Moscow: Their international competitors may
be cheering tumbling oil prices, but the collapse in the rouble has
meant major financial turbulence for Russian airlines who have expenses
in foreign currencies.
be cheering tumbling oil prices, but the collapse in the rouble has
meant major financial turbulence for Russian airlines who have expenses
in foreign currencies.
The rouble has slumped by 40
per cent this year against the dollar and euro, mostly due to crude oil
prices falling by half in the past six months as Russia’s economy is
heavily dependent upon oil exports.
per cent this year against the dollar and euro, mostly due to crude oil
prices falling by half in the past six months as Russia’s economy is
heavily dependent upon oil exports.
As jet fuel accounts for upwards of a quarter of the cost for flights, most airlines are set to see a boost to earnings.
Russian airlines also stand
to benefit, but that is expected to pale in comparison to the double
whammy resulting from the drop in the value of the rouble.
to benefit, but that is expected to pale in comparison to the double
whammy resulting from the drop in the value of the rouble.
First, traffic on their most
profitable international routes has dropped as Russians stopped
travelling as their purchasing power has been eroded, not to mention
ticket prices being jacked up twice by 10 per cent.
profitable international routes has dropped as Russians stopped
travelling as their purchasing power has been eroded, not to mention
ticket prices being jacked up twice by 10 per cent.
Second, the airlines have
considerable costs in foreign currencies — mostly aircraft leases —
which have nearly doubled in rouble terms as the currency has slumped.
considerable costs in foreign currencies — mostly aircraft leases —
which have nearly doubled in rouble terms as the currency has slumped.
According to
Deutsche Bank, Russia’s leading airline Aeroflot earns 90 per cent of
its revenue in roubles while 60 per cent of its costs are in foreign
currencies.
Deutsche Bank, Russia’s leading airline Aeroflot earns 90 per cent of
its revenue in roubles while 60 per cent of its costs are in foreign
currencies.
“The situation is very serious,” said Oleg Panteleyev, the editor-in-chief of the specialist website AviaPort.
“The result is obvious: as a
drop in traffic is inevitable, they must return planes to lessors,
reduce foreign currency costs and lower the number of planes and
flights,” he said.
drop in traffic is inevitable, they must return planes to lessors,
reduce foreign currency costs and lower the number of planes and
flights,” he said.
With traffic rising by 15 to
20 per cent annually in recent years, Russian airlines have leased and
ordered new planes from Airbus and Boeing to retire their ageing fleet
of gas-guzzling Russian aircraft.
20 per cent annually in recent years, Russian airlines have leased and
ordered new planes from Airbus and Boeing to retire their ageing fleet
of gas-guzzling Russian aircraft.
Uncertainty has hovered for
weeks over the third-largest Russian airline, Utair. Unable to repay
some of its debts, Alfa Bank has been trying in court to seize its
aircraft.
weeks over the third-largest Russian airline, Utair. Unable to repay
some of its debts, Alfa Bank has been trying in court to seize its
aircraft.
Then this past week doubts
began to surface about the finances of number two airline Transaero,
which boasts a fleet of more than 100 mostly Boeing aircraft.
began to surface about the finances of number two airline Transaero,
which boasts a fleet of more than 100 mostly Boeing aircraft.
TASS news agency reported that it had appealed to the government for help to avoid having to suspend flights.
Holiday connections
Even if Transaero denounced
the report as an attempt to destabilise it by competitors, the
possibility of thousands of Russian tourists stranded abroad as happened
this past summer when a number of travel agencies went bust was enough
to prod the government into quick action.
the report as an attempt to destabilise it by competitors, the
possibility of thousands of Russian tourists stranded abroad as happened
this past summer when a number of travel agencies went bust was enough
to prod the government into quick action.
Anxious to show it was moving
to contain the effects of the currency crisis, the government promised
to help airlines by subsidising domestic routes and providing loan
guarantees to ensure airlines had access to funds.
to contain the effects of the currency crisis, the government promised
to help airlines by subsidising domestic routes and providing loan
guarantees to ensure airlines had access to funds.
On Wednesday Transaero was
granted a loan guarantee of 9 billion roubles (140 million euros, $170
million). The same day Alfa Bank said it was temporarily suspending, “at
the request of the government”, its legal action against Utair in order
to avoid disruptions to flights during the upcoming holidays.
granted a loan guarantee of 9 billion roubles (140 million euros, $170
million). The same day Alfa Bank said it was temporarily suspending, “at
the request of the government”, its legal action against Utair in order
to avoid disruptions to flights during the upcoming holidays.
The government has a clear
short-term goal, according to Panteleyev: “the airlines must transport
all the passengers over the holidays”.
short-term goal, according to Panteleyev: “the airlines must transport
all the passengers over the holidays”.
Russia nearly shuts down at
the beginning of the year as most people take holiday between the New
Year and the Russian Orthodox Christmas, celebrated this year on
Thursday January 7.
the beginning of the year as most people take holiday between the New
Year and the Russian Orthodox Christmas, celebrated this year on
Thursday January 7.
Panteleyev said “obtaining
loans is indispensable ... to pay for jet fuel, airport fees and
salaries, but it isn’t sufficient to survive.”
loans is indispensable ... to pay for jet fuel, airport fees and
salaries, but it isn’t sufficient to survive.”
With the Russian central bank
expecting the country’s economy to contract by nearly 5 per cent if oil
prices remain at current levels and for there to be no recovery before
2017, there won’t be an easy out for airlines.
expecting the country’s economy to contract by nearly 5 per cent if oil
prices remain at current levels and for there to be no recovery before
2017, there won’t be an easy out for airlines.
Complete upheaval
Deputy Prime Minister Arkady
Dvorkovich warned airlines that the government aid would not help unless
they optimised their fleet and routes and cut costs. Their owners would
also have to pump money into them, he said.
Dvorkovich warned airlines that the government aid would not help unless
they optimised their fleet and routes and cut costs. Their owners would
also have to pump money into them, he said.
Alexei Khazbiyev, a transportation specialist with the magazine Expert, also sees dark clouds ahead for Russian airlines.
“Next year, the traffic on
international flights will continue to drop and the airlines will reduce
their number of flights,” he said.
international flights will continue to drop and the airlines will reduce
their number of flights,” he said.
Khazbiyev estimated that a
majority of Russian airlines will lose money and several smaller
regional companies may go bust, as happened in 2008-2009.
majority of Russian airlines will lose money and several smaller
regional companies may go bust, as happened in 2008-2009.
Air transport expert
Elizabeta Kuznetsova wrote in a recent commentary in the business daily
Kommersant that even if the state measures “soften the pain” for
airlines there risks being a “complete upheaval in the market” in 2015.
Rouble fall creates turbulence for Russian airlines | GulfNews.comElizabeta Kuznetsova wrote in a recent commentary in the business daily
Kommersant that even if the state measures “soften the pain” for
airlines there risks being a “complete upheaval in the market” in 2015.
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