Sofia Airport on World Class Facilities Development and Concession Potential

 

Mr. Shterionov, we understand there is a long past for the Sofia Airport. Please offer our readers a brief introduction to that history if you would.

It was established in 1937 based on a decree by the Tsar Boris III. In fact, the room we are in currently is in its original state from that period. Even the eagle we see above the doorway had a swastika symbol on the breast; of course this has been removed, so even as we speak we are among that history. Moving into the modern era we began developing the airport’s terminal and external infrastructure by expanding our terminal’s capacity in 2002. Following this we embarked on a project to build a second terminal co-funded by the European Investment Bank [EIB] as well as a new runway and the extension of an existing runway funded by the Kuwait Fund for Arab Economic Development. Following these two project lots we have a wonderfully functioning facility which adheres to all EU requirements for safety and security.

 

Our historic conversation started in 1937 and did not pick up again until the 21st century. Considering these expansions just explained are new, are you at full capacity or are you looking to further develop the airport through other capacities?

When we built Terminal 2 we thought Terminal 1 would have a greatly reduced function. However, we found that due the lower operational costs associated with Terminal 1 we have established a nice home for low-cost carriers in the market. Because of this we expect even more low-cost operators to enter Sofia market and therefore we need to begin to increase the capacity of the old terminal, including interior comfort factors and refurbishing another two gates in the terminal.

Regarding Terminal 2, there will be more supplemental capacity development. For example, we have added more space to the pier in Terminal 2, thus increasing ease of passenger handling but also because it was a mark we needed to hit for accession into the Schengen area. I am confident we meet all those requirements. We also plan to purchase air bridges in addition to our current seven.

Sofia Airport has the latest runway technology which enables properly equipped aircraft to land at visibility as low as 75 meters. All these adaptations are meant to increase our ability to take on more international flights.

Additionally, we will increase the runway throughput and have put in place a provision which will allow for the construction of a rapid taxiway which will minimize an airline costs for fuel while taxiing on the runway. Finally, we are developing a new de-icing platform to remedy a current bottleneck we are facing during the winter months. New snow plows will join our package of upgrades shortly as well.

CEO of Sofia International Airport: Mr. Hristo Shterionov

These new investment upgrades, are they being funded with the support of the EU or through company profits?

Sofia Airport is 100% state-owned with the principal being the Minister of Transportation, IT and Communications [MTITC], Mr. Ivaylo Moskovski; as such, the investment package just described will be funded through the Company’s revenue from public airport charges.

 

Is the airport profitable?

We can say that over the last year passenger numbers have been going up and we expect 2015 to be a record year with forecasted 4million passengers. But let’s make a distinction regarding revenue sources. The Sofia International Airport, as a commercial entity, is sub-divided into two units. One unit functions as an airport operator which collects charges that are cost-related and subject to consultation with the airlines. Based on this we are seeing 10% growth in charges but they do not affect our profit. Rather, the other so-called ‘commercial’ unit forms profit. It’s through this unit that we pay a dividend to the government.

Of this, income derives from three sources – ground handling, commercial activities (terminal products and services) and financial instruments. In this area we are seeing a decline in profit due to the reduction of ground handling revenues where we face strong competition from two private handlers. This competition was introduced due to compliance with EU Directive 96/97/EC [15.10.1996] on access to the ground handling market at community airports which stipulated that once passenger numbers surpass 2million per year  the market must open up to more providers. Through this we were naturally forced to significantly reduce our ground handling fees.

Additionally, the interest rates on deposits provided by the banking sector dropped significantly hurting our financial results further. Although we are experiencing an increase in commercial profits from duty free and travel retail sales it is not enough to offset the losses from the other two. In 2012 we saw a profit margin of 9.5million BGN, in 2013 – 6million, and 5.3million in 2014; this year we hope to maintain the 2014 figures in the commercial side of our business.

 

During our conversation with Minister Moskovski he mentioned a potential concession for the Sofia airport within the next year or so. Can you speak about that as it seems you are doing a lot of investment for something that maybe out of your hands in a relative short period of time?

I would begin with the fact that the concession is related to airport management and should that happen it is solely in the hands of the principal [MTITC]. Naturally, we must maintain a high level of safety and security for the airlines and its passengers regardless of the concession. It is our inherent responsibility and therefore the concessionaire’s. Ultimately, many of the investment upgrades we are doing are based on an agreement with the airlines which we are obligated to do in order to justify the applicable airport charges.

 

How do you view competition in the region?

In the past there was a time when competition in the industry was exclusively between the airlines. Now due to the development of other infrastructures and the emergence of low-cost carriers we find ourselves competing with other airports in the region. Being that as it is, when we strategize our airport charges we must compare charges of others. So we compete by considering our charges, which we are very competitive in the region, and also through our incentive scheme for traffic development.

 

What are some of those incentives?

A major is we offer up to a 20% discount on landing fee for airlines that establish a new route to Sofia in the inaugural year. We also give financial incentives to airlines that take on additional capacity and also when an airline reaches a certain amount of passengers coming through the airport. These are repaid retroactively and are aimed at stimulating larger carriers to consider more routes to Sofia.

 

What is the greatest challenge facing the airport today?

Easily the general competition of the regional air market and, of course, the large reduction in profits because of the ground handling competition. It is difficult because we have a collective labor contract with the trade unions which obliges us to provide a stable work environment for the staff. The other two are private and they are not subjected to such a stringent labor policy which affords them flexibility in maintaining the right amount of staff at any given time. Because of this we are implementing a proactive policy to attract new customers, buy new equipment and train and qualify our staff. The latter two are important because it is not always about price for the airlines; they need professional staff that provides services to customers – the passengers, in order to maintain their allegiance. Challenges are: bringing in new airlines, maintaining a high-level of safety and security as well as keeping our obligation to pay dividends to the government.

 

How do you aim to attract new airlines?

We of course have our incentives related to airport charges and we also offer marketing support to the airlines which includes free airport advertising, co-branded campaigns in the local market and joint PR activities. An important element in our strategy is the co-operation with the Municipality of Sofia which promotes Sofia as a tourist and business development destination. It’s really a team effort between Sofia Airport, the Municipality and the Ministry of Transport.

 

Please extend to our readers a personal message regarding Sofia as the director of the entity that is the first and last thing that many people see when entering Bulgaria.

It is for that reason we are making as comfortable an environment as possible for those visitors in the spirit of the famous Bulgarian hospitality. You are always welcome to this beautiful country!

 

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