Russia now Europe's #1 airline market, thanks to domestic size
By virtue of shrinking less, Russia is now Europe's biggest market by airline seats in the week of 20-Apr-2020, based on data from OAG and CAPA. Its 75% year-on-year capacity cut compares with a 90% decline for all Europe as a result of the COVID-19 crisis.
Crucially, Russia's domestic market accounts for a bigger share of total seats than in the rest of Europe and has fallen by 'only' 57% year-on-year. Russia's domestic market almost matched its international market by passenger numbers in 2019. For Europe as a whole, only broadly a quarter of the seats are in domestic markets.
The growing consensus is that domestic markets will lead the post-crisis recovery. If this prediction is borne out, Russia's move up the European aviation ranking could endure.
- Russia has a higher share of aircraft in service and a lower cut in seat capacity than elsewhere in Europe. Its domestic market is a bigger share of total seats.
- As the COVID-19 crisis has developed, Russia is now Europe's biggest market by airline seats in the week of 20-Apr-2020.
- The Russian government is providing some support to aviation. Aeroflot Group will be a survivor of the crisis.
According to the CAPA Fleet Database, airlines registered in the Russian Federation have 746 aircraft in service as at 20-Apr-2020. Unlike almost anywhere else in Europe, this represents the majority of aircraft – 58% to be precise.
Across Europe as a whole, only 34% of aircraft are currently in service, while the figure for Western Europe is only 29%. For Eastern/Central Europe, 44% of aircraft are in service (35% for E/C Europe without Russia).
Percentage of aircraft in service for selected regions and countries: 20-Apr-2020
This is a massive fall, but compares favourably with a 90.4% decline for Europe as a whole.
The Russian international market has been reduced by 92.6% – almost identical to the 92.7% fall in international markets for all of Europe.
However, the Russian domestic market has dropped by only 56.6%, compared with an 82.9% fall for all European domestic markets. Domestic markets have fallen at a slower rate than international markets across Europe, but especially so in Russia.
Russia's domestic market is a bigger share of total seats
A year ago (the week commencing 22-Apr-2019), the domestic market accounted for half of Russian seats (49.8%), whereas for Europe as a whole it was less than a quarter (23.4%).
As it has fallen by less than the international market, Russia's domestic market now (week of 20-Apr-2020) accounts for 85.4% of the country's seats. Domestic seats are now 41.8% of the total for Europe as a whole.
The pre-crisis leader, the UK, has suffered a 94.4% year-on-year decline and slipped to third place this week. Italy is second this week, after taking a first tentative upward step in seat numbers following its deep cuts.
Europe: airline weekly seat capacity for top 20 countries*, week of 22-Apr-2019 and 20-Apr-2020
Russia's list of top 10 indigenous airlines by seats from a year ago in 2019 fairly well represents what normal used to look like. In the week of 22-Apr-2019, Aeroflot led the list with 1.1 million seats, almost three times the capacity of the number two, S7 Airlines (just under 400,000 seats).
Russian Federation: weekly seat capacity for top 10 airlines in the week of 22-Apr-2019 and percentage change to 20-Apr-2020
A year on, seven of last year's top 10 are still in the top 10 but the order is different.
Shown at number one in the week of 20-Apr-2020 is Pobeda, with 265,000 seats – 30% more than a year ago.
S7 Airlines is still second, but with capacity reduced by 66%, and Aeroflot has slipped to third place after an 89% capacity cut. Ural Airlines and UTair retain fourth and fifth respectively, but seat numbers for both have been reduced by 75% to 80%.
Russian Federation: weekly seat capacity for top 10 airlines in the week of 20-Apr-2020
Russian capacity may be bottoming out
The 74.7% year-on-year reduction in total Russian seat numbers this week is the deepest cut so far in the country's weekly capacity during the current crisis.
Capacity data for future weeks, derived from OAG schedules filings and CAPA seat configurations, point to a narrowing of the reduction in seats to 55.1% next week (commencing 27-Apr-2020).
So far during the crisis future schedules have been revised downwards with each successive week and so, this outlook is subject to change.
Russian capacity cuts may be bottoming out (as seems to be the case across Europe), but the steep recovery curve currently indicated looks optimistic.
Russian Federation: year-on-year percentage change in airline weekly seat capacity*
The Russian government is providing some support to aviation
Meanwhile, on 21-Apr-2020, Russia's Government announced a plan aimed at mitigating the economic impact of the coronavirus outbreak.
Measures taken to support aviation include RUB3 billion (EUR35.9 million) for State Transport Leasing Company to allow lower leasing payments by airlines; postponement of tax payments for tourism services providers; and one year loans for strategic enterprises, backed by 50% state guarantees.
The government is also considering additional support measures, including the provision of RUB7.6 billion (EUR91.0 million) to carriers as compensation for lost revenue in Mar-2020 and RUB1.7 billion (EUR20.4 million) for revenue lost in Feb-2020.
Airports could receive RUB2.1 billion (EUR25.1 million) as compensation for revenue forgone as a result of restrictions on international travel.
Aeroflot Group will be a survivor of the crisis
On 17-Apr-2020 the credit rating agency Fitch Ratings downgraded Aeroflot's long term rating from BB to BB-, maintaining a negative outlook, as a result of the COVID-19 crisis and lower demand levels.
Nevertheless, Aeroflot and other Russian airline groups have an advantage relative to European peers in having a much higher share of revenue in the domestic market.
A CAPA analysis report of 8-Apr-2020 presented a chart showing the proportion of 2019 ASKs in domestic markets for Europe's top 20 airline groups (ASK share is a better proxy for revenue share than is seat share).
See related report: easyJet-Stelios spat raises post-virus fears for all Europe's airlines
Aeroflot Group was profitable in 2019, but its liquidity at year end (including undrawn lines of credit) was equivalent to a little more than two months of revenues, which was not much more than global airline averages.
In the continuing crisis, 226 of the group's 368 aircraft are inactive, a 61% share in contrast with Russia as a whole. Ownership of the regional airlines Rossiya and Aurora and of Russia's only LCC Pobeda give the group flexibility when applying capacity to markets where there is still demand – particularly domestically.
Aeroflot Group is stock market listed, but still 51% owned by the Russian state. It seems likely that the state would provide further support to the group if necessary.
Russia's move up the European aviation ranking could endure
Russia's move to the top of the list of European countries by weekly airline seats has been the result of exceptional circumstances that have distorted aviation markets.
However, those distortions are unlikely to snap back into their former shape any time soon, particularly for those countries and airlines where international markets dominate (as in much of Europe).
The relative strength of Russia's domestic market could prove to be an enduring advantage for the nation and its leading airlines.
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