Struggling to cope with soaring aviation fuel prices, Russia¹s airlines are set to boost air fares by as much as 50% and cut back their flights.
This year the cost of jet fuel in Russia has risen steadily in line with mounting world oil prices. In January, a tonne of jet kerosene averaged roughly Rb1,500 ($65). Now, the same amount of fuel costs about Rb5,000 ($190).
Until recently Russian airlines managed to keep fares artificially low despite mounting pressure from fuel suppliers. The Federal Service for Air Transport (FSAT) says air fares have grown by only 15% since last year¹s rouble devaluation while consumer prices have doubled or tripled. Charges for air navigation services have not changed at all.
"Sadly enough, airlines cannot hold out any longer," acknowledges FSAT director Vladimir Andreyev. "Jet fuel price hikes are increasingly cutting into their profits and will certainly prompt rises in fares."
Nikolai Ivanenko, Aeroflot deputy director for commercial operations, says Aeroflot has to review tariffs for the winter season and is likely to raise them by 30% to 50% depending on the route, and he notes: "To break even, we should increase fares by about 150%, but the reducing passenger loads make that impossible."
The airline will also join other Russian carriers in cancelling flights on routes with high losses.
Ivanenko says: "Some analysts believe that the cartel agreement which was concluded in June between basic industries speeded up fuel price growth in other industries, civil aviation included."
Viktor Gorbachev, who heads the association of Russian airport operators, blames the increase in jet fuel prices on oil companies. "They routinely conspire on prices for kerosene," he says.
Earlier this year, exorbitant fuel prices forced Domodedovo Airlines to postpone the launch of a scheduled weekly service between Moscow and Macau. Domestically, passenger volumes are dropping to record lows, leaving carriers scrambling for ways to keep their aircrafts flying, notably those that service remote regions.
Facing the risk of losing market share to rivals and despite laws against price collusion, several airlines are intending to coordinate their pricing policies. Transaero recently concluded such an agreement with Aeroflot and two regional operators on the Moscow-Nizhnevartovsk and Moscow-Irkutsk routes.
Already travel agents are saying ticket prices on all domestic airlines have jumped an average of 10% to 20% in November after months of relative stability.
Officials at the government body in charge of enforcing fair competition say concerted price fixing is illegal, but they sound pessimistic about chances of stopping such a move.
To remedy the situation, analyst Gorbachev suggested that the government should engage in some price fixing of its own. "After all, oil is a natural resource that belongs to the state. It should consider establishing a limit on price increases on kerosene - perhaps 30% a year," he says.
Aeroflot has also called for increased government regulation of the jet fuel market.
Carriers that mainly operate domestically, are now expected to face two prospects. The first is to continue operations at the expense of borrowings and mounting debts. The alternative view is that they will have to consider grounding aircraft in an attempt to make the government come to their rescue.
Source: Flight Daily News
