commercial aviation in russia and cis countries

Russia & Cis 2013

speCial RepORt

in assOCiatiOn with

a special report on commercial aviation in Russia & Cis

Flightglobal Insight | 3

Russia & Cis 2013


intROduCtiOnAirline traffic is growing strongly in Russia and the CIS and this report examines the principal opportunities and challenges that lie ahead as the carriers serving this vast, resource-rich region endeavour to live up to their potential.

The Flightglobal Fleet Forecast – highlights of which are included in this report – predicts that strong growth will persist for the next two decades. The region’s airlines currently hold firm orders for more than 400 aircraft, including the ultra-large Airbus A380s and Boeing 747-8s destined for Transaero.

Main carriers Aeroflot, Transaero and UTair are already expanding comfortably ahead of the European Union average as they capitalise on business traffic fuelled by economic growth, as well as increasing demand for leisure travel. Deregulation is helping airlines to enlarge their networks, although the no-frills model has yet to take root, partly due to a heavy burden of bureaucracy and Russian consumer laws requiring meals to be served on flights beyond a certain duration.

Among risks examined in this report are Russia’s declining population and potential airport infrastructure contraints.

Details of the strategic plans of Russian airlines and airports are provided through in-depth interviews with key executives, backed by infographics sourced from Flightglobal’s extensive fleet and financial databases.


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Russia & Cis 2013


Market outlook 7

Fleet size and order backlog 9

Traffic: 2003-2012 13

Financial performance: 2003-2012 15

Scheduled flights 17

Forecast 19

Transaero CEO interview 21

Vnukovo interview 23

St Petersburg airport update 24

Aeroflot interview 25

UTair interview 26

COntents

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Russia & Cis 2013


maRket OutlOOkThe Russia and CIS region has seen better than expected growth during the past decade, with overall passenger traffic up by around 13% and capacity expansion marginally behind at 12%. Revenues have grown slightly more quickly at around 17%.

Russian disposable income – and hence air travel – is still heavily dependent on oil revenues and the proximity of elections. The latter tend to prompt Moscow to release extra cash for special hand-outs to government employees (including teachers and doctors) as well as pensioners. Many people still can only afford trains although western-style shorter holidays are making it a tough choice. Still, teachers for example have 48 days annual holiday allowance.

Traffic is expected to continue to grow ahead of global and regional GDP, with the Flightglobal Fleet Forecast predicting passenger capacity growth of 5.9% in Russia and CIS over the next 20 years. Russia and CIS countries are rich in natural resources which will continue to drive economic development in the region. The region is also vast in geographic terms with many small centres of population that rely on air transport links.

One significant potential dampener on traffic growth in Russia is the fact that it is still hugely underpopulated. Even though there are far-flung cities in Siberia, Far East and the North, the overall population is not growing as fast as it needs to. There was massive emigration between the 1990s and early 2000s, and the increasing cost of raising children led to falling birth rates since 2003. The shortfall even now is barely covered by immigrants from other post-Soviet states. Most forecasts estimate Russia’s population will decrease from some 140 million in 2010 to between 135 million (Russian Statistics Agency) and 125 million (UN) in 2030. So even though the proportion of flying citizens may increase through growth of the middle class and its disposable income, the net result is likely to be much less spectacular.

Political risk is another factor and affects airlines differently. There are several aspects: firstly, some airlines have close relationships with members of the current government. A change of president would send shockwaves through all industries and power would be re-divided. Secondly, even if the ruling regime does not change, it is often fickle and tends to change its official opinion on a whim. Testament to that are

frequent re-shuffles of the government-owned airlines and transfer of their ownership from one government department to another. Government induced consolidations are capable of derailing even the most successful of businesses: being lumbered with rotting assets and network of a failing company coupled with an obligation to maintain the same level of service in a non-profitable network is a considerable drag. The rules on consumer rights (for example in-flight meals must be provided on all flights of a certain length) and overwhelming bureaucracy mean that the low-cost concept invariably fails.

Airport infrastructure has meanwhile struggled to keep pace with expansion of the airlines. In Russia, Moscow is the biggest hub and the focal point of all development – and is hence considering a fourth airport. Outside the capital much less is done.

Russia dominates the region with more than 75% of the passenger airliner fleet in service in that country. The relative importance of Soviet era types has declined over the past 20-years so that the passenger airline fleet in the region now has less than 30% of these types in service. The turboprop element remains significant with more than 150 largely 50-seat Antonovs of various types remaining in service. These aircraft represent a significant replacement opportunity for new and used western built turboprops and regional jets which to some extent is already being seen with more than 50 ATRs and Bombardier Dash 8s and 85 Bombardier CRJs and Embraer E-Jets in service in the region.

Airlines in the region also have more than 400 aircraft on firm order for delivery through 2022, including more than 250 single-aisle aircraft (of which 50 are Irkut’s MC-21 scheduled from 2017) and 85 twin-aisle types, including both the Airbus A350 and Boeing 787.

FINANCINGAround two-thirds of all Western built jets operated in the region are sourced on operating lease. There are a few with VTB, VEB and Sberbank but remainder are supplied by Western lessors.

The payment of VAT (20%) and import tax (20%) makes importing Western aircraft into Russia very expensive. The Government periodically issues dispensations for certain classes and sizes of aircraft (eg 50-seater turboprops).

Russia & Cis 2013

8 | Flightglobal Insight Flightglobal Insight | 9

The pretext – protection of Russian aircraft manufacturing – is questionable as the only aircraft being effectively manufactured now are the Superjet 100 and Antonov An-148. It is perhaps more a means of making money for the Government. There are arrangements by which the levies can be paid over three years. They have to be paid on leased aircraft too.

ALLIANCESAeroflot is a part of SkyTeam and S7 is a member of Oneworld. The net effect is thought to be modest. It may push very few inbound visitors who travel past Moscow and St Petersburg towards these airlines. Otherwise, internally

and worldwide Russian operators only compete on price.

Transaero is unique in the region in operating very large aircraft today, with a fleet of 21 Boeing 747s serving largely leisure destinations, where the aircraft’s low seat mile costs are important in view of yields. Transaero’s 747s tend to carry low-yield package holiday traffic, for example.

The average age of the fleet in Russia/CIS is 15.4 years, so replacement in the short and medium term is likely. This means Transaero could potentially require more than just the four A380s they have on order presently.

8 | Flightglobal Insight

Russia & Cis 2013


Total fleet: 1,653

Aeroflot Russian Airlines

UTair

Transaero Airlines

S7 Airlines2%

Other8%

6%

7%

74%Uzbekistan

Airways2%

fleet size and ORdeR baCklOg

lEAdIng AIrlInES by FlEET SIzE

Airline Country In-servicefleet

backlog

Aeroflot russian Airlines Russia 137 199

UTair Russia 116 84

Transaero Airlines Russia 92 34

S7 Airlines Russia 40 31

Uzbekistan Airways Uzbekistan 38 3

rossiya Russia 34

UTair Express Russia 32

Ukraine International Airlines Ukraine 31

SCAT Kazakhstan 29

yakutia Airlines Russia 29

yamal Airlines Russia 28

Ural Airlines Russia 27 7

airbaltic Latvia 27 12

Air Astana Kazakhstan 26 11

Orenair Russia 26

Air Urga Ukraine 24

nordwind Airlines Russia 22

Turkmenistan Airlines Turkmenistan 21 4

belavia Belarus 21

Other 853 50

ToTal 1,653 435

Source: Ascend Online Fleets (June 2013)

This section focuses on the fleet size and order backlog for the commercial carriers in Russia & CIS.

The in-service fleet operated by commercial carriers based in Russia and the CIS totalled 1,653 aircraft in June 2013, with a backlog of 435 aircraft.

Aeroflot Russian Airlines has the largest active fleet with 137 aircraft, representing a market share of 8% in the region, while its market share was at 4% in 2004. The vast majority of Aeroflot’s current fleet consists of Airbus A320 family aircraft with 87, followed by 22 A330s and 10 Sukhoi Superjet 100s. Aeroflot also held a backlog of 199 aircraft in June 2013, for 15 A320 family aircraft, 22 A350s, 50 Boeing 737s, 16 777s, 26 787s, 50 Irkut MC-21s and 20 Superjet 100s.

UTair operates the second largest fleet in the region with 116 aircraft. The carrier’s market share grew from 3% in 2004 to 7% in 2013 and its fleet consists of narrowbody and regional aircraft. It operates 48 737s and has an additional 40 on order. UTair also has 24 ATR 42/72s, 14 Tupolev Tu-154s and 12 Bombardier CRJs. The operator also has 24 Superjet 100s and 20 A320 family aircraft on order.

Transaero Airlines, which launched services in 1991, has an active fleet of 92 aircraft and 24 on order. The carrier has focused much of its recent fleet development on widebody aircraft and currently operates the largest widebody fleet in Russia, the CIS and Eastern Europe. Its first 747 passenger aircraft arrived in 2005 and its first 777 three years later. The operator’s current fleet is balanced between narrowbody and widebody aircraft including 41 737s, 21 747s, 13 767s, 13 777s and four Tu-204s. The carrier has 12 737s on order alongside eight A320neo aircraft, six Superjet 100s and four 787s. In 2015 it will take the first four A380s on order to become the Russian launch customer for the type. Transaero’s market share in the region has grown rapidly, from 1% in 2004 to 6% in 2013.

S7 Airlines has 40 in-service airliners with 37 A320 family aircraft, two 767s and a single A310. S7 also has 23 A320s and eight 737-800s on order. The carrier was founded as Siberia Airlines but rebranded to S7 Airlines (its two-letter IATA code designator being S7) in 2005.

Uzbekistan Airways is the fifth carrier by fleet size for the region. The carrier has 40 active aircraft in its fleet and two

AIrlInE FlEET MArkET ShArE


Russia & Cis 2013


AErOFlOT rUSSIAn AIrlInES

Airline In-servicefleet

backlog

A320 family 87 15

A330 22

Superjet 100 10 20

Il-96 6

767 5

777 4 16

Md-11 3

787 26

MS-21 50

737 50

A350 22

ToTal 137 199

UTAIr


backlog

737 48 40

ATr 72 15

Tu-154 14

CrJ regional Jet 12

ATr 42 9

757 9

yak-42 4

767 3

yak-40 2

A320 family 20

Superjet 100 24

ToTal 116 84


TrAnSAErO AIrlInES


backlog

737 41 12

747 21

767 13

777 13

Tu-204 4

A380 4

Superjet 100 6

A320 family 8

787 4

ToTal 92 34

S7 AIrlInES


backlog

A320 family 37 23

767 2

A310 1

737 8

ToTal 40 31

UzbEkISTAn AIrwAyS


backlog

A320 family 9

Il-114 7

767 7 1

Il-76 5

757 5

A300 2

rJ Avroliner 2

A310 1

787 2

ToTal 38 3


Russia & Cis 2013


787s and a single 767 on order.

The overall commercial fleet in the Russia and CIS region has decreased from 2,321 in 2004 to just above 1,650 in 2013. The decrease in the fleet during that period can be explained by the fact that a considerable number of Russian-built aircraft have been retired and destroyed.

From the aircraft manufacturer perspective, the presence for Antonov, Ilyushin, Tupolev and Yakovlev types combined went from a market share of 89% in 2004 down to 38% in 2013. Boeing’s share moved from 5% to 27% while Airbus enjoyed an increase from 1% to 18% during the same period.

The leading two aircraft types in 2004 were the Tu-154 and Yak-40 with a combined 29% share, while 10 years later the

Order backlog: 435

Boeing

Airbus

Sukhoi

Other

41%

14%

23%

7%

Bombardier3%

11%Irkut

bACklOg by AIrCrAFT MAnUFACTUrEr


2004

Other

TU-134

AN-24

YAK-40

TU-154

Total fleet: 2,321 Total fleet: 1,653

Tu-154

Yak-40

An-24

Tu-134

OtherOther

A320family

737

An-24

An-26

15%

14%

13%

10%

48%

16%

54% 16%

8%

6%

2013

lEAdIng AIrCrAFT TyPES: 2004 VS 2013

Total fleet: 2,321 Total fleet: 1,653

Antonov/Ilyushin/Tupolev/YakovlevBoeing

Airbus1%

OtherOther

Boeing

Antonov/Ilyushin/Tupolev/Yakovlev

Airbus

89%

5%5%

38%

17%

27%

18%

2004 2013

lEAdIng AIrCrAFT MAnUFACTUrErS: 2004 VS 2013

Source: ACAS & Ascend Online Fleets (June 2013)

Russia & Cis 2013


Nu

mb

er o

f air

craf

t

Year

0

500

1000

1,500

2,000

2,500


UTair

Transaero Airlines

S7 Airlines

Other

2013201220112010200920082007200620052004

Aeroflot Russian Airlines Transaero Airlines

UTair S7 Airlines

Other

EVOlUTIOn OF ThE FlEET In rUSSIA & CIS 2004-2013 by OPErATOr

Nu

mb

er o

f air

craf

t

Year

0

500

1,000

1,500

2,000

2,500

Airbus

Boeing

Other

Antonov/Ilyushin/Tupolev/Yakovlev

2013201220112010200920082007200620052004

Airbus Boeing Antonov/Ilyushin/Tupolev/YakovlevOther

EVOlUTIOn OF ThE FlEET In rUSSIA & CIS 2004-2013 by MAnUFACTUrEr

Source: ACAS & Ascend Online Fleets (June 2013)

leading two types are the 737 and A320 sharing 32% of the active commercial fleet for the region.

The commercial order backlog stood at 435 in June 2013, with a share of 40% for Boeing and 23% for Airbus. Russian manufacturers Sukhoi and Irkut show a backlog share of 14% and 11%, respectively.

The Boeing 737 represents 27% of the backlog while the Airbus A320 family and Superjet 100 account for 17% and 14%, respectively.

Narrowbody and widebody aircraft represent 58% and 20% respectively of the order backlog for the region.


Russia & Cis 2013


tRaffiC: 2003-2012

RP

K (m

illio

n)

Year

0

10,000

20,000

30,000

40,000

50,000

60,000

Ural Airlines

Orenair

S7 Airlines

UTair

Transaero Airlines


2012201120102009200820072006200520042003


Transaero Airlines

UTair

S7 Airlines

Orenair

Ural Airlines

TrAFFIC rPk (MIllIOn) 2003-2012

Source: Flightglobal

Aeroflot Russian Airlines has been the traffic leader in Russia and the CIS for the period 2003 to 2012. The operator carried 5.8 million passengers in 2003 but by 2012 had nearly tripled that figure, to 17.7 million. Its RPK numbers nearly tripled in the same period going from 18,203 million in 2003 to 50,532 million in 2012, placing it 27th globally.

Transaero Airlines carried only 800,000 passengers in 2003, but had grown that figure to 10.3 million in 2012, placing the operator in second place in the region since 2010. In terms of RPK numbers, Transaero has been second to Aeroflot since 2008. The carrier achieved RPKs of 41,004 million in 2012, ranking it 34th. It was recently announced that according to data released by the Transport Clearing House, Transaero outperformed Aeroflot in May 2013 with 3,269 million RPKs, a 37.5% rise over May 2012.

UTair carried 1.5 million passengers in 2003 and 7.8 million in 2012 while its RPK figures went from 2,160 million in 2003 to 15,166 million in 2012. As of 2011, the carrier featured in third place in traffic figures overtaking S7 Airlines.

S7 Airlines’ traffic went from 3.46 million passengers in 2003 to 6.4 million in 2013, having reached a peak of 6.5 million

lEAdIng AIrlInES by TrAFFIC

Airline 2003 2012

PAX (m) rPk (m) PAX (m) rPk (m)

Aeroflot russian Airlines 5.8 18,203 17.7 50,532

Transaero Airlines 0.8 10.3 41,004

UTair 1.5 2,160 7.8 15,166

S7 Airlines 3.4 9,248 6.4 13,025


passengers in 2008. The carrier was in second place in RPK figures from 2003 to 2007 and passenger figures from 2003 to 2009. S7 is the only leading carrier in the region which has seen a decrease in traffic over the last 10 years.

Orenair, Ural Airlines, Rossiya, Nordwind Airlines, Uzbekistan Airways and Air Astana are the other main airlines in the region.

Orenair was featured in fifth place in RPK figures for 2012 and eighth in passenger figures. Ural Airlines was sixth in 2012 for RPKs with 9,548 million and passengers carried with 3.5 million.

Russia & Cis 2013


Nu

mb

er o

f pas

sen

ger

s (m

)

Year

0

5

10

15

20

Ural Airlines

Rossiya - Russian Airlines

S7 Airlines

UTair

Transaero Airlines


2012201120102009200820072006200520042003


Transaero Airlines

UTair

S7 Airlines

RossiyaUral Airlines

TrAFFIC PASSEngEr nUMbErS (MIllIOn) 2003-2012


Rossiya carried 4.2 million passengers in 2012, placing it in fifth place. The carrier began operations in 2006 resulting from a merger of the Moscow-based company of the same name and St Petersburg-based Pulkovo Aviation

Enterprise.

Nordwind Airlines is a charter airline which was founded in 2008.


Russia & Cis 2013


finanCial peRfORmanCe

US$

mill

ion

Year

0

2,000

4,000

6,000

8,000

10,000

Air Astana

S7 Airlines

UTair

Transaero Airlines


2012201120102009200820072006200520042003


Transaero Airlines

UTair

S7 Airlines

Air Astana

rEVEnUE ($M) 2003-2012


Revenue and profit figures show the extent to which ground is being made up by the low-cost carriers and operators from Europe’s emerging economies, Russia and Turkey. Compared with 10 years ago, none of the 10 leading European carriers by revenue were from the budget or emerging economies sector. Airlines operating in fast-growing European markets outside the EU, like Russia, grew strongly in 2010, 2011 and 2012.

As it is for the traffic statistics, Aeroflot Russian Airlines has been dominating the revenue and profit figures from 2003 to 2012. The revenue for the airline was $1.65 billion in 2003 and grew to $8.15 billion in 2012, placing it fifth in Europe and 23rd in the world in the airline group ranking for that year. Its profit increased from $122m in 2003 to $328m in 2008, but fell sharply to $89m the following year. The financial crisis of 2009 affected most carriers. Aeroflot’s profit recovered to $492m in 2011, and the surplus was $167m in 2012.

Transaero Airlines’ revenue was $144m in 2003 and rose to $3.14 billion in 2012, ranking it at rank 51 in the world. The airline went from being fourth by revenue in 2003 to second

lEAdIng AIrlInES by rEVEnUE & nET rESUlT

Airline 2003 2012

rev($m) net($m) rev($m) net($m)

Aeroflot russian Airlines 1,646 122 8,151 167

Transaero Airlines 144 2 3,144 29

UTair 231 2,566 6

S7 Airlines 364 1,800 18


from 2009. Transaero achieved a net result of $144m in 2003 but with $29m in 2012, Transaero was behind Air Astana which netted $41 million that year.

UTair’s revenue progressed from $231 million in 2003 to $2.57 billion in 2012 while S7 Airlines’ revenue went from $364 million to $1.8 billion in the same period. Air Astana achieved its highest revenue in 2012 with $875 million. The carrier showed a loss of $39 million in 2005 but delivered net profits from 2006 to 2012.

Russia & Cis 2013


US$

mill

ion

Year

-100

0

100

200

300

400

500

UTair

S7 Airlines

Air Astana

Transaero Airlines


2012201120102009200820072006200520042003


Transaero Airlines

UTair

S7 Airlines

Air Astana

nET rESUlT ($M) 2003-2012



Russia & Cis 2013


sCheduled flightsPASSEngEr FlIghTS TO, FrOM & wIThIn rUSSIA & CIS by OPErATOr

Operator Flightsin 2013

Share Flightsin 2012

Share

Aeroflot 166,581 17% 146,347 16%

UTair Aviation 72,211 7% 75,755 8%

Transaero Airlines 57,479 6% 50,717 6%

S7 Airlines 57,266 6% 51,545 6%

rossiya Airlines 45,685 5% 43,232 5%

Air Astana 38,812 4% 34,815 4%

Ukraine International Airlines 37,223 4% 20,389 2%

Uzbekistan Airways 23,774 2% 23,770 3%

Turkish Airlines 23,679 2% 22,032 2%

Ural Airlines 22,217 2% 15,752 2%

Other 435,389 44% 431,087 47%

ToTal 980,316 100% 915,441 100%

Source: Innovata

ASk TO, FrOM & wIThIn rUSSIA & CIS by OPErATOr

Operator ASk (m) in 2013

Share ASk (m) in 2012

Share

Aeroflot 70,115 23% 59,765 22%

Transaero Airlines 36,995 12% 34,445 12%

S7 Airlines 13,483 4% 12,473 4%

UTair Aviation 13,335 4% 13,956 5%

rossiya Airlines 10,805 4% 9,886 4%

Air Astana 10,438 3% 9,324 3%

Uzbekistan Airways 8,551 3% 8,534 3%

Ural Airlines 7,576 3% 5,473 2%

Turkish Airlines 7,187 2% 6,933 2%

Ukraine International Airlines 7,074 2% 3,618 1%

Other 115,204 38% 113,415 41%

ToTal 300,763 100% 277,822 100%

Source: Innovata

Aeroflot leads the schedule tables and provided 146,347 passenger flights to, from and within Russia and CIS in 2012, and is scheduled to complete 166,581 by the end of 2013, representing a year-on-year increase of 14%. Its ASK figures show a market share of 23% in 2013 and an increase of 17% on the previous year. Approximately 50% of its flights arrive and depart to/from Moscow Sheremetyevo while 81% of its flights are operated by Airbus A320 family aircraft.

Transaero Airlines is third in 2013 as far as number of flights during the year, but a clear second when looking at ASK figures with a 12% market share. The carrier deploys some of its 747-400s with the highest seating capacity in commercial service. Transaero operates 767 and 777 aircraft on domestic flights, including Moscow to Khabarovsk, Petropavlovsk and Vladivostok. In Moscow, Transaero’s growth and its significant use of widebodies is outpacing development of the Russian capital’s airport infrastructure. For this reason the carrier recently began operating out of a third Moscow airport, Vnukovo. In 2013, 30% of its flights were departing from Domodedovo, 15% from Vnukovo and 5% from St Petersburg. 72% of its flights are operated by Boeing 737 aircraft while its 747 aircraft accumulate the highest ASK share by type with 32% for the carrier.

In 2013, published schedules will see UTair and S7 Airlines provide 7% and 6% of total flights respectively, while their ASK share is 4% each. A lotal of 41% of the flights operated by UTair depart from Moscow Vnukovo, while 69% of them are operated on 737 aircraft. For S7 Airlines which operates 70% of its flights within Russia, 47% are departing from Moscow Domodedovo and 96% of all its flights are provided on A320 family aircraft.

A majority of aircraft used for passenger flights in the region were manufactured by Airbus and Boeing, with a share of 42% and 34% respectively. The Airbus A320 family is scheduled to be used on 41% of the flights to, from and within Russia and CIS in 2013, followed by the Boeing 737 with a share of 27%. The Airbus A330 counts for a majority of widebody aircraft by ASK with a share of 32% followed by the Boeing 777 with 27%.

When looking at the flights operated to Russia and the CIS countries in 2013, Russia was the destination for 70% of them, followed by Ukraine with a share of 10%.

Russia & Cis 2013


PASSEngEr FlIghTS TO, FrOM & wIThIn rUSSIA & CIS by AIrCrAFT TyPE

Aircraft type Flightsin 2013


Share

Airbus A320 family 403,753 41% 333,528 36%

boeing 737 261,446 27% 270,711 30%

bombardier CrJ 67,102 7% 52,566 6%

Embraer E-Jets 32,815 3% 23,246 3%

boeing 767 29,281 3% 27,886 3%

ATr 42/72 23,783 2% 26,827 3%

boeing 757 22,728 2% 26,882 3%

Airbus A330 18,635 2% 15,162 2%

boeing 777 12,738 1% 10,032 1%

Antonov An-148 11,338 1% 12,035 1%

Other 96,697 10% 116,566 13%

ToTal 980,316 100% 915,441 100%

Source: Innovata

PASSEngEr FlIghTS TO rUSSIA & CIS by COUnTry

Country Flightsin 2013


Share

russia 552,007 70% 509,621 69%

Ukraine 75,987 10% 73,308 10%

kazakhstan 56,442 7% 51,767 7%

Uzbekistan 22,359 3% 22,320 3%

Azerbaijan 14,769 2% 15,345 2%

kyrgyzstan 14,119 2% 10,809 1%

belarus 12,469 2% 11,436 2%

georgia 10,145 1% 8,146 1%

Tajikistan 9,774 1% 10,132 1%

Armenia 8,657 1% 9,985 1%

Moldova 7,507 1% 6,868 1%

Turkmenistan 4,578 1% 4,194 1%

ToTal 788,813 100% 733,931 100%

Source: Innovata

ASkS FOr FlIghTS TO, FrOM & wIThIn rUSSIA & CIS by AIrCrAFT TyPE

Aircraft type ASk (m) in 2013


Share

Airbus A320 family 109,298 36% 93,089 34%

boeing 737 65,325 22% 63,965 23%

Airbus A330 30,803 10% 25,854 9%

boeing 777 25,693 9% 20,687 7%

boeing 767 23,566 8% 26,277 9%

boeing 747 12,481 4% 10,855 4%

boeing 757 11,397 4% 14,183 5%

Embraer E-Jets 4,029 1% 2,582 1%

bombardier CrJ 3,528 1% 3,063 1%

Tupolev Tu-204/Tu-214 2,813 1% 2,444 1%

Other 11,831 4% 14,823 5%

ToTal 300,763 100% 277,822 100%

Source: Innovata

ASkS FOr FlIghTS TO rUSSIA & CIS by COUnTry

Country ASk (m) in 2013


Share

russia 167,521 77% 152,290 76%

kazakhstan 11,930 5% 11,077 6%

Ukraine 11,149 5% 11,573 6%

Uzbekistan 7,432 3% 7,446 4%

Azerbaijan 4,245 2% 4,140 2%

Tajikistan 3,493 2% 3,488 2%

kyrgyzstan 3,199 1% 2,583 1%

Armenia 2,087 1% 2,471 1%

georgia 1,984 1% 1,546 1%

Turkmenistan 1,898 1% 1,844 1%

belarus 1,470 1% 1,314 1%

Moldova 971 0% 822 0%

ToTal 217,379 100% 200,592 100%

Source: Innovata


Russia & Cis 2013


fOReCast

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FREIGHTER

PAX TWIN-AISLE

PAX SINGLE-AISLE

PAX REGIONAL JET

PAX TURBOPROP

20322028202420202016201220082004200019961992

Year

No

of a

ircr

aft

FreighterPax twin-aislePax single-aislePax regional jetPax turboprop

ForECAST SummAryThe Russia and CIS fleet has stabilised in the past three years after seeing a reduction of 60% over the past 20 years, as a result of the fleet right-sizing in the commercial world post the Soviet Union break up.

It is forecast to grow at a modest rate of 1.4% annually in the next 20 years, which will lead to 550 additional aircraft and take the fleet to 2,050, a 5% share of the global fleet, one point lower than it is today.

81% of the fleet is currently used in the passenger market and 19% are freighters, this share will change to a reduced freighter share of 10% by 2032, as many of the Soviet-era freighters used in the charter market retire.

The Russia and CIS region is forecast to have some 1,525 deliveries by 2032, a 4% share of global deliveries and a threefold increase over the previous 20 year period.

This includes some 1,400 passenger jets, 100 passenger turboprops and 25 freighters. The jet total includes 750 passenger single-aisle types and 340 twin-aisle types. 95% of the current fleet will be replaced and so almost all deliveries will be for replacement. There is a near-term increase to over 120 per year as there is a high current backlog to complete

replacement of Soviet-era designs.

Russia and the CIS has 42% of its fleet currently in the single-aisle category and this will stay stable through 2032, with an increase in the twin aisle fleet from 8% to 17%. This is at the expense of the freighter and turboprop fleets, which both reduce in absolute numbers, as many Soviet-era aircraft are retired.

PASSENGEr JET FLEETThe 2.3% annual rate of growth of

annual hisTorical and forecasT fleeT - russia & cis

Ascendworldwide.com

FlightglobalFleet Forecast2013 – 2032

Advisory

Independent outlook of the global commercial passenger and freighter aircraft market

Ascend – A Flightglobal Advisory Service

FG-FleetForecast_A4cover-FINAL 15/07/2013 19:45 Page 1

For more information contact our specialist sales team at [email protected] visit Ascendworldwide.com

This forecast is an extract from the Flightglobal Fleet Forecast 2013-2032


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Russia & Cis 2013


tRansaeRO CeO inteRviewSTrATEGy: TrANSAEro CEo oLGA PLESHAKoVAIt should come as no surprise that Transaero’s new base at Moscow Vnukovo Airport – which opened just last year – has already given rise to a strategic partnership with the gateway’s other home carrier, UTair Aviation. The second and third largest airlines in Russia make a good strategic fit. Transaero’s predominantly widebody fleet focusses on long-haul destinations overseas and in the Russian Far East, while UTair’s majority narrowbody metal is mainly put to work in the country’s vast territories and eastern Europe.

But for Transaero chief executive Olga Pleshakova, who has been at the helm since 2001, there is much work to be done before the true potential of Russia’s aviation market can be unlocked. Though she calls the alliance with UTair an “unprecedented” partnership that “represents a new step for the development of the entire industry,” Transaero is not resting on its laurels. The airline will maintain its reputation as a “troublemaker” over issues of bureaucracy and red tape, Pleshakova promises, turning up the heat on regulators while its expansion gathers steam.

“In 2011, Transaero took a very firm stance lobbying for de-monopolisation of international routes,” she recalls. “As a consequence we received permission to perform scheduled flights as a second designated carrier to Paris and Rome. Routes to Poland, Finland and Turkey were also opened up later… When the market is de-monopolised, ticket fares go down and passengers have more choice about who to fly with.”

Although the wider Russian market enjoys year-on-year growth of 17%, Transaero has expanded by an eye-watering 26.4% over the past six months. The airline serves more than 190 routes and is second only to Aeroflot in terms of revenue and passenger traffic. Constrained capacity at Moscow Domodedovo Airport prompted the move to Vnukovo, but expansion is not centred solely on the capital. Transaero’s traffic at Pulkovo Airport in St Petersburg spiked by nearly 50% last year. The airline still trails significantly behind Rossiya at the base, but it is now described by Sergey Emdin, director general of Pulkovo’s operator, as the “second home carrier”.

Pleshakova believes that the expansion of recent times vindicates her decision not to join a global alliance. “Several years ago, when we were approached by the alliances, the

offers we received were not acceptable,” she notes. “We saw the potential to develop independently without any alliances, and today it seems that we are delivering on that vision.” Pressed on whether non-organic growth may eventually become appealing, she says: “We will certainly consider any offer… but it must be on an equal partnership basis.”

The airline is for now focussed on strengthening ties with its new neighbour at Vnukovo. Long-haul routes such as Miami, New York and Vladivostok are undoubtedly the jewels in Transaero’s crown, but Pleshakova stresses that the partnership works both ways. “Transaero’s international routes from Vnukovo will be coordinated with UTair’s extensive domestic route network,” she explains. “We are sure that cooperation of the two airlines will have a strong synergistic effect, with Vnukovo Airport functioning as a shared hub.”

The first stage of the partnership involves interline agreements to coordinate flight schedules. Codeshares will be the next step, before the two carriers look at synchronising their frequent flyer programmes and signing special pro-rate agreements (SPAs). Transaero already has seven codeshare partners – Virgin Atlantic, Singapore Airlines, China Airlines, Aigle Azur, Austrian, Air Baltic and Belavia – and Pleshakova says the airline will continue seeking out new partnerships to strengthen its trunk routes to overseas hubs. Exploratory talks are under way with “several US carriers”, she adds.

There is, however, no question of scaling back domestically. “Today, 80% of Transaero’s volume is on international flights,” Pleshakova concedes. “But we are still expanding our domestic flights from Vnukovo and Domodedovo. The domestic route networks operated by Transaero and UTair are very different. UTair doesn’t fly to Russia’s Far East as they don’t have many long-range aircraft in their fleet.”

Tailoring Transaero’s own fleet to its long-haul network has been a critical focus of the business model. More than half of the 100-strong fleet comprises widebody aircraft – 24 Boeing 747s, 15 767s and 14 777s. About seven aircraft are currently in storage, and the last two 747-300s will be replaced by 747-400s later this year. The narrowbody fleet, meanwhile, consists of 42 737s, three Tupolev Tu-214s and two Tu-204Fs.

The mantra of ‘big is better’ looks set to continue, with Transaero committing to buy four 787-8s (arriving at the

Russia & Cis 2013


end of 2014), four 747-8s (arriving in 2015) and four Airbus A380s (entering service in 2015). It also has firm orders for 12 737-800s – six of which will replace older 737 Classics over the next three years – and eight A320neos (scheduled for 2017). Negotiations continue over the acquisition of six Sukhoi Superjet 100s. Pleshakova’s account differs from the manufacturers’ current backlogs, which state that the 747-8s are options and the Superjet 100s are firm orders.

The arrival of the double-decker A380 in two years will be the most high-profile event in Transaero’s calendar. Pleshakova describes its selection as a “strategic decision” geared towards better serving ultra-high-capacity routes. Noting that Transaero is the largest widebody operator across Russia, the CIS and eastern Europe, she says the A380 can offer more favourable economics on certain routes. It will be configured to seat 640-650 passengers, including 12 in First Class and 24 in Business Class.

“We have more than seven years of experience of operating 747s on highly competitive routes, and we are the only airline in the world to operate 747s in its maximum passenger capacity of 522 seats,” Pleshakova notes. “There are many routes from Moscow with high passenger capacity – Thailand, the Dominican Republic, Spain – and we have identified certain routes where A380s would be more efficient than 747s.”

Indeed, by diversifying the fleet with a range of widebodies, Transaero is well-positioned to respond to fluctuating demand. “We have the flexibility to either deploy larger aircraft or to increase frequencies, depending on the needs of the specific market,” Pleshakova explains. She cites New York, Miami, Los Angeles and the Russian Far East as markets where the carrier already alternates between using 747s and 777s, varying its fixed-cost base without disrupting product quality. “Both types of widebodies are configured in three classes, so our passengers will receive the same level of service,” she notes.

Nonetheless, operating a mixed fleet brings its own set of problems. Pleshakova still follows closely the problems that the Superjet 100 and the 787 faced earlier. She expressed hopes that both aircraft will overcome their own “teething problems“ by the time Transaero receives its first units.

Focussing on the difficulties that face domestic manufacturers, Pleshakova says Transaero’s preference for western-built aircraft is justified. “We would like to support Russian manufacturers, and that’s why we signed for Tu-214s,” she notes. “The reliability and quality of Russian-made aircraft

is not in question – they are fully reliable and fully meet passengers’ requirements. But the difficulty for Russian airlines that operate Russian-made aircraft is economic efficiency… We also face problems with after-sales services, and with delivery times for spare parts.”

Pleshakova points to under-performance by the Tu-214’s engines, which require overhauls after 4,000h. That compares with about 15,000h for analogous engines on the A320 and the 737. “These issues all have an impact on economic viability,” the chief executive complains, adding her desire to see the Superjet 100 overcome its own “teething problems” before joining Transaero’s fleet – tentatively scheduled for 2016.

Across the wider regulatory landscape, there is no shortage of obstacles to tackle. Transaero continues lobbying for liberalised bilateral restrictions – most recently gaining scheduled flying rights for Antalya and Istanbul in Turkey – and customs regulations remain a concern. The Customs Union between Russia, Kazakhstan and Belarus had eliminated import taxes on new aircraft, but its exemptions will expire this year.

“In the three years following this decision, more than 200 foreign-made aircraft were imported to Russia,” Pleshakova says, crediting imports with fuelling Russia’s double-digit growth in recent times. “I’m sure that Russian airlines will succeed in solving this issue. At the moment, domestic manufacturers simply don’t produce the quantities of aircraft that are required by Russia’s airlines.”

As long as the government continues easing restrictions, Pleshakova believes that Russian aviation will continue outpacing global growth rates. Transaero will develop its reach to “exotic long-haul destinations” by exploring new tourist markets in Jamaica and South America, complementing existing routes such as the Dominican Republic, Varadero and Cancun. It will also continue growing capacity on routes “within five to seven hours flying time” of regional centres, notably Turkey, Egypt and Thailand.

Although challenges persist, the World Bank’s decision to upgrade Russia to the fifth largest economy by Purchasing Power Parity bodes well for its aviation industry. “We see employment levels and personal incomes rising, which will allow more people to fly,” Pleshakova concludes. “Growth will be evident in every region – the Far East, Siberia and the south of Russia.”


Russia & Cis 2013


vnukOvO inteRviewVNuKoVo VISIoNThe opening of Moscow Vnukovo Airport’s Terminal A in December 2012 was the latest, and perhaps most significant milestone in the gateway’s 2015 Master Plan. The new domestic and international terminal has total floor space of 270,000 sq m, comprising 52 boarding gates and 31 contact stands. Three of the jetways are configured for the Boeing 747 – favoured by home carrier Transaero – including one which can also handle the Airbus A380.

Together with Terminal B, which caters for international charter and low-cost flights, the Vnukovo-1 mainline terminal cluster has a total capacity of 15 million passengers per year. That is comfortably above the 9.7 million customers it served in 2012, but Vnukovo chairman Vitaly Vantsev says further expansion is on the horizon. “Over the next five to ten years, we expect to have throughput capacity of about 20 million passengers per year,” he predicts.

Although Vantsev sees maximum potential throughout of 30 million under the current two-runway design – bringing Vnukovo up to the size of Moscow’s other two main airports, Domodedovo and Sheremetyevo – he nonetheless says that seven years of construction work has already delivered a “new airport” for Muscovites. The next landmark will be in October, when Runway 1 will be extended to 3,600m and certified for the A380.

With ample spare capacity, the emphasis is now on route development. Transaero has already moved its New York and Miami flights from Domodedovo to Vnukovo, and will do the same for Toronto and Beijing this autumn. Though North America and Southeast Asia are critical to the East-West hub model, Vantsev also has his gaze set on new market entrants from the United Arab Emirates. “We are holding talks with Emirates and Etihad,” he confirms. “We plan to have one of the Gulf carriers flying to Vnukovo in spring 2014.”

CouNTING oN CoNVENIENCELocated 28km from downtown Moscow, Vnukovo is more central than the capital’s other two main airports. This explains the presence of the Vnukovo-2 government terminal – used by Prime Minister Dmitry Medvedev. It has also fuelled the growth of the Vnukovo-3 business aviation terminal, which features fixed-based operator (FBO) facilities and can handle 100 domestic and international passengers per hour.

But while Vnukovo styles itself as “the most convenient airport in Moscow for business passengers”, Vantsev is also exploring opportunities at the other end of the spectrum. Within months of low-cost carrier EasyJet launching flights to Domodedovo from the UK, Wizz Air announced a new route to Vnukovo from Budapest. The Hungarian low-cost carrier will begin operating the route in September, and Vantsev says he sees “potential to expand low-cost operations at Terminal B” even further.

Closer cooperation between the capital’s airports is also on the cards. Asked about proposals to unify the shareholder structure of all three gateways, Vantsev says consolidation will “allow us to govern more easily, and be better organised”. But he rejects calls to connect the hubs with a high-speed rail network. “It would not be logical,” he insists. “We don’t need a system linking the three airports, because each airport is developing its own [self-sustaining] route network.” Boosting frequencies on the Aeroexpress rail that connects each of the gateways to downtown Moscow would be “more sensible”, Vantsev says.

His desire to see Vnukovo develop as a standalone hub is echoed by management at Domodedovo. Having processed 28.2 million passengers last year, the gateway is knee-deep in its own development work. Expansion of Terminal 1 will be completed next year, while the upcoming Terminal 2 could be operational by 2015. Longer-term, the gateway expects to handle at least 60 million passengers by 2023.

Its forecast chimes with Vantsev’s assessment of the wider market. “We expect total passenger numbers for the city to be around 140 million per year by 2020,” he says. Critics warn that Moscow’s six runways – two apiece at each hub – cannot support the growth. Both Sheremetyevo and Domodedovo are lobbying the government for a new runway. But for Vantsev, whose airport can triple footfall with its existing infrastructure, there is no rush. “A seventh runway for Moscow is not really necessary,” he adds.

Russia & Cis 2013


st peteRsbuRg aiRpORtPuLKoVo PoWErS AHEADSt Petersburg’s Pulkovo airport plans to open its new terminal in December 2013 as the two existing terminals struggle to accommodate double-digit passenger growth at Russia’s third-largest hub.

All operations will be transferred from the outdated Pulkovo 1 and 2 terminals into the 140,000m² (1.5 million ft²) complex, which will have an initial capacity for 18 million travellers a year. Annual passenger volume increased just over 16% to 11.2 million travellers in 2012, and is expected to rise to 12.6 million this year.

If that growth continues unchanged, the airport is set to reach 18 million passengers per annum within four years, says Stefan Schulte, chief executive of Fraport - the operator of Germany’s Frankfurt International airport - which holds a 35.5% stake in the Pulkovo hub.

But there are already plans for a second building phase, comprising an extension to the airside pier and construction of an additional terminal for domestic flights.

The new main terminal has been built next to Pulkovo 1 in the central area between the two parallel runways. The Soviet-style Pulkovo 1 terminal will become eventually part of the new complex, accommodating airside waiting rooms, gates

and passenger bridges. But the listed building - which was opened in 1972 - will be temporarily closed for renovation.

Meanwhile, the airport will erect a temporary airside structure to provide additional bus gates for aircraft on remote stands.

Pulkovo 2, which was opened on the northern side of the airport in 1994, will be closed in December. But Fraport says that building will be kept on standby as no decision has yet been made about its long-term use.

Fraport became a shareholder and leading party in Pulkovo’s operation in April 2010, after the city of St Petersburg - the airport’s previous owner - reorganised the ownership for the already planned terminal expansion.

Russia’s VTB Bank became the largest investor with a 50% stake in the hub consortium Northern Capital Gateway. Alongside Fraport, Russia’s Koltseva Holdings has a 7.5% share while Greece’s Copelouzos Group holds 7%.

Ground was broken for the new terminal in November 2010. The construction - being undertaken by a joint venture between Turkey-based IC Ictas and Italian contractor Astaldi - should be finished this year. A three-month operational test and transfer phase is to follow.


Russia & Cis 2013


aeROflOt inteRviewThe largest airline in Russia by every metric, Aeroflot has the most to gain or lose from changing fortunes in the country’s aviation industry. The flag carrier has consciously put itself at the forefront of all sectors – acquiring regional subsidiaries, planning a low-cost offshoot, and championing Russian-made aircraft. It is a strategy that could pay off handsomely, but also exposes the state-owned flag carrier to heavy downside risk.

The decision to acquire controlling stakes in six regional operators in 2010 – Rossiya, Orenair, Kavminvodyavia, Saravia, Vladivostok Avia and SAT Airlines – brought Aeroflot’s domestic market share above 33%. Kavminvodyavia has since been closed, while Saravia was re-sold in 2011. Vladivostok Avia and SAT Airlines are now being merged under a new brand for the Russian Far East. Aeroflot also owns Donavia, which serves southern Russia from its base in Rostov-on-Don.

“We have brought these companies together under a multi-branded platform called Aeroflot Group,” a spokesman explains. “The airlines are still different companies with different business models, but they are concentrated under one group… We are not looking for more consolidation at the moment. Our primary mission is to develop the holding company for these carriers.”

Efforts to merge the Far Eastern carriers have dragged on for some time, and it is unclear whether the consolidation strategy is yet bearing fruit. In the first half of 2012, St Petersburg-based Rossiya, Orenburg-based Orenair and Vladivostok Avia collectively posted a net loss of $108 million, nearly wiping out profits at the mainline unit. By the end of the year, however, Aeroflot Group was back in the black, defending an unbroken two-decade-long profit run with net income of $167 million.

While further acquisitions are unlikely, Aeroflot is committed to creating one more offshoot. “We know that there is a need for a low-cost carrier in Russia, and our board of directors has approved the establishment of such a subsidiary,” the spokesman says. “At the end of June, Aeroflot hosted two committees from the parliament – one committee for transport, and one for economic development. They decided to support Aeroflot and the wider aviation industry in Russia… In 2014, we should be able to establish this low-cost carrier.”

He adds, however, that the launch of the low-cost subsidiary is contingent on parliament overcoming “certain legislative obstacles” that inhibit the no-frills model. These include minimum service guarantees for food and luggage; the lack of non-refundable tickets; and the prohibition on hiring foreign pilots. “Intensive work [on formulating the business plan] can start only after amendments are introduced,” the spokesman says.

Aeroflot chief executive Vitaly Saveliev has written to President Vladimir Putin urging reform, apparently winning the support of Transport Minister Maksim Sokolov. But there are many sceptics. Two foreign low-cost carriers that formerly expressed an interest in Russia are backing off. Wizz Air CEO József Váradi says his plans for a local subsidiary are on hold due to regulatory “uncertainties” (though his airline will launch Budapest-Moscow flights in September). Ryanair CEO Michael O’Leary says he “wouldn’t touch it [a Russian subsidiary] with a barge pole”. The country’s last two low-cost carriers – Avianova and Sky Express – ceased operations in October 2011.

Whatever happens with the proposed low-cost offshoot, Aeroflot has laid out ambitious plans to reach 40% market share in Russia by 2020. The mainline unit alone has grown ASK capacity by 22% over the past 12 months, propelled by route launches such as Miami, Toronto, Yakutsk and Magnitogorsk. Flights to Karagandy in Kazakhstan will begin this winter.

Future growth will be fuelled in large part by commitments for Russian-made aircraft. The flag carrier will take delivery of another 20 Superjet 100s by 2015, complementing its existing 10 units. It has further committed to buy 50 Irkut MS-21s – the next-generation narrowbody type entering production in 2017. But western-built aircraft will continue arriving en masse, with 15 more Airbus A320-family jets and 13 more Boeing 777s being delivered by 2016. The orderbook also includes 787s and A350s.

Aeroflot emphasises that different types bring different benefits to its 137-strong fleet. “For example, our new 777-300ERs allowed us to introduce a third class of service – the [premium economy] Comfort Class,” the spokesman notes. “But the Superjets and MS-21s have advantages too, in terms of quality and price. That’s why we have a big order for Sukhoi aircraft, and I think we will continue to order more.”

Russia & Cis 2013


utaiR inteRviewFew airlines around the world can claim to have as diverse a fleet and range of operations as UTair Aviation. Even setting aside its numerous rotorcraft divisions – which deploy more than 350 helicopters from bases as far afield as Siberia, South Africa and India – the carrier’s fixed-wing businesses encompass a dizzying array of aircraft, comprising Boeing, Airbus, ATR, Bombardier, Tupolev, Antonov, Yakovlev, Let and Gulfstream types.

Alongside the mainline UTair fleet, the Group’s operations centre on regional divisions UTair Express and Katekavia; freight specialist UTair Cargo; and UTair Ukraine. Fleet homogeneity will never be a goal for the airline – its subsidiaries contend with a multitude of different airports, climates and operating environments – but chief financial officer Igor Petrov insists that work is under way to streamline the fleet.

“Part of our strategy is to stop using Soviet-made aircraft this autumn,” he says, speaking specifically about the mainline unit. “We don’t have many of them – one Tupolev 134 and five Tupolev 154s, mostly for charter flights. We will also stop using ATR 42s and 72s that are older than 20 years. That will leave us with only Boeing, Airbus and brand new ATRs [in the mainline unit].”

Reducing fleet diversity had long been an ambition, but it took on new urgency in May after Russian regulator Rosaviatsia voiced concerns about the complexity of UTair’s operations. It suggested that the introduction of the newest type, the Airbus A321, may be a step too far. Nonetheless, UTair took delivery of its first unit in July, and Petrov is confident the jet will be cleared to enter service shortly. Alongside its order for 20 A321s, UTair also has commitments for 40 Boeing 737NGs including 10 -900s.

Further western-built widebodies will also arrive soon, with UTair’s fleet of three 767-200s rising to eight by the end of the year. Larger types such as the 777 or A330 had been considered in the past, but Petrov says they are no longer necessary because of the partnership with Transaero. “We need to re-think whether we want to penetrate the long-haul market with a widebody fleet,” he says. “Our main goal is to finalise the domestic network served from our hub at Vnukovo Airport.”

Having launched 48 routes in 2011, network expansion is no longer a priority. Plans for a new Siberian hub in Krasnoyarsk or Novosibirsk are on hold. Instead, capacity on existing routes will be increased by deploying more aircraft and renovating passenger cabins. The 767s will be reconfigured from 170 to up

to 290 seats; the 737-500s from 114 to 130 seats; the 737-800s to 170 seats; and the 737-400s to “the maximum that we can”. With the mainline unit transitioning to a western fleet, changes are also afoot at the regional subsidiaries. Outlining their role in the group, Petrov explains: “We see these two as connectors between our network and some small hubs across the company. Katekavia serves the east, and UTair Express operates in the west.” The mainline unit will begin transferring its 15 new ATR 72s to UTair Express this autumn, he confirms, and eventually the regional operators will “take over the whole of our regional fleet”.

Both units will continue to operate Russian-made aircraft, however, as will UTair Cargo. While the regional divisions favour Soviet types like the Antonov 24 and the Tu-134, UTair Cargo deploys the versatile An-74. “It is a really nice plane for United Nations operations as they can fly to under-developed countries with poor runways,” Petrov notes, referring to UTair’s contracts in destinations such as Mali. “We think we will increase our UN operations, but it depends on their requirements.”

Given the complexity of the Group, it is unsurprising that UTair has little interest in launching a low-cost carrier. “We want to incorporate the best practices from low-cost carriers, but we will not create a new brand,” Petrov says. He notes that UTair has committed to basing 20 aircraft at the proposed fourth Moscow airport in Yermolino, which is envisioned to become Russia’s first dedicated low-cost gateway.

Insisting that there is “no way to have normal low-cost carriers in Russia” in the current regulatory environment, Petrov points to a raft of challenges. These include high VAT and customs charges, under-developed airport infrastructure, certification restrictions, the ban on foreign pilots, and minimum service obligations. “Regulations must be changed first,” he says. Similar obstacles hinder consolidation between the country’s regional operators, he adds, singling out the lack of government subsidies.

However, UTair remains cautiously optimistic that the government will push through reforms. Petrov highlights the easing of customs duties on regional aircraft up to 70 seats, though he acknowledges that larger jets in all-economy configuration continue to attract heavy charges. “We can see progress on certain things,” he insists, quipping: “To work in the airline business, every day, every hour, every minute you must be optimistic.”