Czech Republic Freight Transportation Report Q2 2008

State-owned Czech Airlines (CSA), which is due to be privatized, said in mid-January that it had reached collective agreements with eight of its nine employee unions, setting the scene for 'reasonable wage growth' across the three year 2008-2010 period. CSA president Radomir Lasak said he appreciated that the unions understood the 'realistic economic situation' of the company. CSA registered losses in the three years 2004-2006, but Lasak said it expected to announce a profit of CZK100mn (US$5.59mn) for 2007. Negotiations on the 2008-2010 agreement had been in progress since April 2007. The eight unions had agreed to annual wage increments 1-2% above the cost of living, linked to company performance.

CSA was still negotiating with the ninth union, which represents the mechanics working for the airline's ground crew. Separately, CSA said in December that it had agreed to sell its Czech catering unit to Alpha Overseas, a subsidiary of Autogrill, the Italian catering company. The value of the sale was not revealed, but it was said to be part of CSA's programme to cut its CZK1.4bn (US$76mn) accumulated losses by selling non-core activities. The airline was seeking to restore profitability in advance of a potential privatization. In November BIS, the country's counter-intelligence service, said it was investigating the book-keeping of state-owned enterprises awaiting privatization, such as CSA, to see if there had been any distortion of the accounts to make them look more attractive. CSA denied any wrongdoing and noted it had unqualified audits. Even taking into account the squeeze on margins and tougher competition, BMI believes the Czech aviation sector will continue to face reasonable growth. In our latest Czech Republic Freight Transport report, BMI concludes that air cargo traffic will grow by 8.3% per annum on average over the next five years.

Our optimistic outlook is based on a number of factors. The Czech Republic is set for continued strong economic growth (4.7% per annum on average to 2012, according to our forecasts). European Union (EU) membership has placed the country near the centre of gravity of Eastern European logistics.

Although we earlier trimmed back our airfreight forecast, in view of CSA's financial difficulties, the outlook remains for strong growth in this sector, based on solid fundamentals such as the low-cost carrier (LCC) boom.

In fact, BMI is bullish on freight across most modes in the Czech Republic. We expect freight carried by road to be one of the most dynamic sectors over the next few years, with annual growth averaging 6.0% in 2008-2012. This incorporates the negative effect of high petrol prices in 2006-07 and a small downwards 'blip' in the road haulage growth rate in 2007-2008, because of the introduction of the electronic tolling system. Oil shipped by pipeline should grow at around 5.3% a year, ahead of GDP.

However, we expect rail freight to lag as investment in the rail system takes time to have an effect; the average growth for 2008-2012 will come out at a more modest 3.4% per annum. Freight carried by inland waterways will grow slowly at 2.3% per annum. The result is that we now forecast total freight carried across all modes, measured in million tonne-km (mntkm), to rise by an annual average of 5.3% per annum in 2008-2012. Under our freight transport rating the Czech Republic earns a composite score of 60.2, out of a theoretical maximum of 100. This places it at the upper end of its European peer group. The total value of transport and communications GDP will rise to US$27.9bn in nominal terms by 2012, representing 11.5% of the Czech Republic's GDP. The transport and communications sector employed 368,000 people, or 7.8% of the labour force, in 2007. We see that figure falling slightly to 357,000 by 2012, although it will remain unchanged as a proportion of the total labour force.