A contraction in the Russian airline industry is now almost inevitable, after nearly a month of financial uncertainty left the rouble heavily devalued from its level of mid-August. The devaluation will almost certainly lead to a general economic downturn in Russia with passenger numbers and cargo traffic both dropping off and airlines going out of business or merging.
Domestic airlines and those with little international exposure, and therefore fewer dollar-paying customers, are likely to be hit hardest. Small regional and even some of the larger domestic airlines will either collapse or begin the consolidation process, according to Russian analysts.
The Russian Federal Aviation Service has said it wants to see the number of airlines in Russia slashed to between 100 and 110 by the year 2000 from the current 315. It also says many of the regional airlines are so heavily indebted that the current crisis will push them into liquidation or force them into mergers.
Even Aeroflot is likely to suffer from the rouble's devaluation. In August London-based Salomon Smith Barney predicted that a 25% devaluation of the rouble would see Aeroflot break even this year with anything more pushing the carrier into the red.
Analyst Andrew Light of Salomon Smith Barney says the devaluation will make Aeroflot more competitive on its international routes and that low yield Europe-Asia through cargo traffic will become even cheaper.
"But the domestic passenger and cargo markets are too volatile to predict at the moment," he adds. "Aeroflot is still very internationally focused and is still a large dollar generator, but we can all see what happened to the Asian carriers when their currencies devalued."
Aeroflot is not quite as exposed as some of the Asian carriers because it does not have outstanding orders for wide-bodied aircraft. But it will take delivery of seven Boeing 737s this year and three more next year and is committed to buying 20 Ilyushin jets with US engines and avionics.
Aeroflot's passenger numbers were predicted to rise to 4.8 million this year and more than 5 million in 1999, but analysts are now suggesting these forecasts will be lowered by around 300,000 and 600,000 respectively.
Aeroflot, the privately owned Transaero and a string of smaller Russian airlines say they will not raise rouble prices on domestic routes or dollar denominated fares on international routes in an attempt to offset the drop in passenger numbers. Aeroflot is even planning to launch a frequent flier programme and introduce a twice weekly service to Klagenfurt in Austria.
Transaero says domestic travel is down, but that at present only some frequencies will be cut back. He denies that Transaero is in merger talks with Aeroflot.
Source: Airline Business
