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Established in 1923, Public Joint Stock Company Aeroflot — Russian Airlines (Aeroflot PJSC) is Russia's largest national carrier and is part of the Aeroflot Group, a state-owned enterprise of the Russian Government. The carrier operates domestic and international passenger services, mainly from its hub at Moscow Sheremetyevo International Airport. As a full member of SkyTeam, Aeroflot operates to 1,052 destinations in 177 countries via the SkyTeam alliance network. The carrier was the first Russian airline company to join IATA, in 1989.
Location of Aeroflot main hub (Moscow Sheremetyevo Airport)
Aeroflot share price
2,730 total articles
63 total articles
Aeroflot focuses multi-brand strategy as 3Q operating profit doubles, benefits from Transaero demise
The Aeroflot Group more than doubled its operating profit for 3Q2015 and 9M2015. The weakness of RUB served to inflate both revenue and costs, but these two factors cancelled each other. As with other airlines, low fuel prices helped Aeroflot's results, but the underlying driver of its profit improvement was its growing market share and the positive impact this had on unit revenue.
Already Russia's largest airline group, it is benefiting from the weakness of domestic rivals and capacity cuts in Russia by foreign competitors. It is no longer buying a majority stake in Transaero, but is to take over some of its bankrupt rival's routes and this will further extend its market leadership.
Moreover, a successful first nine months for its LCC Pobeda and a plan to merge three of its regional airlines under the Rossiya brand help to sharpen Aeroflot's multi-brand strategy, making it the leader in each main market segment.
On 3-Sep-2015, Russia's leading airline Aeroflot agreed to an offer from Transaero Airlines' shareholders to sell it at least 75% plus one share of number two ranked Transaero. The price requested for control of the heavily indebted and loss-making airline, to be paid within 24 days, was "no more than" RUB1.
Aeroflot chairman Kirill Androsov hailed the deal's “transformational significance" for the Aeroflot Group, saying it was "fully in line" with its strategy". He added that it should help the group in its aims to carry 70 million passengers by 2025 (compared with 35 million in 2014, versus 13 million for Transaero) and be in Europe's top five and the world's top 20 airlines by revenue and passenger numbers.
Nevertheless, Mr Androsov may have been attempting a brave face. The decision was influenced by a government seeking to maintain market and employment stability and also requires tough negotiations with Transaero's creditors. Moreover, Aeroflot faces a difficult choice. Either it tries to maintain Transaero's unprofitable fleet and network, which overlaps significantly with its own, or it must attempt the politically more challenging closure of large chunks of Transaero's operations. Neither option looks easy.
Aeroflot back in operating profit in 1H. Transaero acquisition to take its market share close to 50%
The Aeroflot Group turned around an operating loss in 1H2014 into a profit in 1H2015. The depreciation of the RUB served to boost both revenue and operating costs, with a net negative impact, but Aeroflot managed to grow its RASK more rapidly than its CASK.
The Ukraine crisis and tense international relations continue to weigh on demand for travel to/from Russia. But demand for domestic flights is growing strongly.
Moreover, Aeroflot is taking advantage of capacity reductions by cautious international rivals and struggling domestic competitors to increase its leading share of the Russian air transport market. The group's market share now looks set to jump to embrace almost a half of all passengers to/from/within Russia once it completes the acquisition of second ranked Transaero.
The last of Europe's stock market-listed airlines recently reported financial results for 2014, providing the opportunity to compare levels of profitability. Ranking them by operating margin, there is a wide range of performance from healthy double digit to negative figures.
LCCs typically performed better than legacy airlines. Most of the higher margin airlines improved in 2014, while most of those at the lower end of the scale suffered a fall in margins. Convergence of business models does not show itself in convergence of financial performance.
Beyond the listed airlines, Europe has a large number of mainly small and unprofitable airlines, which drag down the aggregate margin of the continent's airline sector. Europe's traffic growth and load factors are relatively healthy by world standards, but its margins are held back by its fragmented market structure.
Alitalia's new-found Asia strategy appears to be stimulating competitive responses. Alitalia has announced new services to Seoul, a return to China and expanded services to Japan. More Asian markets could be on their way. After much delay, Korean Air will double its presence in Italy by de-coupling Milan and Rome, served on a triangular routing, and then increasing capacity.
Korean Air has carried 25% of the Korea-Italy market, so it has left much traffic to others, mostly to sixth freedom airlines like Lufthansa and other Europeans. Alitalia part owner Etihad hopes Alitalia's eastwards expansion will allow it to claw back at the gains Lufthansa and other carriers have made in Italy.
Growth from China to Italy looks more organic than competitive. Air China will become the largest airline in the Italy-Asia market while the China-Italy market will welcome a third Chinese player as Hainan Airlines starts twice-weekly Chongqing-Rome service.
The Aeroflot Group suffered a 31% drop in its operating profit and reported a net loss in 3Q2014, the seasonally strongest quarter. Although the net result was weighed down by foreign exchange movements and non-recurring items, the underlying profitability of the Group suffered due to RASK falling while CASK increased.
Demand on international routes has suffered as a result of the geopolitical backdrop, forcing Aeroflot to focus its growth in the domestic market.
Geopolitical events also led to the cessation of Aeroflot's fledgling LCC subsidiary Dobrolet in Aug-2014. However, the Group has acted rapidly in launching a new low cost venture, Pobeda, which started operating between Moscow Vnukovo and Volgograd this week.