Airline paints pessimistic picture for 2000

Published: 3/16/2000

Domodedovo Airlines (DA) has stated that, despite reporting a 27.1% increase in domestic volume during 1999 and 13.8% overall, it does not expect to see any increase in air traffic in Russia during 2000. According to Vladimir Barchenko of DA, airlines will be forced to increase tariffs to help offset escalating fuel costs. He said that DA increased tariffs in ruble terms by 300% last year, while aviation fuel prices increased by 400%. Barchenko commented that traffic growth was evident when a ticket from Moscow to Sakhalin, one of the airline's key routes, cost Rb 90, at a time when the average pension was Rb 132.5. Now the same ticket costs Rb 6000, compared to an average pension of Rb 600. Despite this rather gloomy outlook the airline increased its passenger load factors by 12% over the period to 72.2% and saw substantial increases in its freight business of 46.6% on domestic routes to 11,890 tonnes 11.7% on international routes to 7490 tonnes. It is also important to note the DA's outlook probably reflects their own particular position after their problems at the start of the year, rather than the sector as a whole. The FSVT has recently been reasonably bullish about volume growth in the area of 3-4% in 2000, just above the expected GDP growth rate. Barchenko further stated that DA was content with its current fleet and that the airline does not expect to renew the fleet in the near future. He did however, criticise the lack of progress by the state on the development of a workable leasing scheme for aircraft renewal. Given the airline's heavy dependence on Il-62s on long haul routes with rising fuel prices, it seems likely that if the airline had a viable leasing scheme it would be seeking to substitute those aircraft on the routes to the Far East in particular. If margins are under pressure with reasonably high load levels lower fuel costs are one of the few variables that can be attacked with the benefit of significant savings given the relative lack of elasticity in ticket prices. This problem is becoming even more acute as the airline is already under considerable regional pressure on ticket prices. With one regional government even talking about providing a regional carrier with the funds to go into competition with the Moscow airline on routes, which it has, a virtual monopoly. DA's ongoing debt problem with the government continue, with DA threatening that they will refuse to carry state employees until the debt is fully paid. DA claims that, while the state has paid off Rb 74m ($2.64m), it still owes Rb160m ($5.71m) for previous years. Barchenko added that the airline's finances were also being undermined by the law under which disabled passengers may travel free, with the cost of the tickets theoretically being paid for by the state. In practice, disable passengers have the right to travel free but airlines have no rights to demand payment. As a result, DA restricts free travel to disabled veterans of the Great Patriotic War. Other disabled people pay full tariffs and then take the airline to court for a refund. DA's stand-off with the government shows no signs of abating. Its somewhat gloomy projections, despite a very respectable set of 1999 figures, reflect this state of affairs.

Article ID: 1680