Aeroflot lifts domestic volumes considerably against background of volume declines

Published: 11/24/1999

On 18th November 1999, Aeroflot announced that it has carried 1m passengers on domestic routes since the beginning of the year. During the whole of 1998, Aeroflot carried only 712,700 passengers on domestic routes. Aeroflot attributes its increasing market share to better service and higher safety standards than its domestic competitors, but does not mention its aggressive pricing policy in opening up new routes to Russia"s regions. The growth in 1999 follows a dramatic growth in Aeroflot"s domestic passenger volumes from 73,600 in 1996, as it has opened up a number of major domestic routes. Aeroflot"s achievement should be seen in the context of a domestic air transport market where volumes have fallen by 13.4% and traffic overall by 10.9%, as the financial crisis of 1998 has impacted the both Russian business and leisure traveller. The poor financial condition of many domestic carriers has meant little or no improvements to service levels or fleet renewals. Those servicing domestic routes alone suffer disproportionately as they have been impacted by lower volumes combined with swiftly rising ruble costs, particularly for fuel, and frozen or slow growing ruble ticket prices. For Aeroflot, the losses incurred in entering the domestic market should be seen as part of securing long term the lucrative international traffic, which is still the basis of the airline"s business, in addition to using its considerable aircraft assets more efficiently. Failure to secure passengers from source would lay the airline open to having its share of the international market reduced by the expansion of super regionals, such as Sibir and Krasair, who are entering the international market, or by regional airlines linking up with international carriers, both directly competing for their share of the international cake. The super regionals, in particular, pose a threat to Aeroflot, given their aggressive management of the business and responsiveness to changing market conditions, which have allowed them to further consolidate their position at the expense of smaller and weaker competitors. Most notably, Sibir has raised volumes by 3%, when the market overall has fallen by 11% and, in its home market of Western Siberia, has achieved growth of 25%. Aeroflot"s very high level of hard currency earnings from international traffic relative has left the airline with considerable competitive clout with many of the market"s struggling players as the recent passenger volume figures reflect. Shown even more tangibly by the devastating effect of their entry into markets such as Nizhni Novgorod, driving regional carrier Nizhegorod Airlines into bankruptcy.The national carrier will however, not have it all its own way in the domestic market, Sibir the third largest carrier is challenging the struggling number two Vnukovo Airlines. Aggressively campaigning to push out VA out of Siberian and Ural markets, by uniting with Perm Airlines (www.concise.org. 16th November 1999). The response to date from Vnukovo has been to drop prices, further damaging the airline"s already weakened finances. Aeroflot is benefiting currently from weak competition and comparative financial health, these conditions may however, not remain indefinitely.

Article ID: 1129