Airline chief reveals details of 9m001 performance, confidence in the current situation and outlines future plans (1,837 words)

Published: 10/25/2001

Olga Pleshakova, General Director of Transaero, has reported that in the January-September period, the privately owned airline increased flights by 5.3% to 4,700, carrying more than 350,000 passengers: an increase of 4.9% on the previous year. In revenue terms, turnover increased by 3.2% to $60m with a seat load factor of 64% and punctuality high, with 97% of flights on time over the period. Pleshakova did not reveal the comparable figures for load factor in the first nine months of 2000, but said that they were "almost unchanged", so begging the question as to why they were not released. Domodedovo In terms of the airline's move to Domodedovo Airport, Pleshakova said that the schedule had been unaffected and the airline's flights did not experience any additional delays, even under the Domodedovo system of categorising a delay as being 15 minutes after the scheduled time as opposed to Shermetyevo's 30 minutes, and she claimed that, since operating from the new airport, delays have continued to fall. According to Pleshakova, the move has provided the airline with a higher level of service and an airport that has a significantly greater understanding of the needs of its business, even if not all the facilities that Domodedovo promised the incoming airline have been immediately available. Pleshakova singles out the high-speed rail link between the airport and Paveltesky Railway Station in the centre of Moscow, that has been delayed, she says, by the Ministry of Railways' inability to raise sufficient funding on time. The railway station, however, will open on the 15th November under the same roof as Domodedovo Airport, with the improved rail link coming at a later, unspecified date. Service Improvements Between January-September 2001, Pleshakova said that the company had improved services to business class passengers, the airline's core market, through the installation of new business class seats on its Boeing 737-700, accompanied by an extended AV offering for business class passengers of a choice of 50 DVDs on both the 737-300 and -700, a substantial increase from the previous 20. The company has also improved the on-board catering for both business and economy classes. Debt In terms of the airline's reported debts left at Shermetyevo, Pleshakova said that, in June 2001, the company paid all outstanding debts to AeroMASH-AB that provides security at Sheremetyevo Airport, and the airport's refuelling facility. Outstanding debts to the in flight catering company at the airport have been substantially reduced and will be paid off soon. Pleshakov stressed that Transaero is ready to meet its financial obligations and during the January-September period, has repaid $9m of debts, including a loan from Sberbank. Traffic The events of 11th September 2001 have adversely affected Transaero, despite the fact that the company doesn't operate direct flights to USA. Pleshakova said that a proportion of passengers used Transaero to transit to the US through European airports, and this aspect of the airline's business has declined. She added that the crash of a Tu-154M belonging to Siberia Airlines (Sibir) en-route from Tel Aviv to Novosibirsk had also had a negative impact on the carrier, given that it is the scheduled carrier on the Moscow - Tel Aviv route. For several days after the crash, passenger numbers declined as Israelis flying to Russia chose to fly El Al, on the basis of perceived higher security. The situation has subsequently reversed itself, with Transaero in the first nine months being the largest carrier on the route. Pleshakova added that the troubles in Israel have also reduced tourist volumes to the country, but the airline had seen a pick up in traffic from Moscow to Pathos in Cyprus, suggesting a switch between the two destinations. Pleshakova claims that Transaero is as safe as El Al and said that, immediately following the terrorist attacks on the US, the company took measures to improve its security, including increased the number of personnel in the airline's security department. It also reviewed security at Russian and CIS airports serviced by the airline, to ensure that levels of security were adequate. Pleshakova warned, however, that not all airports understood the need to improve security and that, where the condition of equipment at some airport's was not acceptable, passengers are now checked by the airline's own staff. The current US action in Afganistan has had a minimal effect on the airline, although it did cancel one flight to Tashkent on 8th October at the start of the US bombing, when only two of the 80 passengers booked on the flight turned up at the airport. The flight restarted on 10th October 2001 without any problems. Insurance Pleshakova said that Transaero had welcomed the state's prompt decision to provide guarantees to insurance companies for war risks. The increased insurance premiums to provide the $500m of cover required by some countries are still a heavy burden for airlines to bear and she predicts that some airlines may find it difficult to fly after 1st November, as they are unable to raise the required funding in time. For Transaero, the cost of insurance has increased from $1.23 per passenger to $1.40. The policies are being written through the Moskva Insurance Company, which won the state guarantees replacing the airline's previous insurer, Ingosstrakh. Pleshakova said that Transaero had decided not to increase ticket prices under the winter schedule and, in contrast to some other operators, will keep commission to agents unchanged. An additional insurance fee of $6 will however, be levied on return tickets ($3 on a one-way ticket), although she points out that the charge is below the $10 being charged by some carriers. Schedules The airline is due to start its winter schedule on 24th October 2001, with the temporary suspension of routes from Moscow to Frankfurt, London, and Strasbourg, although flights to Frankfurt and Strasbourg will restart in December. Strasbourg's inclusion, according to Pleshakova, is due to specific demand from Russian travel agents. The suspension of the Frankfurt route in the winter schedule, however, comes just weeks after Transaero officials identified it as a growth area. Historically, London as a destination been loss making for Transaero, but Pleshakova says that the company is still reviewing the route's viability and may consider reinstituting the service around New Year or in early January 2002. She added that the routes to Europe are generally only profitable for the airline over the summer period. The company's traditionally profitable routes to Nizhnevartovsk (despite the fact that many carriers operate this route), Kazakhstan, Uzbekistan and Odessa remain intact in the winter schedule. Planned routes to the Baltic states and Yuzhno-Sakhalinsk, hinted at earlier this month, appear to have been dropped. The airline's route to St. Petersburg is also historically loss making, due to the proximity of the city to Moscow and the availability of a good quality rail service with frequent connections. As such, it appears likely to remain so, although the liberalization of rail tariffs may reduce some of the train's advantages. In terms of Transaero's other domestic operations, Pleshakova said that it intends to revive its strategy of developing its domestic regional route network, closed after the 1998 crisis, with a route opening to Tyumen on 29th October 2001, offering three flights a week. Pleshakova said that Transaero had considered opening a route from Moscow to Taiwan but the hostilities in Afghanistan would force a reroute making the flight both longer and more expensive. The company is therefore examining its plans to establish viability. In the summer schedule 2002, the airline plans to open more routes to Kazakhstan, with higher frequencies on domestic, German and Ukrainian routes, and Strasbourg expected to see continued growth. In an interesting revelation, Pleshakova said that Transaero was trying to arrange meetings with the management of other airlines' from Kazakhstan, Ukraine, Russia and other countries in the CIS to discuss a "co-ordinated policy" on routes where the companies operated in competition. According to Pleshakova, on some routes, supply is far larger than demand, with capacity offered exceeding passengers by as much as sevenfold on routes such as Moscow-Nizhnevartovsk, with Transaero flying daily, Aeroflot daily, Tyumenaviatrans (TAT) offering 14 flights a week and Vnukovo Airlines-Siberia Airlines (Sibir) offering 3 three flights a week. Pleshakova said that she had not had any response as yet to the call for a meeting to discuss the issue, but that Aeroflot had "expressed interest". Fleet In the changed circumstances after the general downturn in activity after the 11th September, Pleshakova said that the airline expects to negotiate better leasing terms on new foreign aircraft, in particular, the possibility of leasing an additional A-310. (Transaero currently operates one A-310 delivered in December 2000, at the time reported to be one of two aircraft on order from the airline). Pleshakova said that the A-310 is not the perfect fit for the airline's requirements and that Transaero does decide to lease an additional one that this will be on the basis of renegotiated terms. She also did not rule out the leasing of other aircraft, such as the B-737-300 or B-737-500 or B-737-700, which, she believes, are more suitable to Transaero's routes. In terms of current leasing agreements, Pleshkova said that she was also considering re-negotiating better leasing terms and the potential replacement of some of the Boeing B-737-200s currently in operation, although it is unlikely that all five aircraft will be changed, given that they are in good condition and the airline is satisfied with them in operational terms. Transaero's current fleet comprise five Boeing 737-200s, two Boeing-737-700s, one Airbus-310 and an Il-86 that is currently leased to a carrier based in Voronezh: either Polet or Voronezh Airlines. Pleshakova said that a deal was currently being negotiated with Ilyushin Finance (IFC) for Tu-204s, but claimed that, while IFC had won the government guaranteed leasing tender, the planned Transaero order was not considered to be eligible and therefore financing issues for any Transaero deliveries remain unclear. She did confirm that the airline was ready to consider leasing Tu-204s, Tu-214s and Il-96s in the future, if financing became available. Passenger Numbers Pleshakova said that the company expects the number of passengers carried by the airline in 2001 to be on a par with 2000's 430,000 passengers. She added that the target of 500,000 is unlikely to be reached, given heavy price discounting by other airlines. Strategy Pleshakova also said that Transaero had prepared a strategy plan for the next 10 years that will be disclosed on 9th November, when the airline celebrates it 10th anniversary. Despite her upbeat presentation, Transaero, with its heavy dependence on foreign routes, is undoubtedly more exposed than most Russian carriers to a soft global air transport market. It has, however, been here before at the end of 1998, and in the past has proved itself to be both a resilient and robust player, that has surprised both the market and this publication, by its ability to be flexible in changing market conditions.

Article ID: 2855