Aeroflot looks for consolidation boost

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Aeroflot views its acquisition of six other Russian airlines as potentially the first stage in a much-needed consolidation of the country's carriers. The post-Cold War dismantling of the Soviet-era Aeroflot resulted in the creation of hundreds of smaller operators, dozens of which subsequently went out of business or were shut down by civil aviation regulators. But federal air transport regulator Rosaviatsia still lists 168 air transport enterprises on its registry, and Aeroflot chief executive Vitaly Savelyev believes this number is simply "too big for the country".

Since the break-up of the Soviet Union passengers numbers in Russia and the CIS collapsed from a peak of 94.3 million in 1990 to just 21.8 million in 2000. It has since

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climbed but in 2009 was still only 45.1 million - including 23.8 million domestic travellers and 2.9 million flying between Russia and CIS destinations. "This is less than the transportation of British Airways alone," says Savelyev. He says a comparative calculation, based on how many airlines operate in the European Union, suggests Russia needs far fewer carriers. "Thirty to 35 would be pretty much enough." he says. "Certainly we support consolidation. We welcome [prime minister] Putin's decision to merge six airlines with Aeroflot. Probably this is the first start to consolidation of the airline industry in Russia."

The six airlines - Rossiya, Orenair, KavminVodyAvia, Vladivostok Avia, Saratov Airlines and Sakhalin's SAT Airlines - accounted for nearly 15% of last year's passenger total. Aeroflot had a share of 19%, meaning a tie-up would cover more than a third of the Russian market.

All six carriers are linked to state industrial technology conglomerate Rostekhnologii, which originally intended to use them as the basis of a carrier to rival Aeroflot, with three hubs in Moscow, St Petersburg and Russia's far east. By 2016 the proposed carrier, Rosavia, was to have a single network operating over 100 aircraft. Aeroflot has already gained control of Rossiya and Savelyev believes the transfer of all six carriers will be achieved by mid-2010. Aeroflot will then address the modernisation of the fleet, he says.

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"Probably this is the first start to consolidation of the airline industry in Russia"

Vitaly Savelyev, Aeroflot
Aeroflot has been considering the possibility of using the assets to enter the budget sector, either on European routes or within the Russian far east, but Savelyev has reservations about whether Russia can sustain this model. "We will examine the possibility of translating one of the assets into a low-cost carrier," he says. But he notes some analysts have concluded budget carriers are "not viable" under current Russian conditions. "However, we do examine the market and do not exclude the possibility of establishing a subsidiary in this [sector]," he says.

Low-cost airlines Germanwings and Air Berlin fly to Moscow, while SkyExpress and Avianova have emerged within Russia. But Savelyev does not view low-cost carriers as a threat. "They have different categories of passengers. We operate in the premium class while low-cost operations are in the economy segment."