Russia may have flexed its political muscle in recent months, but on the air transport front it has been surprisingly quiet, until now. In early September, Russia's largest domestic ­carrier, S7 Airlines, sent its big guns to Vienna to register its interest in acquiring a stake in the imminent privatisation of Austrian Airlines, and in establishing Vienna as its "geographically ideal hub" for onward connections of Russian passengers.

Natalia Filev, who owns 65% of S7 (25% is held by the Russian State and the rest by private investors), and her husband Vladislav, general director of the airline, have gone on the offensive to establish S7 in the international market. Bids for the 41.8% stake in Austrian were due to be submitted on 21 October. However, following a statement from Austrian detailing its expected losses this fiscal year, S7 is understood to have asked for a two-month delay to reassess its bid.

Nevertheless, Vladislav says a partnership with Austrian would be a "win-win situation for both". Natalia has also let it be known that a joint project between S7 and Vienna Airport in building and operating a terminal at Moscow's Domodedovo International Airport would be high on its preferred agenda. A ceremonial first flight between the two cities with a new Boeing 737-800 was made on 17 October.

S7 Airlines
© S7
S7 sees a partnership with Austrian as a "win-win situation"


"We see Austria as a strategically important market with great untapped potential," Vladislev said after the flight. "With the Russian leisure and charter market likely to double in the next five years, the outlook for our business is very promising and Austria can play a huge part in this." He believes the number of Russian passengers who might transit through Vienna could reach three million within five years. If S7's bid for Austrian is successful, membership of the Star Alliance would also beckon.

As S7 is facing strong competition for the Austrian stake, most likely from Lufthansa and Air France-KLM, it has also been looking towards codeshares as another way into the international field, partly also because it is restricted by bilateral agreements. A first such move was made on 16 October with an extensive codeshare partnership with Air Berlin and Niki. The agreement provides for the sharing of services between Moscow and several German cities and, interestingly, between Moscow and Vienna, which is currently flown by Niki. All three airlines intend to deepen their relationship in other areas in the future.

Russia's principal airline, Aeroflot, has also been exploring possible acquisition opportunities since early 2007 and finally made its move on 15 October by confirming its interest in obtaining a majority holding of flag-carrier CSA Czech Airlines. The official tender is set to be made public in November, with completion of the privatisation expected in the first quarter of 2009. The Czech Government's 91.5% stake is up for grabs. However, Aeroflot is seeking a partner to overcome ownership restrictions for non-EU airlines, currently set at 50%.

"As to the identity of this partner, we cannot disclose this at present," says Mikhail Poluboyarinov, Aeroflot deputy director general for finance and planning. "Our non-EU status imposes certain constraints on Aeroflot and the necessity of a partnership is caused, to a large extent, by this regulation. Aeroflot wants to obtain operational control of Czech Airlines to achieve maximum synergy."

Both carriers are members of the SkyTeam Alliance. Poluboyarinov adds: "The Czech Airlines route network harmoniously complements Aeroflot's network in Central and Eastern Europe and provides additional integration benefits. [The partnership] will also give the Czech national carrier development direction by being able to access the Russian market and, in particular, the Moscow hub".

Poluboyarinov says Europe is the priority for Aeroflot, but Asia and North America are also areas of interest. International expansion is not the only priority though. Aeroflot is also keen to develop its domestic market share, which lags behind that of S7. Russia's market is growing fast, with a 29% increase in the first nine months of 2008.

Source: Airline Business