All clear

Russian aviation market is improving again

Having overcome the impact of the crisis, Russian air carriers are gaining traction. The volume of passenger traffic has been growing sustainably, and the market players are optimistic about their future against the backdrop of current Government’s decisions.

The industry takes off. Official data of the Federal Air Transport Agency (Rosaviatsiya) for January – May 2017 demonstrates that Russian aviation market has been improving, and its growth rate makes jealous most of Russian economic sectors. During the first 5 months of the current year Russian airlines have carried almost 36 mln passengers, that is 22% more than during the same period in 2016. Since the start of the year, passenger turnover has increased by 25%, and totaled a shade under 89 billion passenger-kilometers; cargo turnover has increased by 23% and has reached the 3 billion ton-kilometers mark. Passenger load factor has grown by 2,7 pct (73,3% at the end of the reporting period).

Growth factors. Analysts explain the market growth by several factors. Firstly, the demand for highly remunerative international flights has boosted, and this means that airline companies have managed to adapt to the absence of Egyptian and Ukrainian destinations. As a result, for the first time during a long period the international load exceeded the domestic load. Secondly, along with the permanent leaders of the market – 5 companies that control 70% of air carriage (Aeroflot, Rossiya, S7, UTair and Ural Airlines) – a high growth rate has been demonstrated by small carriers that provide service to up to 3 mln passengers per year, and by charter carriers. The recovery of consumer demand for the industry’s services is supported by the initiated appreciation of the ruble, and by general trend of sustaining or cutting air ticket prices (which includes the background of rivalry with low-cost carriers, such as Pobeda) that made airline companies cut the average cost of tickets by 20%.

Under the Government’s wing. State support has played a significant part in market’s recovery. It took the form of application of a reduced VAT of 10% for airlines’ domestic passenger transportation services. At first, this abatement, that helped to lower the industry’s tax burden by almost 40 billion rubles, was planned to be in effect from July 1, 2015 till December 31, 2017, and the closer the end of the period the more frequent were the concerns of market participants that the industry which has just regained its feet was going to stall. However, on June 16, 2017 at the website of the Government of the Russian Federation there was published a decree by Dmitry Medvedev on extension of the benefit till December 31, 2020. The program of state aid to air industry till 2025 has also played a significant role in market’s recovery. The measures aimed at strengthening of competitive performance of Russian aircraft producers, have worked for passenger air carriers as well.

Out of turbulence. The news about the extension of preferential tax period has had its impact on the mood of the market’s participants. Despite certain problems, and instability of global political and economic environment, one could predict with great probability that Russian aviation market is going to grow. According to the estimation made by Vladimir Tasun, the president of the Russian Air Transport Operators Association (RATOA), as a result of the current year, passenger traffic of Russian airlines could go beyond a significant mark of 100 mln passengers.

Nevertheless, general favorable market situation does not guarantee an effective and stable operation of all its players. Specialists of the Information Agency Credinform recommend using Information and Analytical System Globas® when choosing an air carrier in order to prevent cooperation with an unreliable business partner and to minimize risks, which in this case may result in flight delays or cancellations, low-quality services and other unforeseen situations.