PERSPECTIVE: Eastward, ho!

By bne IntelliNews June 4, 2012

bne -

When this correspondent first arrived in Prague on a balmy summer's day in 2002, the airport was full of passengers disembarking from planes that had originated in Western Europe and North America, many of whom were intent on doing business in what was then still very much emerging Europe.

The subsequent decade has seen lots of changes at Prague Airport, not least the swanky new second terminal that helped lift the total number of passengers arriving in 2009 to 11.6m, making it the busiest airport among the new EU member states. But it's not only the amount of passengers that's changed, it's also the direction they are coming from and going to.

In 2002, the airport's destination list totalled 78 places, about 30% of which could be considered the emerging Eastern European and Asian states. The subsequent decade has seen some notable westward routes drop off. For this correspondent, the Czech Airlines flights to Edinburgh and Glasgow were sadly first to go; then shockingly, after 72 years Czech Airlines dropped all its flights into the UK in 2010. At the time, the airline, which operates about 60% of the flights to/from the airport, said it had cut its UK flights as part of a global restructuring, which had led it to reduce services on less profitable routes and increased those on more profitable ones. For example, the number of scheduled passengers carried by CSA to/from the former Soviet Union grew from 425,000, or 9% of total scheduled passengers, in 2006 to 568,000, or 12%, in 2008.

This "re-orientation" of Czech Airlines is mirrored in the airport as a whole. While in 2002 just 30% of the destinations were to the "emerging east", by 2012 this had grown to over 40% of the now 98 passenger destinations. The airport has got bigger, but is now also increasingly turning to the east. It is noticeable that in the evenings, once all the tourists from Western Europe have passed through and are thronging the city centre, the airport again more resembles its old Soviet self, with numerous flights to Russia and the rest of the Commonwealth of Independent States (Baku, Donetsk, Ekaterinburg, Kazan, Minsk, Yerevan, to name a few), the air of the bars and cafes filled with Russian and cigarette smoke.

The same can be said of the cargo destinations. Six out of 10 are now in the east, with China featuring heavily. Emirates Airlines' daughter company Emirates SkyCargo, one of the world's top 10 air freight companies, now has capacity out of Prague for 20 tonnes a day, including for specialised cargo such as refrigerated medical supplies as well as flowers and fruit.

Emirates' choice in 2010 to begin a passenger/cargo route to Prague is instructive. One of the largest airlines in the world and one of the best (it was voted by Air Transport World "Airline of the Year" for 2011), it has already upgraded the daily flight from an Airbus 330 to a Boeing 777, which has an extra 86 seats to take the total to 364. "The Czech Republic was oriented toward western countries, but there is an increasing interest in business and travel to the east and we're part of that," says Borivoj Trejbal, Emirates country manager for Czech Republic.

Of course, the majority of passengers from Prague don't end their trip in Emirate's hub of Dubai, but 70% transit to other destinations: for holidays, places such as the Maldives and the Seychelles; for business, places like China, Hong Kong, South Korea and Australia/New Zealand. Although Emirates is cautious in its outlook given the unfolding European crisis, Trejbal stresses he has seen no signs of any drop-off in its "more than satisfying load" factor on its daily flights, with prices staying stable. "In Czech Republic, I can only see a bright future and there's no signals of any decline."

For those who look at global trade flows, none of this should come as much of a surprise. International trade has mushroomed as a result of globalisation, rising from the equivalent of 39% of global GDP in 1990 to 61% in 2010, and is expected to top 84% by 2030, according to a 2011 report by Citigroup. But since the global crisis hit in 2008, there's clearly been a trend of emerging markets trading more between themselves and less with developed markets. China, for example, has already become Brazil's biggest consumer of raw materials, and will soon be the biggest for Africa too. "We expect world trade to expand at an average rate of 7.1% per annum between 2010 and 2030 (measured in constant 2010 dollars) and to expand by 4.7% a year between 2030 and 2050," Citigroup's Ebrahim Rahbari and Willem Buiter predicted last year. "What will be new is the prominence of today's emerging market economies in world trade. We expect intra-emerging market trade to overtake trade within the advanced economies by 2015 and to exceed trade between advanced economies and emerging markets by 2030."

For Prague, geographically situated right in the centre of Europe, this pivoting to the east is a sign of and a reaction to this trend. And given the Czech government's previous attempts to privatise the airport, few would bet against an eastern investor acquiring it when the airport is finally sold, completing its eastward turn.

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