is a 15.7% increase over 2003.  Cargo volume was up 
21.0%.  Total sales rose 14% to Euro 398 million in 2004 
and pre-tax earnings from operating activities went up by 
5.3% to Euro 103 million. 
 
8.  Low-cost carriers made an important contribution to 
VIE's positive results.  Scheduled traffic accounted for 
90.5% of total passengers.  The most popular destinations 
were Frankfurt, London, Zurich and Paris.  The most 
popular CEE destinations were Moscow, Warsaw, Sofia, 
Prague and Bucharest.  Bangkok was the most popular long- 
distance destination, followed by Washington, New York 
and Tokyo.  Antalya, Turkey remained the number one 
charter destination.  For 2005, VIE predicts an increase 
of 8% in passenger numbers. 
 
 
Vienna Airport Concludes Mediation for Third Runway 
--------------------------------------------- ------ 
9.  On June 22, VIE successfully concluded a five year 
mediation process for the construction of a third runway. 
VIE negotiated with state governments in Vienna and Lower 
Austria, neighboring communities and civil initiatives 
regarding noise reduction and other environmental issues. 
Construction of a parallel third runway, which will begin 
in 2009, is critical for VIE's business expansion.  The 
current two runways do not allow independent operations 
and can handle a maximum of 72 flights per hour, while 
analysts predict 80 flights during peak hours by 2015. 
 
BROWN