Airline presents resilient picture as the rest of the industry reels in the light of international events, but analysts are not wholly convinced (577 words)

Published: 10/1/2001

On 27th September, in an effort to reassure the investment community, Aeroflot held a meeting of analysts to discuss the airline's traffic and revenue expectations against the backdrop of the international crisis currently besetting air transport plus the longer-term impact of a recession. Aeroflot says it has so far seen only a slight decline in revenues in the two weeks after the tragedy in the US and its three-week forward bookings show no sign of material decline. It thinks that, at worst, it will lose no more than 15,000 pax this year (i.e. less than 1% of its total) which, following a 19% increase in 8mo01 traffic, is a small loss compared with the 6% decline expected this year by IATA for the industry globally. The airline did report that it had seen a 6% decline on its US routes in September but that, given the offset of 9% growth earlier in the year, the net impact on the year should be in the range of a 3-5% decline in US traffic. This suggests a decline of between 20-30% in traffic to the US over the balance of 2001: very close to IATA's own forecasts of a 25% decline in traffic on transatlantic routes for 2H01. US flights, however, currently make up only 8% of the airline's total revenues and therefore have a commensurate impact. In the European market, Aeroflot reports a fall of only 3% in bookings - the largest component of the airline's international traffic constituting 35% of revenues. Asian, African and Middle Eastern routes, making up 35% of total revenues, currently show a small decline but there is a worry that they could be badly hit by any potential US actions. Currently it appears that the domestic and CIS traveller, now 20% of the total Aeroflot mix, remains largely unperturbed by events and the market is continuing its general recovery. Aeroflot also has the added advantage of having no flights to the areas adjacent to Afghanistan where there might be some concerns about flights, in the event of an escalation in military activity, in Tajikistan and Uzbekistan. Aeroflot has some offset to a slowing global market due to its growing domestic business, but the decline among the 30% of passengers who are foreigners will have an impact and it seems wishful thinking to believe that even the resolute citizens of both Russia and the CIS will not become more cautious in the event of an outbreak of a “hot” conflict, or that Aeroflot is somehow immune to the pain currently being experienced by foreign competitors. The general climate of concern will almost certainly feed through into both traffic and fares that are likely during the 2001-2002 winter season. Strategically, however, the lesser impact may give succour to those pushing the airline towards domestic and CIS expansion over global growth as an integrated part of the Sky Team alliance. Domestic expansion may be a lower revenue yield over international business, but in the current circumstances any business may appear attractive to Aeroflot. Despite the reassurances of the airline and the plan to charge $10 per passenger to cover additional security costs, analysts are not as optimistic about the top line and downgrades of earning prospects will appear in the next few days, with some likely to show significant declines.

Article ID: 2783