Link up between Aeroflot and TNT reflects recovering express package business in Russia

Published: 2/22/2000

Aeroflot and the Dutch-owned postal and courier group, TNT International Express, have agreed in principle to cooperation on joint express cargo shipment, with a final agreement to follow by April. The news of the deal came from Aeroflot. Press reports reveal that TNT has been reluctant to comment. The kind of agreement is of benefit to Aeroflot, whose cargo operations carried 90,300 tonnes last year, through providing access to a global agency covering 70 countries. This creates the potential for a better return from its lack lustre cargo operations, through higher volume and load factors. Aeroflot has said that it could add as much as 1% to its revenues if an agreement is successfully concluded, in which Aeroflot and its partners would become a TNT priority carrier for its network. Cargo has always been an area of some discussion within Aeroflot. A number of plans have been mooted to develop the carrier"s own express carrier service and a specialist cargo airport within the Moscow area, possibly from one of the under-utilised military air transport service (VTA) bases in the region. The reasons historically for trying to go it alone are principally those of pride and, from other factions, a delaying tactic for a business traditionally focused on heavier cargos and transit business. In May 1999, a deal with DHL for cargos over 50kg was the first move away from this stance and it now seems that Aeroflot has finally accepted the need for partners in this area, in order to develop what could become a very fast growing business, with a modest economic recovery in Russia. The reasons for the deal not being signed immediately may twofold. Firstly, TNT"s desire to establish the abilities of the airline"s cargo operations and secondly, some concerns within Aeroflot itself. The move to a dedicated cargo airport was motivated by the costs at Shermeteyevo, which needed to be substantially reduced in order for Aeroflot to be competitive. There, an independent contractor, owned by former Aeroflot managers, provides cargo handling on the ground. This has proved a difficult problem for the airline to resolve. The TNT deal, if it is to be viable, will undoubtedly require some sort of resolution in this respect. Aeroflot"s dedicated and combi cargo operations still need considerable investment, given the age of the fleet and the ability of the aircraft to handle modern cargo containers. In particular, the Il-76 fleet is in need of urgent replacement. The Il-96T, proposed as successor, still waits funding for completion and the DC-10 operated by the airline is also reaching the end of its life. For TNT, Russia is proving to be a reviving market, with turnover up by 2.25% in 1999 and by 14% year on year in January. This indicates that the recovery from the 1998 financial crisis, which led to a 50% slump in volume in the latter part of 1998, may finally be here. TNT has an estimated 12% of the Russian market and is in second position behind DHL. In 1998, the carrier is reported to have carried only 30,000 parcels through its Russian operation and the crisis was followed by a period of intense price cutting and cost cutting among the firm"s 180 employees. DHL, the largest carrier in Russia with an estimated 51% of the market, reported that volumes had increased by 10% in 1999, after a fall of 32% in 1998, bringing it back to where it was at the beginning of 1998, according to Garry Kemp, Director of DHL"s CIS operations. DHL has invested over $50m in Russia in the last 15 years. Despite this fact, the market represents only 1% of the firm"s business, representing 1.5 million packages in 1999. Both carriers report that they are seeing increase in inbound packages, which they consider to be a good indicator of the market"s health and are therefore positive about developments in 2000 and beyond. Associated articles: www.concise.org 26th May 1999;8th June 1999;6th September 1999;11th October 1999

Article ID: 1458