Good figures show some positive management from the Siberian carrier

Published: 2/21/2000

Krasair seems to have had a good 1999 given the circumstances, both in terms of revenues and passengers, but it is unclear from reports just how good it actually was. In recent national and regional press reports, the airline has referred to an increase in passenger traffic of 28% over 1998, carrying 763,168 passengers (although its reported figure of 615,000 passengers in 1998 would make the increase a more modest 19.5%). It claims that this has earned it the position of Russia"s third largest carrier. Krasair has also said that its load factor has improved from the 58%, recorded at the 10-month stage, to 62.2% in Russia"s traditional soft winter season. At the ten months stage, however, the airline reported that it had carried 677,300 passengers: a credible increase of 29.3% over the same period in 1998. The airline attributes the improvement to the focus away from those interregional routes that are considered to be non-viable and the expansion of other interregional routes from 20 to 41, in part filling the vacuum left by the virtual withdrawal of Transaero from the region, which has resulted in a code sharing agreement between the two carriers. The airline has not made any mention of the fate of the international business, which showed a fall of 9.9% in passenger numbers in the first ten months of the year. In poor conditions, the airline reported at the ten month stage that it had kept prices stable in the face of escalating costs by improving its efficiency and reducing staff by 13%. The information so far released by Krasair does not cover profitability for 1999, but it seems unlikely that the airline will show any growth and flat profits should be considered to be a good result, given the lack of pricing elasticity and higher fuel costs, which have increased three-fold since the beginning of 1999. According to Krasair, without the impact of price rises in fuel, it would have had a substantially better result. The uncertainty over fuel prices and other factors is causing it to be substantially less optimistic about prospects in 2000, with passenger volume expected to grow by only 4% and cargo by 2%, compared with the dramatic growth of 1999. Revenues are still expected to grow by 89% to 3.3 billion rubles ($118m). During 2000, the airline intends to add more airports to its network and to expand into business aviation. Reports in the Russian press suggest that Krasair management believes that the decline of local routes in Russia is likely to continue for another five-six years. It considers that any recovery will be driven not by demand, but simply by the fall in supply, as airlines go under. For the air transport industry as a whole, it predicts a decline for the next two years, followed by a period of stability of a further two years and then modest growth in the industry of 1.5%-2% a year. This is a view with which few will disagree, although four-year predictions in Russia are not the most reliable of quantitative techniques and, given macro growth figures, ongoing estimated growth of 2-3% is perhaps a little pessimistic. According to Krasair, too few of the country"s carriers are facing up to the fact that consolidation provides the only method of salvation in current market conditions. Be it through merger or alliances, the market must lose capacity, in order for it to become viable. It calls on the state-controlled sector to lead this initiative. Krasair"s aggressive purchasing policy of new aircraft - primarily the replacement of Tu-154s with more fuel efficient Tu-204s - suggests that the airline is reasonably optimistic about the future, reinforced by the nature of the financing of the aircraft, which makes them even more attractive. Further purchases support the airline"s strategy of servicing Krasnoyasrsk as a hub airport and it will take delivery of two 76-seat Tu-134s and a third with VIP cabin for its fast growing business service. The airline is currently planning to replace its obsolete fleet of three An-24s and four An-26s with the new Antonov An-140, which has recently been tested in the low temperature conditions of Yakutia. The airline states that it has chosen the aircraft carefully; undertaking extensive trials of the aircraft on its short and medium haul routes. To date, however, no orders have been placed.

Article ID: 1457