Serbia: An Emerging Market for Low-cost Carriers

With limited services to the Balkans, Hungary-based Wizz Air has decided to expand its presence in the region, and from the Summer will offer passengers its first service to Belgrade, Serbia's capital, departing from Dortmund, Germany and London Luton airport. The routes will be operated on a three-times weekly rotation using A320 aircraft and there will be no aircraft stationed in Belgrade.

Limited Low-cost Presence

There is currently limited low-cost traffic into the Serbian market with just Germanwings, Norwegian. Air Berlin and Niki operating services. The national carrier of Serbia, JAT Airways has a 30% market share of all routes operated out of Belgrade. In the last three years JAT has cut capacity slightly in the Belgrade market and discontinued routes such as Prague, Hamburg and Munich, which could leave gaps for future LCC traffic. Coupled with the fact that Belgrade traffic is dominated by legacy airlines, with carriers such as Air France, British Airways, Austrian Airlines and Turkish Airlines operating the majority of inbound traffic, Serbia remains a market underserved by the LCC market.

Additionally the lack of inbound product and limited outbound demand means the market has not been attractive to new low-cost entrants.

A lack of low-cost traffic is not unique to Serbia in the Balkan region, with other markets such as Sarajevo and Skopje having little or no low-cost services.

Routes News has included a weekly summary of all low-cost traffic into select capital Balkan markets, which demonstrates the lack of a low-cost scheduled service.

Source: Flightbase

Europe's largest budget carriers, Ryanair and easyjet have limited presence in the Balkans, although it should be noted that easyJet serves Split and Dubrovnik on the Croatian coast, as well as Bucharest, Sofia and Istanbul. Sector length from the UK has been one issue for the low-cost airlines, able to identify more attractive markets with shorter sector lengths.

However the main factor that has delayed growth in the market among the low-cost carriers is accession of Serbia to the European Union (which is predicted to happen by 2014). The economic benefits for Serbia joining the EU will be important for its further development and budget airlines are keeping a close watch on the Balkan market's potential, which is ready for rapid growth in the future.

Why Belgrade for Wizz Air

Having seen the impact that EU accession has had for countries such as Poland and Hungary, Wizz Air will view Serbia as an emerging market with a growing GDP, population and with limited low-cost competition.

With a population of 7 million inhabitants and an average salary approaching 10,000USD (PPP 2008), EU accession will have a positive impact on employment and will also lift outbound traffic potential. Belgrade also suits the Wizz Air strategy of serving East to West, by creating Eastern European bases connecting to Western Europe. Wizz does not operate intra-Eastern Europe flights and targets ethnic and leisure traffic; categories that Belgrade is well-positioned to provide.

What can Wizz do for Belgrade?

Once Poland became a full member of the EU, low-cost carriers flocked to the market to serve a huge outbound demand, and with the easing of traffic rights, a growing inbound demand and product.

Wizz Air now operates 237 weekly departures from Poland from five of its bases, with a sixth base in Lodz set to open in March.

Poland became a full member of the EU in 2004. At that time there was only Germanwings operating a low-cost service. LOT the national carrier operated 71% of all traffic from Poland.

Today, LOT operates 45% of all flights, as low-cost traffic has diluted the dominance of the national airline. Wizz will stimulate new growth and services and attract new outbound and inbound passengers with the introduction of low fares into the Belgrade market.

Wizz Air also has history in entering markets first - it started its Ukrainian operation, serving domestic and international services ahead of any liberalisation. It is trying to steal march on Ryanair ahead of full EU membership.

UK CAA data also demonstrates the dramatic impact that Wizz Air can have in previously unserved and underserved markets. Looking at the 16 routes served by Wizz Air from Luton, in 2004 these markets generated a total of 326,000 passengers. By 2009, 1.7 million passengers had flown on these routes. Markets such as Cluj in Romania which had no previous service to London, now have significant passenger volumes.

Can Belgrade Become a Wizz Air Base?

The largest market from Belgrade is Germany and there is a significant Serbian diaspora to serve, particularly in the south of Germany (STR/MUC, NUE) - just the sort of market that Wizz would like to link. This diaspora has been in Germany for decades so is unlikely to disappear, unlike some of the Polish UK traffic that has been significantly reduced.

Serbs also want to go to the Med on holiday. Driving introduces visa hassles, so Wizz could add to its operations at Barcelona or points in Italy.

As usual, a future Belgrade base depends upon BEG's negotiating power. But it is one of the key uncharted territories for the LCC market in Europe.