Air Astana CEO Peter Foster: ‘Kazakhstan is open for business’

Business Leader was recently invited to the Central Asian nation of Kazakhstan, to discover how the last 30 years of independence has changed the country. As a part of the tour, we interviewed the CEO of the Kazakh airline Air Astana, Peter Foster, about the history of the company and what working in the country is like.

Can you tell me about the history of the airline and its role within the country?

The country is 30 years old on the 16th of December 2021, and the company will be 20 years old on the 15th of May 2022, as it was established back in 2002. It is one of the nation’s biggest success stories.

It has been, and remains to this day, a joint venture between the Sovereign Wealth Fund and BAE Systems. Now, the shareholders of the company are 51% v. 49%, and the reason is that for any company to have international traffic rights and be designated as such, it needs to be 51% owned and controlled by nationals of its designated country. That doesn’t have to be governments, but in our case is the sovereign wealth fund. And we own 49%.

But the company was established, and indeed continues to function to this day, as an absolute straightforward venture. We have always operated strictly as a commercial operation. So, we have not been given government funds, subsidies, or anything like that – or any special treatment. We’ve always operated to international civil aviation standards and offer a high degree of service.

When did you join the company and how has it grown?

I’ve been the CEO since October 1 2005. For the first three years, it was run by my predecessor

Regarding my own personal background, I spent 16 years with Cathay Pacific in Hong Kong and across Asia, and then a few years elsewhere across the world.

Air Astana has had a very good run, and we’ve been profitable for every year, with the exception of the start-up year (2002) and in 2016. That was in the wake of a very heavy devaluation. We also struggled last year, for obvious reasons, as did all businesses within the aviation sector.

We have become a multi-award-winning airline over the past few years for our region, and we’ve become recognised as a leading airline on TripAdvisor as well.

On the operational side we adhere to European Standards of Operational Safety across our 36 aircraft – and we are one of the youngest airline fleets in the world. We operate with a range of Airbus aircraft.

One of our main focuses has obviously been to reduce our carbon footprint, and with our recently acquired range of aircraft, they are very fuel efficient. This is important, not only from an environmental and ESG point of view, but also from a cost point of view, as we all see the oil prices creeping up again beyond $80 a barrel.

We employ 5,500 people, and prior to the pandemic, we were operating at about 45 international destinations.

How has the pandemic affected the business?

Obviously, the number of destinations has been cut back since the pandemic hit, and the pandemic has very much changed the way that we operate. And I’d say that in our case, notwithstanding the fact that we made a loss last year, we didn’t require any government funds or shelter funds to bail us out – we managed to avoid that.

In fact, we did restructure the airline quite dramatically, due to the impact of Covid-19. I would say we are really a more efficient airline now than we were in 2019.

In terms of travel patterns, a lot of destinations closed, but others opened up. Much like the one in which I’m presently sitting in, Montenegro – along with places like the Maldives, Sri Lanka, and Thailand.

We set up a low-cost airline called FlyArystan – Arystan means Lion in Kazakh, hence the large lion on the tail fin. It operates as an LCC, and it is a no-frills operation. Currently, it has some of the lowest costs in the world.

In fact, the Kazakhstan domestic market is the fastest growing market in the world today. That has very much been driven by the local sales, and for us, it has been a huge success. The domestic aviation market this year in Kazakhstan is 37% higher than in pre-pandemic 2019.

One trend that has been accelerated as a result of the pandemic is that people don’t necessarily just restrict their travelling to holiday periods anymore. We find that a lot of people are ‘lifestyle travelers’, and in many cases, take their families off to sit on a beach somewhere and run their businesses remotely, for example.

The pandemic has changed the way that people travel. Traditional business travel has obviously been very badly affected, but new forms of travel have manifested themselves. As a result, 2021 is shaping up to be a very good year for us.

Do you think travel is going to carry on changing? Or is it going to shift back to how it was before?

I think it’s going to be a bit of both – people have got used to point to point travel, and to get people to change their travel factor hubs and transfers is going to be a struggle. For example, our new Phuket flight is already extremely popular and heavily booked. If we turned around and said, ‘we’re going back to how it was pre-pandemic’, that would be very unpopular.

Air travel will inevitably shift back to the hubs, but it will only be at the very strong, super connector hubs and leading airlines that are going to be able to get that business back. However, in my opinion, this may take many years to come back.

What does 2022 hold for the industry?

Could there be a wildcard that makes everything go wrong? Absolutely.

At the end of last year, when oil was very cheap, we started to hedge very heavily and create a large amount of stock as we had a funny feeling that the oil price would pick up. However, we could never have imagined that it was going to rise in price so quickly, so we acquired as much as we could when it was available for a lower price.

For hedging approvals, we have enough to take us right through 2022 and in to 2023. Now, that’s looking to be quite a good decision! But having said that, we’re not completely safe from the price rises. We’ve mitigated as much as we can, but I think the wider industry is really going to hurt a lot because most airlines didn’t have any cash flow last year. The oil price could be a real killer.

Post-pandemic – do you think the industry will see an expansion into places that might be more of a ‘business destination’ rather than a holiday one?

Absolutely! For example, there is huge demand for Moscow and Frankfurt for more of a business audience, and it’s operating effectively. Kazakhstan is just about to reopen visa free for about 30 countries, which we had before the pandemic. Unfortunately, the UK is not on that list, but hopefully that will change.

Key business destinations are going to come back. You can’t do everything via zoom.

Where do you see Air Astana in the future? Will you model yourself on any of the airlines that have expanded rapidly in recent decades, like Emirates, Etihad?

We’re very much a private airline, and a lot of those big super connectors don’t really have the same business philosophy. They’re very much tied into the development of the state and are heavily state influenced.

Their business model, successful though it has been, is very much predicated on flying into a hub, change flights, and then you go off to your final destination. And as of this minute that traffic is dead. So, no, we do not have the aspiration to emulate those types of airlines.

What we do want to do, is to continue to be a highly profitable, very successful and a well-regarded airline of choice, not only to Central Asia, but around the world. Specifically in this region – we want to focus on the areas around Central Asia, the Caucasus, and the former Soviet space – that’s our territory. That’s our home. That’s where we dominate. And that’s what we intend to continue developing within this tremendous potential in the region.

What was the appeal of Air Astana and Kazakhstan when you first joined?

Well, it just seemed so extraordinary. It seemed almost impossible. It was a rabbit hole that I just couldn’t resist jumping down – and it’s proved to be entertaining. I have not regretted it one bit.

The company was the brainchild of President Nazarbayev and Sir Richard Evans, who, at that time, was the Chairman of BAE Systems. The two knew each other well and they discussed various business opportunities.

When this opportunity came up, they were both extremely compelling people. So, when I went to see Sir Richard in London, in May of 2005, his sales pitch was just too good to turn down!

In terms of British businesses and entrepreneurs that might be thinking about doing business in Kazakhstan, what would be your advice?

We have been given the chance to grow and grow, rather than just operate an airline in Kazakhstan. A lot of business now operates similarly to UK corporate governance standards, which has helped. As a result, we’ve been able to grow, what we believe to be, a very successful business. Successful for ourselves, our shareholders, our community and for the country.

My simple answer is that Kazakhstan is open for business, and it is very Anglophile in its approach to business.

For example, the Astana Stock Exchange was set up with the UK legal code. The Court of Appeal of the Astana Stock Exchange is a UK-style court with UK judges.

A huge number of the Kazakhstan elites have the have their children educated at UK schools and universities – and many of those people are now coming back into the workforce here and working their way into some very senior positions, both in government and in the private sector.

However, our strong recommendation to any UK company thinking of thinking of setting up an operation in the country, we need to be quite clear about this – it is an emerging market, and there is still a degree of post-Soviet era legislation and custom, meaning that it is not an easy place to do business. There are significant challenges that cannot be underestimated.

Also, you cannot run a business in Kazakhstan from an office in London – you have to be here with the people on the ground.

You have to be all in, in Kazakhstan – because otherwise you’re not in at all.