Sibir's eight month figures suggest their goal of becoming Russia second largest airline may be achievable

Published: 10/6/1999

It seems that Sibir are well on the way to achieving their goal of becoming Russia's second largest carrier. At a press conference in Moscow, Vladislav Filev announced that in the first 8 months of 1999, the airline had carried 509,977 passengers an increase of 20.2% on the same period in 1998. Revenues had increased from 538m to 1.31m rubles, as a result of devaluation and higher volume. Dollar revenues however, declined from $84.7m for the period to $47.33m. The number of flights increased by 25.8% to 5,108, moving Sibir from seventh to fifth largest carrier carrying 3% of all Russian passengers, according to the FSVT. Cargo traffic also grew in the period rising by 47.3% in the face of an industry experiencing heavy falls. These increases were all the more remarkable against a background of fares rising by 42% and only in part compensating for the dramatic rise in the price of fuel, which rose by 300% in the period taking 50% of revenues compared with 32% in mid 1998 according to he airline's CFO Konstantin Koshman. The management however, predicts a potential breakeven for the full year, after a first half loss of 10m rubles ($0.5m) and a loss in 1998 of 27m rubles. For Sibir to win its coveted second place, it will be required to increase its passenger volume substantially from its present levels to 1.3-1.5 m passengers a year; a challenge given current market conditions, although it may be assisted by the condition of some of the major competitors. The most notable being Vnukovo Airlines, the current number two, which has serious problems, illustrated by the recent appointment of ex Aeroflot Director, Alexander Krasnenker after four General Directors this year. To drive growth Sibir proposes to expand its affiliated network as a means of drawing passengers to its flights, adding to relationships currently in place with Tomsk, Barnaul and Kemerovo in Western Siberia, which currently generate over 30% of their volume. The company is therefore looking for potential 'partners' in cities in the rest of Siberia and the Far East. The servicing of the additional feeder relationships according to the company will come through the development of hubs at the current base in Novosibirsk and Vnukovo in Moscow. The company stated that they planned to become the main company at Vnukovo Airport by acquiring a series of licences to fly to a wide variety of destinations in Germany, Central Europe, the CIS and Southern Russia. Although reports in the market have said that the airline is in discussions with East Line regarding a possible move from Vnukovo to Domodedovo, which if followed through, would see them joining Vnukovo Airlines, which abandoned Vnukovo Airport earlier this year. It seems unlikely scenario in the short term, although East Line is undoubtedly a powerful advocate of the virtues of Moscow's third airport. In terms of route development the airline announced that they developing ticket deals offering through flights using multiple Sibir flights as well as offering transit through Novosibirsk to international destinations ie. Germany- Novosibirsk - China. As part of this process, the airline stated that it intended to become a member of IATA and the organisation's clearing house to give further ticketing flexibility. The company stopped dealing with the Russian consolidator, Transport-Clearing Company in September. Direct selling of tickets through their expanding branch network both domestically and internationally in Germany and China, has proved according to management, to be an effective way of generating additional traffic. As though emphasising the problems at Aeroflot regarding management accounting and also recognising the weakness of many Russian airlines, the airline said they were investing heavily in systems to allow management to establish the company's accounting position more quickly and manage it more effectively. According to Sibir, its current fleet is capable of providing most of its needs over the next five years, suggesting that the airline's reported cherry picking aircraft from troubled carriers has been successful in getting the right quality of fleet. The airline is also considering leasing additional aircraft in the form of a Tu-204 combi from Avialeasing or potentially a Boeing or Airbus. The airline emphasised however, that the decision would be taken on the strictly commercial criteria of 12 hour a day availability. Filev also mentioned that the airline might take delivery of a Tu-214 combi powered by PS90s, but that it was up to the respective regions to make the deal attractive to the airline. At the press conference, when questioned about the potential Vnukovo merger, Filev said that it was up to Krasnenker , as new General Director ,to make his own decision about taking the merger further. Filev denied, when questioned, that the collapse of the merger talks and his resignation from Vnukovo were triggered by the unwillingness of Russian Aviation Consortium to offer 50% of the merged company to Sibir in the light of Sibir's analysis of Vnukovo after an initial offer of 33%, saying that the shareholdings had not even been discussed. The latter seems to be a very unlikely scenario given Filev and Sibir's reputation.

Article ID: 949