Page 106 - RusRPTDec18

deteriorate, but noted that, "the pace of the margin drop during this year is slowing down due to the cost-cutting initiatives aimed at reducing the pressure of the fuel." The increase in the yield might help to support the weak 4Q18F financials, VTB Capital believes, expecting net income at RUB11bn for 2018, implying a 5% dividend yield under a 50% payout. Most recently Aeroflot adopted an ambitious growth strategy, planning to outpace the market by 2023 through deeper regional penetration. "Aeroflot, which has been suffering from turbulence, now provides an attractive entry point for those who share our view on management’s potential to implement the new five-year strategy: ‘100mn passengers by our 100th anniversary’," VTB Capital wrote on November 6.
Russian national air carrier Aeroflot for the second time this year increased the fuel surcharge for the second time on domestic flights, Vedomosti daily reported on November 28 citing the announcement of the airline. The surcharge increased by 10% to from RUB2,2065 to RUB2,265 for economy class tickets as of November 27. bne IntelliNews already suggested that jet fuel price regulation might be revised, as Russian air carriers struggle with high fuel prices. Growing jet fuel prices and ruble devaluation already got Aeroflot preparing for a one-off revenue miss of RUB55bn ($0.82bn) in 2018. The company estimated that jet fuel is 35% more expensive year-on-year in 2018, which alone would cost Aeroflot RUB32.8bn. Another RUB22bn could be lost on weaker ruble, as over 50% of company's payments are in FX. This month Russia's Air Transport Operators Association (ATOA) has submitted a proposal to the government to increase the tax rebate the Russian air carriers receive for jet fuel excises. For Aeroflot, adopting such proposal would produce an annual positive effect of RUB8-10bn. As the government bets on aviation as one of the instruments of boosting regional interconnectivity under the six-year infrastructure development plan, it is possible that jet fuel prices could potentially be tackled by direct regulation. Most recently high motor fuel prices led to a direct intervention by the government with the largest domestic suppliers.
Russia's national air carrier Aeroflot will open four new regional hubs and eat into its domestic competition market share. The carrier also plans to nearly double the number of passengers it carries to circa 90m by 2023. The four regional hubs are in Krasnoyarsk (international transit hub between South-East Asia and Europe) as well as Sochi, Yekaterinburg and Novosibirsk (for regional domestic flights). Currently Aeroflot only flies from Moscow's Sheremetyevo airport, with low-cost subsidiaries Pobeda and Rossiya operating flights outside of Moscow as well. By 2023 regional traffic bypassing Moscow is planned to be boosted from 7mn in 2017 to 19mn. At the same time Aeroflot's two largest private domestic competitors S7 and Urals Airlines will be directly targeted, as they operate their hubs in Novosibirsk and Yekaterinburg. An unnamed top manager of local airlines told the daily that Aeroflot has opted for growth by taking the market share of its competitors as organic growth is limited by Russia’s slow domestic economic growth and the toxic international political climate. Aeroflot plans to transport 90mn-100mn passengers in 2023, which is almost double the 50mn passengers it carried in 2017, the CEO of the group Vitaly Sevelyev told President Vladimir Putin this week. BCS Global Markets commented on October 30 that the new targets seem stretched, but viewed the news as overall positive for Aeroflot.
Russia's largest air carrier national Aeroflot prepares for a one-off revenue miss of RUB55bn ($0.82bn) in 2018 due to ruble devaluation and fuel price growth, Interfax reported on November 13 citing the CEO of the company Vitaly Savelyev. Reportedly he estimated that jet fuel is 35% more
106 RUSSIA Country Report December 2018 www.intellinews.com