Pulkovo, Russia’s newest field of dreams or just a dream?

6 Nov '09
Oleg Kouzbit, Online News Managing Editor

Last week St. Petersburg authorities signed a concession agreement with a Russo-German-Greek consortium to radically improve the city’s 77 year-old Pulkovo international airport. The VTB Bank-led group of companies could spend as much as $2.1bn on a new passenger terminal and other infrastructure to nearly triple the airport’s passenger traffic between 2013, when it is to be re-built, and 2025. But with traffic stalled at 6-7 million annually since the mid-1990’s, sharply declining Russian domestic and international traffic and fierce competition from Finnish airports, Pulkovo could be in for a lot of turbulence.

The new concessionaires are the city of St. Petersburg’s Pulkovo airport management and The Air Gates of the Northern Capital, an international consortium that won the June government tender for reconstruction of Russia’s fourth largest airport.

Led by VTB Bank Europe it includes Germany’s Fraport, which has managed the Frankfurt Airport for years, and Greece’s Horizon Air Investments, part of Athens-based international Copelouzos Group.

Media reports put the investment between $1.1bn and $2.1bn. The consortium has reportedly announced it will put up more than $1.5bn in investment. According to St. Petersburg Governor Matviyenko, Russian state-owned Vnesheconombank (VEB), the EBRD and Citibank are expected to come up with any additional funds.

Fraport will manage Pulkovo on behalf of the consortium. Under terms of the agreement, in addition to taxes, the city will be getting 11.5% of the airport’s proceeds in return for the consortium’s 30-year management rights.

The deal is supposed to be officially closed in March or April 2010.

Planning for a global presence

In June, following the consortium’s successful government tender, Fraport AG president Wilhelm Bender publicly vowed to turn the St. Petersburg airport into a hub of global significance.

The U. K.’s Grimshow has been reportedly contracted to design a new state-of-the-art, 176,000-square-meter passenger terminal next to currently operating Pulkovo-1. Construction is expected to be completed in 2013.

Under plans, the upgrade will enable Pulkovo to handle 7.4 million passengers a year. At the moment, the airport can handle 6 million.

Soaring plans, falling stats

Although St. Petersburg has retained its unofficial status as Russia’s second capital for almost 90 years now, until 20 years ago the city kept a surprisingly low international profile as an air transportation center. Opened in 1932, Pulkovo had to wait until 1986 to offer its first-ever international flight to Berlin.

Despite their ambitious plans, the consortium faces an uphill battle.

The most recent nine-month operation results released by the Pulkovo management have showed steady declining turnover, especially on international flights.

Between January and September passenger turnover at St. Petersburg’s Pulkovo airport shrank 9% y/y to 5.14 million people, according to the report.

International flights reportedly showed an 11.6% drop to 2.3 million people; domestic turnover fell 7.2% to 2.4 million; on flights to the CIS countries the decrease was a bit less dramatic (3.5% to just under 417,000 people).

In September, Pulkovo served just over 702,000 passengers, which is a reported 1.6% year-on-year drop.

But under the tender terms, by 2025 passenger turnover at Pulkovo is supposed to be at least 22 million people a year.

Pulkovo vs. Lappeenranta?

Pulkovo’s biggest Baltic challenger is Helsinki’s Vantaa airport, with a passenger turnover reportedly hitting 13.4 million last year.

What potentially makes Pulkovo’s life much more difficult is a recent announcement that came from Finavia, the Vantaa operator.

The company also manages all other Finnish airports, including Lappeenranta, a city practically on the Russian border, which it plans to upgrade for it to be able to handle more international flights.

Even if the “new” Pulkovo is counting on increased traffic from the vast majority of residents of Russia’s North-West who fly on a regular basis with multiple-entry Schengen visas issued by the General Consulate of Finland in St. Petersburg, the revamped Lappeenranta airport may be a much easier first step to travel Europe.

The Pulkovo project is one of a number of high-profile, big ticket airport upgrades in Russia—from Novosibirsk’s Tolmachevo to Moscow’s Sheremetyevo-3. All of them were begun when the Russian economy was flying high. Now it’s a different world and a different Russia.

According to the Moodie Report, total Russian air passenger numbers for the January–April period this year reached 10,451,516, down by 20.5% year-on-year.

International passenger traffic dropped by 19.7% to 4,638,712. Traffic between Russia and outside the CIS was 3,927,801, a year-on-year decline of 19.1%. International traffic between Russia and other CIS countries was off 23% to 710,911 in the period.

Faced with such bleak data, it will take more than a shiny new terminal and high-tech infrastructure before Pulkovo sees the kind of numbers it wants.
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