Tough Year Ahead for Russian Airline Industry
- New Europe Investor
- January 26, 2015
With the crisis lingering on and showing few signs of abating, the Russian airline industry will prove particularly sensitive in 2015.
There have already been a number of stories emerging, not indicating a bloodbath just yet, but certainly showing problems on the horizon.
In December, Russia’s third largest carrier UTair, failed to purchase a 2.6 billion ruble bond (€35 million). The airlines debt is currently 70 billion rubles (€950 million), and it is currently in negotiations to restructure this with its creditors.
Then just this month, small Russian airline, AK Bars Aero ended all scheduled passenger services, and stated that it will lease its aircraft out to other airlines. Whilst the airline did not shut permanently, it suspended all its routes, so as to not fly its planes at a loss.
Most significantly, Russia’s flagship carrier Aeroflot reported a net loss of 3.5 billion rubles (€47 million) for the first 9 months of last year. The same period in 2013 saw the airline make a profit of 17 billion (€230 million).
The continued weak consumer demand will very likely have further impact on the airline in 2015.
As bad as the numbers are for 2014, the year saw 8% increase in passenger numbers. 2013 was even better at 15%.
However, the rapid the expansion in the past has led to the airlines aggressively adding to their fleet. If the economy and the ruble cannot perform and consumer demand fails to expand or worse, contract, airlines will be see themselves in great trouble.
What to do with UTair is a topic for discussion in the country. Aeroflot and S7, Russia’s 4th largest airlines, are wholly against any government support. They blame the airlines careless pricing policy and expansion for their own failings now.
Regarding Russia’s largest airline, Aeroflot, analysts say it will be able to stave off any crisis for the time being. However, the longer the situation rumbles, it could be them seeking a government bailout.