Aeroflot Group suffers first 1H net loss in many years as geopolitical backdrop starts to show

The Aeroflot Group fell into loss in 1H2014, its first 1H loss since at least 2008. Although the result was affected by a significant level of non-recurring expenses, the underlying operating result was still significantly lower than last year. Aeroflot continues to grow faster than the Russian market and its focus on increased frequencies, rather than new routes, has helped the Group to grow its RASK (revenue per available seat kilometre). Unfortunately, this growth in RASK was outpaced by growth in CASK (cost per available seat kilometre).

The current geopolitical backdrop is clearly providing Aeroflot with some serious challenges. Demand for international flights has been weakened and EU sanctions forced the suspension of operations of Aeroflot's nascent LCC Dobrolet. Plans by the Russian government to reduce its stake in Aeroflot to 50% plus one share may now meet with delays as investors are likely to want to wait for the geopolitical situation to become more stable.