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Why China is swooping on Georgia’s airline industry

IN ANCIENT times, traders on the Silk Road connecting China with Europe rarely ventured into the northern Caucasus region that is now home to Georgia. Diverting from established routes through Armenia and Anatolia to the south served little purpose unless conflict made the trackways impassable. Today, advances in transport and logistics mean that geography is less of a hurdle for traders. But friendly relations are just as important. Having signed free trade agreements with China and the European Union, Georgia is keen to pitch itself as a trade-and-transport hub for President Xi Jinping of China’s One Belt One Road initiative. A new rail line passing through its capital city, Tbilisi, adds to its appeal, halving the time it takes to carry freight from China to Turkey. Foreign direct investment by Chinese companies has also ballooned.

Hualing Group, the largest such investor, has spent hundreds of millions of dollars developing real estate, logistics infrastructure, and sea and ground transport facilities in the country. Its attention is now turning skyward. Hualing owns a majority stake in MyWay Airlines, a Georgian startup that was certified by regulators in January and expects to start flying with two Boeing 737 jets later this month.

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China’s One Belt One Road initiative has so far focused on building train lines and port facilities. That is no surprise. Airfreight accounts for just a fraction of the trade between Asia and Europe because it is so much cheaper to send goods by land or sea. But Chinese interest in foreign airlines is steadily growing. HNA Group, the parent of Hainan Airlines, has invested in carriers as far afield as Australia, Brazil, France, Ghana and South Africa. Having also built up interests in several other sectors, it seems to have over-reached. Mounting debt has unnerved Chinese regulators and forced the company to begin shedding assets, starting with parts of its hotel portfolio and an airline catering group.

MyWay plans to expand more cautiously. Yet its eventual goals are equally as grand. The company will start with charter flights for tour operators before launching scheduled services in April. Regional capitals such as Moscow, Kiev and Tehran will be its initial focus. Routes to the EU and central Asia should come later this year, when two more narrow-bodied jets join the fleet. The western Chinese city of Urumqi, Hualing’s home town, is among the potential destinations. Within five years, MyWay’s management hopes to deploy their first long-haul jet, a Boeing 777, on routes to Beijing and America. The airline also hopes to capture a chunk of the lucrative Asia to Europe passenger market by offering connections through its hub at Tbilisi.

MyWay will face stiff competition on the Europe to Asia route. The oneworld alliance already uses Helsinki-based Finnair for connections between Northeast Asia and Europe. Perhaps the most impressive is Air Astana, the state-backed airline of Kazakhstan in central Asia. The number of connecting passengers on its services is growing at a rate of 80% a year, according to Peter Foster, its British chief executive. And it has the lowest unit costs of virtually any carrier in the world. The Kazakh government is particularly keen on China’s One Belt One Road initiative and Air Astana is key to its plans. It wants to turn its capital, Astana, into the biggest air and rail hub on the new Silk Road. Intense competition may force MyWay to experiment with new corridors, such as West Africa to China, or India to Europe.

Whatever flightpath it takes, MyWay is guaranteed a warm welcome by Georgia’s politicians and passengers. Georgian Airways, the flag carrier, is the only local airline offering scheduled passenger flights today. It deploys just eight planes and has a modest market share of 16% in Tbilisi Airport. Despite benefiting from an open-skies agreement between its home nation and the EU, the flag carrier has shown little appetite for growth. Its European flights are low-frequency and high-cost. It does not fly to anywhere in Asia. “What Georgia needs is another Georgian airline,” says Igor Aptsiauri, MyWay’s commercial director. “It’s good for Georgian Airways as well, because they’ll be forced to compete and further improve, which I’m sure they will do.”

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