Aeroflot entered the tailspin

The largest Russian air carrier recognized the large-scale crisis in the transportation market due to the increase in prices for kerosene by one third and the decline in demand. It was already ripening the company for dumping.
12.09.2018
Kommersant
Origin source
The largest airline of the Russian Federation, Aeroflot, actually announced the beginning of a full-scale crisis in the industry due to a one-third increase in the price of aviation kerosene. The carrier is forced to enter the economy mode, to abandon a number of development programs, including digitalization, and to put on the socially important but non-profitable Far Eastern routes more economical aircraft of the subsidiary "Russia". Aeroflot declares that it will not be possible to get out of the situation due to the increase in ticket prices. The supply exceeds the demand by 10-12%, which forces the airlines to dump and work at a loss.

The profit of Aeroflot in 2018 will decrease, the company's first deputy chairman Mikhail Poluboyarinov admitted in the margins of the Eastern Economic Forum. According to him, Aeroflot's budget "is supposed to be changed in the direction of declining profitability" by "an essential figure".

The head of the board of directors linked the complexity of Aeroflot with the cost of fuel, noting that these "serious losses" need to be compensated. The head of Aeroflot Vitaly Saveliev said that kerosene had risen in price by 32% compared to 2017, which is about 20 billion rubles. falling income, and the devaluation of the ruble. Now, according to him, the board of directors was offered a variant of budget adjustment, since the company "does not count on the indicators" of the existing version.

Since spring, airlines have faced a sharp rise in prices for jet fuel, which, according to estimates, by the end of the year may rise in price by 30%. Aeroflot has already spoken about the readiness to take a number of measures to improve fuel efficiency ("Kommersant" wrote about this on August 30). During the first half of the year, the Group's loss (also includes "Russia", the Loser "Pobeda", the Far Eastern "Aurora") under IFRS reached 5.2 billion rubles.

Today the market has 10-12% of excess capacity, according to Mr. Saveliev. According to him, in 2015 (at that time there was a sharp decline in air transportation), "all together, and Aeroflot, including", transferred the delivery of aircraft at a later date.

"Now these cars have approached," says the head of Aeroflot, "some companies bought cars in addition, so some carriers are dumping to ensure the loading." The prices for tickets from these carriers do not pay off the increased price of kerosene, the devaluation of the ruble, says Vitaly Saveliev: "We have half of the payments in foreign currency or in rubles, but are tied to the currency." In other airlines with a number of these theses are in agreement. "Utair is watching a lower level of ticket prices in Russia relative to the world average," said the president of Utair Passenger Airlines Pavel Permyakov, specifying that prices are "influenced by market capacity and demand."

In this situation, "some development programs, especially with regard to digitalization, will be temporarily frozen," warned Vitaly Saveliev. In Aeroflot, Kommersant did not specify the scope of the digitalization program, nor did the duration of the freeze.

Mikhail Poluboyarinov explained the situation with profitability and explained the replacement of Aeroflot planes by the "Russia" ships on the Far Eastern routes, the new fleet will be transferred to more profitable routes. "The planes are not new to Vladivostok, they are the Transaero planes that Aeroflot was forced to take," he explained (quoting from Interfax). "When the kerosene cost was normal, you could afford to fly in the new park all the time." Compensate expensive fuel can be "flights where there is revenue for Aeroflot, and revenue can only be taken by a new mainline park, so you have to" roll out "new routes - India, China," explains Mr. Poluboyarinov.

The reorientation to international destinations and transfer is a leveling not so much of fuel costs (they have grown practically all over the world), how many currency fluctuations, believes the head of the "Airport" Oleg Panteleyev. "New planes with the highest leasing rate should be transferred to the line where the currency proceeds prevail," he said. But in the Far East, the decision to transfer flights to Russia aroused fears that the quality of service would follow. The head of VEB Igor Shuvalov at VEF-2018 asked Aeroflot to keep at least one flight to Vladivostok. "People from Vladivostok to Moscow should be able to fly no worse than from Moscow to New York," said Mr. Shuvalov. "This is a political issue."

The replacement of aircraft on Far Eastern flights by the vessels of "Russia", in the opinion of Oleg Panteleev, with the same schedule, will lead to an increase in freight capacity, as the Airbus 330 will be replaced by more spacious Boeing 777. The expert added that, according to "Airport", "Russia" in 2017 and by this indicator was included in the top three Russian airlines. "In the premium service of Aeroflot, the quality of service will decrease inevitably, and officials will not be able to fly in an economy class with the highest level of service they are used to," says Mr. Panteleev. "When consumers are worried that airlines are not giving them too generous gifts at the expense of shareholders , you can only answer: "Fly in business class."

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