Aeroflot

Aeroflot goal of 36% Russian market share by 2015 seems achievable following string of acquisitions

Russia’s largest passenger carrier Aeroflot is entering 2012 with a clear aim in sight of achieving 36% market share in Russia by 2015 and 40% market share by 2020. This goal is looking increasingly achievable as the planned takeover of more Russian regional carriers will give it a 33% share of capacity in the market.

Fleet expansion at Aeroflot is planned to ensure further increases in market share over the next several years. The flag carrier’s outlook for 2012 and beyond is also looking bright after recording strong results for the nine months ending Sep-2011.

Aeroflot initially revealed on Oct-2011 plans to increase its market share to 36.3% by 2015, 40.4% by 2020 and 45.4% by 2025. To meet these goals, Aeroflot is increasing its expenditure over the next several years. In 2012, there will be further aircraft acquisitions and network development, both internationally and domestically.

Russian network airline traffic continues to rebound, but without LCCs

Russia is becoming a serious force in aviation through the significant growth reported in both passenger and cargo transportation over the last 11 years. It is no surprise, partly considering the massive land area the Russian Federation covers, that aviation is increasingly seen as an efficient way for mass transportation of people and goods across the nation and further afield.

2009 saw the first decrease in passengers carried in the century’s first decade, with numbers declining 9.5% to 45.1 million. However starting in the following year, traffic rebounded with positive figures reported in 2010. The rebound is continuing in 2011, according to the latest traffic figures released by Russia’s Federal Air Transport Agency. The figures show overall growth in both passenger and cargo volumes in the 10 months to Oct-2011, including a 12.3% year-on-year increase in passenger numbers.

This growth comes from the nation’s network carriers, with low-cost operators making hardly any noise in the market. Despite the ever-increasing demand for air travel, Russia still does not have a significant level of low-cost carrier penetration from home or foreign carriers, and the LCC sector took a step back earlier this year with the bankruptcy of Avianova.

Avianova bankruptcy spotlights instability in alluring emerging markets

The bankruptcy of Avianova, Russia’s fastest-growing LCC, highlights the difficulties of emerging markets that lure investors and their LCC start-ups into complex but evolving sectors with promises of explosive growth. Avianova's bankruptcy follows financial difficulties after a dispute between its two shareholders, Russia’s A1 Investments and US-based LCC investor Indigo Partners, showcasing the risk of foreign-managed operations in markets that have only recently begun to open up. It is an experience Avianova CEO Andrew Pyne was exposed to at his previous start-up, low-cost long-haul carrier Viva Macau based in the captivating region of the Pearl River Delta. And in the other big growing market – China – LCCs are still trying to gain a foothold.

Avianova’s collapse is a major setback for the development of the low-cost sector in one of the world’s fastest-growing markets with low LCC market share. But the Russian market, despite its myriad regulatory, geographic and infrastructure challenges, remains a market brimming with potential for low-cost operators. LCC penetration remains very low, and demand for air travel, particularly in the short-haul space, continues to grow at breakneck speed. Further LCC start-ups are inevitable, but foreign-backed entrants are unlikely to be attracted.

Aeroflot reports stronger first half with net result soaring on assets sales

Aeroflot, Russia’s largest airline group, enjoyed a stronger year-on-year performance in the first half (six months to 30-Jun-2011), in marked contrast to many of its counterparts to the west. Operating profit increased 28.7% in 1H2011 to USD204.7 million, bolstered by higher revenue, increased passenger numbers, cost control and market share gains.

The USD376.8 million net result, a 21-fold increase over 1H2010’s USD17.5 million net profit, was boosted by a one-off gain in finance income. The group booked a USD200 million profit from the sale of non-core assets in the period.