Page 85 - RusRPTOct19

Akimov gave his support for St. Petersburg’s Pulkovo airport to be granted new rights under the Open Skies regime which would allow foreign airlines to fly to St. Petersburg from any country, not just their place of registration. Following his comments, European lowcosters RyanAir, EasyJet and WizzAir have reportedly applied to operate a total of 33 new flight routes out of Pulkovo. Currently, no airport in Russia has such a level of freedom, and airlines can only fly directly to and from their home country (e.g. British Airways only between the UK and Russia, Lufthansa only between Germany and Russia). Such freedoms have existed in Europe for a long time, but the Russian market has always been more rigid. If permitted Pulkovo is expected to be given the green light on a five-year trial basis for five years.
Government officials made a series of comments on the Russian aviation industry at the Eastern Economic Forum in Vladivostok at the start of September. President Vladimir Putin said that airlines employing "flat tariffs" (meaning that ticket prices do not change and are usually priced at below cost for the carrier) should be given priority when the government is distributing routes for more lucrative destinations. The logic is that these more profitable routes should compensate for the social burden of serving Russia's Far East, for example. Putin added that this approach should probably be enshrined in law. We consider this news to be positive for Aeroflot Group, which uses flat tariffs for certain flights for its flagship airline and Rossiya Airlines. Just two weeks ago, Aeroflot competed with S7 for 11 routes from Transaero's portfolio. S7 received just one route for seven flights per week. Transportation Minister Evgeny Dietrich said his ministry is considering measures to restrain rising ticket prices. Ministry officials have previously said that the average ticket price jumped 7% y-o-y in 1H19. However, we note that both Aeroflot's blended (international plus domestic) and domestic yields grew by less than that in 1H19. In any case, the ministry intends to propose some measures by the end of September. We view this announcement as neutral for Aeroflot, as it is unclear whether the measures would be supportive (by introducing more subsidies that would offset rising costs and would allow for smaller ticket price hikes) or restrictive for the industry.
9.1.4 Construction & Real estate sector news
In 2018, the annual growth rate of construction (at constant construction volume) was 5.3%, but this year the growth in construction seems to have stopped completely. In January-June, the volume of construction increased by only 0.1% year-on-year. However, according to Rosstat, the number of residential buildings completed in January-June this year was 7% higher than a year earlier. However, the reference level is low, as in 2018 the residential construction decreased by 4.5%. The long-term rise in house prices has stabilized slightly in the early part of the year, and in some areas prices for old dwellings have even fallen slightly. The regional variation in price levels is very high. In the future, growth in housing construction may be slowed down by a change in the law that came into force in July, which prohibits construction companies from financing other unfinished sites with advance payments from customers. As a result, a greater proportion of housing construction will in practice have to be financed by bank loans from construction companies. The change is expected to lead to the exit of the smallest and poorly profitable developers.
Moscow real estate housing inventory is close to record high of 1mn sqm, up 22% year-on-year, but the segment is cooling after accelerated
85 RUSSIA Country Report October 2019 ww.intellinews.com