The Central Bank of Russia buys 11.8% share in Aeroflot
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Airline disruption: it will happen in the next decade - but no one is preparing for it
Why so unprepared? It seems inconceivable that the structure of an industry with so many artificial constraints can remain intact much past 70 years, while all around it has changed.
This decade alone has been witness to major disruptions in the travel and transportation industries. Most prominent have been in ride sharing – Uber – and in hospitality – Airbnb. Telecommunications, media and music industries have also been turned on their heads; banks and payments are in the firing line; retail generally is being rapidly transformed. There is scarcely an industry whose fundamental structure remains intact. Except the airline industry.
In all cases disrespectful startups, usually applying relatively simple but sophisticated IT solutions, have taken on legacy operations. The legacy industries under attack typically involve extensive capital investment, and are often characterised by significant, unhelpful, and highly intrusive government regulation that restricts competition.
Certainly the legacy airlines have had to deal with a new breed of low cost operations, long and short haul. But almost without exception those legacy operators are still there, fundamentally unchanged.
In terms of other industries, this is no more than fiddling around the margins. And time is running out.
Aeroflot Group's transformation: driven by strategic refocus, guided by the hand of Russian State
In recent years, the Aeroflot Group has undergone a significant transformation. From 2009 to 2016 the group's passenger numbers increased fourfold, its load factor improved by 11.3ppts and its revenue grew almost five times.
During this time the group's structure has moved from one of non integrated subsidiary airlines to a clearly focused multi brand approach targeting different market segments. The Aeroflot Group has also refocused its fleet strategy, reducing the number of aircraft types from 18 in 2011 to seven in 2016.
Some measure of the success of Aeroflot's transformation, beyond the obvious growth in scale, can be seen from its improved financial results. In 2016 it reported record profits, in spite of a second successive year of a shrinking economy in Russia. These results were helped by lower fuel prices and by currency movements, but Aeroflot Group's operating margin of 12.8% was better than those of other major European legacy airline groups.
Aeroflot's achievements also owe much to the government directed consolidation of the Russian market in recent years. Indeed, the Russian government's influence has long been a guiding force in Aeroflot's development.