Sakhaavia as expected, slips back into state control in a region where profitable operation is increasingly difficult

Published: 1/18/2000

Bankrupt carrier Sakhaavia, with the help of the state-owned airport of Yakutsk, has restarted flights to Moscow, using a leased Tu-154. In August 1999, it returned the second of two ex-Pan Am and Delta Airlines Airbus A-310s, leased in May 1998.The deal is part of wider ranging agreement with new operator, Yakutsky Airlines. As expected, the twice-weekly flight effectively takes Sakhaavia back into state control. Sakhaavia currently has licenses for six long haul routes. The airline has already been exposed to increased competition from Domodedovo Airlines, which has offered its passengers 20% discounts on its flights three times a week from Yakutsk to Moscow, with discounts for 12-18 year olds and older passengers. It also plans to increase the frequency of its flights. Yakutsky Airlines, owned by Yakutsk Airport, which operates two An-24s, has been established in the last few months. It started operations in a period when passenger traffic in the republic was suffering from the general decline in volume in Russia. Yet the company claims that its load factor exceeded its projections by 2%. This, according to the airline, was due to offering free meals on its flights, regardless of the duration of flight, which is regarded as an important marketing point, combined with low fares. The airline, according to reports, manages to keep costs down by having a relatively small workforce and by operating two leased An-24s. It is negotiating to get financing to buy a third, which the airline believes will be self-financing and will be used to cover about 30% of the intra-regional air routes in Yakutiya. Yakutsky and Sakhaavia have signed an agreement, under which they intend to create a competitive airline that will provide regular flights and high quality service on intra and inter regional routes. The Director General of the Yakutsk Airport, Anderey Illarionov, believes that the merger of the airlines, the airport and ancillary services into the Yakutsk Aviation Enterprise will considerably enhance the use of ground and flight resources and represents the only survival strategy for the airline. A board made up of managers from both entities will manage the new company. It is difficult to predict the success of the new venture. Sakhaavia has had more than its fair share of problems in the past, ranging from the hospitalization of mechanics on hunger strike for the payment of 18 months of back wages, to the failure of the airline"s fleet auction in November 1999, because of late applications and the inability of those participating to raise the 5% deposits. On 12th December 1999, the Yakutiya Republic government, in moves aimed at preserving air transport in this remote region, announced that the Department of Air Transport was developing an air transport plan for the region between 2000-2003, which is now complete. According to Deputy Chairman Ivan Dolinin, the region is looking to reduce wage arrears, while also reducing payrolls further. Sakhaavia still remains overstaffed, despite its condition, and is looking to invest funds in the reconstruction of the air transport infrastructure in the region. The source of any funding is, however, not revealed and it seems as if the Department of Air Transport is looking for any solution to keep things going. Despite the move in Yakutsk, it has allowed airports in the more remote parts of the region to break with Sakhaavia and establish their own business. This is exemplified in the case of Ust-Nera, which was facing imminent collapse and started to look for traffic from other airlines, after dramatic falls in Sakhaavia"s flights. Others within the region believe that, despite these moves by the government, air transport remains in crisis and the 12 decrees issued have done little to improve the situation. Regional newspape, Yakutiya, reports that one airport at Andryushkino, located on the Alazey River, has been severely damaged by floods during the last two years and has not been repaired. This means that the An-2, which serviced the airport, cannot land and passengers are being compelled to use Mi-8s at twice the cost. This type of problem, combined with higher fuel costs and declining subsidies, are also driving carriers to abandon low volume routes, as they are increasingly unprofitable. This is happening, despite government intervention, in November 1999, to control fuel prices and, indirectly, ticket prices, combined with a promise by Deputy Prime Minister, Ruslan Shipkov, that fares would not rise on most routes in 2000, “so long as the budget lasted". He also advises that operators should subsidize unprofitable routes from profitable ones. Politics aside, the continuation of air service to remote regions in the republic is entirely dependent on the government continuing subsidies, either directly or through exercising indirect control through the new structure. In the short term, this means it is unlikely that we will see a significant improvement in the carrier"s profitability. Associated articles: www.concise.org: 19th June 1998; 17th March 1999; 24th June 1999; 25th August 1999; 19th November 1999; 13th December 1999

Article ID: 1329