Aeroflot cautious about H2 99 passenger volume, but signs of recovery showing

Published: 9/9/1999

Aeroflot has announced plans to carry 2.63m passengers and 0.42m tonnes of cargo in the H2 1999. To meet these projections, the company will have to carry 6% more passengers than in the same period in 1998. This projection does seem realistic for the following reasons: ·the H2 1998 was adversely impacted by the financial crisis; ·the slow recovery of passenger volume (an increase of 1.5% in H1); ·increasing share of the Russian international business, through the provision of a cheaper and increasingly competitive alternative; ·new attractive aircraft (3 Boeing 737s); and ·new domestic and international routes maturing after launches in the last 18 months. In fact, these calculations may understate the final growth figure. Aeroflot has the strongest summer months already in the bag and can therefore be fairly confident about its projection. Whether the H2/H2 comparison will reveal a great deal about the longer-term trend is another matter, given its distortion by the appalling H2 1998. The growth in H1 volume, with significant price raises in April, gave operators some cause for hope that a small recovery in the market is finally happening. Although this recovery will be tested by further planned price rises during the next few months, the more robust operators seem confident that the market has pricing elasticity. The cargo business of Aeroflot continues to suffer from the general decline in cargo volume in Russia (recording falls of 20%+ in H2 1998). It attributes this to the financial crisis, the decline of the shuttle trade, with resultant overcapacity, and less Far East transit business. The company is looking for volume to grow slowly in line with general activity, but it will be impacted additionally by the availability of its Il-76T cargo fleet of 13 aircraft, some of which are reaching the end of their 20-year lives and so far have not been replaced by the planned purchase of three new Il-96Ts. Average ticket prices and cargo tariffs will continue to be lower in H2 in rubles, compared with H2 1998 (prices for 1998 as a whole fell by –16%). The freezing and cutting of prices after the crisis, despite recent rises, has yet to restore prices to last year"s levels. Top line revenue should still grow by a modest 4% for the full year according to some analysts.

Article ID: 848