Aeroflot Growth In
Aeroflot Leads The Way
As countries around the world struggle to deliver anything other than anaemic growth, if indeed any growth at all, focus shifts to those countries where the economy is buoyant and where growth is strong. As a BRICS (Brazil, Russia, India, China and South Africa) country, the Russian Federation is an eminent example of the latter.
The Russian flag carrier, Aeroflot, which recently celebrated 90 years, is actively working to take advantage of this growth. In 1981, the Soviet Civil Aviation Authority, also known as Aeroflot, was the world’s largest airline in terms of passengers carried, serving 87 countries. Aeroflot has ambitions that by 2025 — having by then passed the century mark — it will again be one of the world’s largest airlines.
Russian Federation’s Flag Carrier
With the demise of the Soviet Union in the early 1990s, the Russian Federation’s national flag carrier, Aeroflot, was reduced to an airline that was only a fraction of its previous size. Today, with the anticipated significant growth of the Russian aviation market, the airline expects to grow to the size it was years ago.
Market Dynamics Over 90 Years
The history of civil aviation in the Russian Federation can be traced back to the Russian Revolution in 1917 when the new Bolshevik government saw aviation as one of the main ways to modernize a backward country where most of the population still remained rural peasants.
The new communist leaders believed that aviation would be the most efficient way to transport both people and supplies across the 12 time zones that made up the vast country. Under a series of five-year plans, civil aviation developed strongly. By 1950, Aeroflot was carrying more than 1.5 million passengers a year. By 1961, massive growth delivered nearly 22 million passengers annually. At this time, Aeroflot was purely a domestic carrier, but in 1971 it introduced international services across five continents, generating such massive growth that in 1976 Aeroflot carried 100 million passengers.
In the early 1990s, as a result of the political upheaval and dissolution of the Soviet Union, the giant Aeroflot operation was split up, and thereby as the flag carrier of the Russian Federation, it became a tiny airline compared to what it had been. In 2003, Aeroflot carried just 6 million passengers. Since then, however, there has been significant organic growth, and in 2012, the airline carried about 18 million passengers.
Still, today, the Russian air travel market is relatively small, carrying approximately 73 million passengers in 2012. There are only 0.3 trips by air per capita, compared to 3 trips in the United States and 1.1 for the European Union. However, driven by significant gross domestic product commodity-influenced growth, passenger traffic has been growing at a rate of at least 15 percent a year, and there are predictions that trips per capita will get close to that of the European Union by 2025.
Move To Market Consolidation
Many of the 300 regional operators that were created and privatized in the early 1990s went bankrupt in the financial crisis of 2008-2009, due to soaring fuel costs and a dearth of credit. Those that remain are involved in significant market consolidation, which was initiated under the presidency of Dmitry Medvedev with the aim to improve safety, management and financial performance.
In February 2010, the Russian government announced that all regional airlines owned by the state through the holding company Rostechnologi would be consolidated into Aeroflot to help increase those airlines’ performance. The merger was completed in November 2011. In a deal worth US$81 million, Aeroflot’s sister company, Aeroflot-Finance, became the major shareholder of Vladivostok Avia, Saravia and Rossiya Airlines, and the sole shareholder of both SAT Airlines and Orenair.
Aeroflot Best Placed To Benefit
The Kremlin has thereby created the foundation for Aeroflot to forge itself as a national champion in the Russian airline industry and take advantage of the anticipated growth in the Russian air travel market. Since 1991, Aeroflot has transformed itself from a massive Soviet airline with notorious standards of service into a competitive, quality, highly profitable global player. Against a background of solid financials, and as a result of the market consolidation that has recently taken place, Aeroflot has recently unveiled a new strategic plan for the next 15 years, with a clear goal to grow market share in domestic and international markets. At the end of 2011, Aeroflot’s share of the Russian air travel market amounted to 26 percent. It jumped to 38.1 percent last year.
In a recent speech, Aeroflot Chief Executive Officer Vitaly Saveliev said that the airline aims to carry between 70 million and 74 million passengers in 2025, with a quadrupling of the company’s current revenues compared with 2012. He added that Aeroflot’s goal is to have a 40 percent share of the international market in 2025 and a 60 percent share of the domestic market.
So, as Aeroflot celebrates its 90th birthday, it can look back at a fascinating, fluctuating life. As one of the most important organs of the Soviet state, it was for years the largest airline in the world. In the early years of the Russian Federation, it reinvented itself as a much smaller, but much higher-quality airline. Now, with considerable confidence that is founded upon the growth of the Russian air travel market, Aeroflot aims to grow to a similar size that it once was, but looking very different.