THE HEAD OF AEROFLOT PREDICTS A WAVE OF BANKRUPTCIES OF AIRLINES

The head of Aeroflot, Vitaly Savelyev, announced a possible wave of bankruptcies of Russian air carriers by this fall. The reason may be the dumping policy of the majority of companies rushing into the battle for passengers.

We should remind our readers that the complete termination of flights of the Russian airlines due to the pandemic took place at the end of March. Only those liners that were engaged in the transfer of Russians to their homeland from the territory of foreign countries, as well as those transferring the foreign citizens back to their countries, continued to fly.

Before going under the full quarantine, the aviation industry had already suffered losses of up to half a billion rubles per day.

The airplanes departing from Russia had to make one-way flights being almost "empty". According to the forecasts of the Bain & Company experts, Russian carriers will miss about 360 billion rubles in February-September this year. At the same time, the authorities are going to allocate about 23.4 billion rubles to the industry in aid, providing a deferral in paying taxes.

Savelyev cites last year's statistics, indicating an oversupply of offers from the airlines by 12-14%. In conditions when the market has almost halved, and many companies continued to operate, the excess supply becomes several times larger. It is quite natural that such a policy of the management of the airlines can lead to sad financial consequences at a certain moment.

Almost 97% of all the traffic in the country is divided between 20 leading airlines, notes Saveliev.

However, there are about a hundred companies in the domestic air traffic market that have the necessary licenses. Even if we take into account that about a half of them (48 companies) actually conduct business, it should be admitted that 28 companies occupy only 3% of the market and might go bankrupt in the nearest future.

Low-cost carriers (such as Pobeda) are more likely to quickly recover from the crisis caused by the spread of COVID-19 than the large companies such as Aeroflot. Those who previously worked in the segment of minimal costs are able to restore their previous profitability faster, believes the head of Aeroflot. It is more difficult for ordinary companies, for which the previous operating and financial costs are not compensated for by maintaining the same profitability.  

According to Vitaly Savelyev, many Russian airlines are forced to suffer significant losses against the backdrop of the pandemic and the suspension of the air services for a fairly long time.

The situation, forcing the companies like Aeroflot to move to the low-cost airline segment, reducing ticket prices, has not only positive, but also negative consequences.

The experts are wondering whether the current subsidy program can save the industry. The program provides for the payment of compensation for the loss of each passenger in the amount of 356 rubles. It is known that the Federal Air Transport Agency plans to extend the duration of the subsidy program by increasing the amount of compensation to 840 rubles. Thus, the industry still has a chance not to go bankrupt.