In its newly published 2018 financial statement – which has been drawn up in accordance with International Financial Reporting Standards (IFRS) – Russia’s Aeroflot Group suffered a four-fold decrease in its net profits last year.
The statement shows that the group’s operational expenses exceeded its revenues in the year, with the main contributors to the profits slump being the weakening rouble and an “unprecedented fast increase” in the average cost of jet fuel, the group says. Unlike other loss-making Russian air carriers, the Aeroflot airline managed to remain in the black due to “other revenues” of 58.4 billion roubles, a contribution that, industry experts believe, includes royalties paid by foreign airlines for rights to overfly Siberia. These payments are estimated at between US$500 million and US$700 million annually.
In 2018, Aeroflot Group posted net profits of 5.7 billion roubles, down from 23 billion in 2017. Revenues climbed by 14.8 per cent to 611.57 billion roubles and the group’s net debts increased from 49.88 billion to 67.47 billion roubles, whilst its leverage coefficient rose from 0.9 to 2.
Along with the title carrier Aeroflot, which is positioned as a premium carrier, the group includes mid-market-oriented Rossiya Airlines, low-cost carrier (LLC) Pobeda Airlines and far-eastern subsidiary Aurora Airlines. The group’s support business is represented, amongst others, by Sherotel, which manages the Sheremetyevo-based Novotel hotel, catering company Aeromar and aircraft maintenance services provider A-Technics.
Despite the deteriorating financial performance, the group enjoyed an 11.1 per cent traffic growth last year, as its airlines collectively carried 55.7 million passengers. The international segment added 9.7 per cent (24.7 million passengers), with the remaining 31 million travelling domestically, a 12.3 per cent increase on 2017. Overall, the group’s traffic growth outperformed the market, which grew on average by 10.5 per cent.
Despite these positive trends, industry experts point out that the operational expenses total of 591.9 billion roubles, of which 181.9 billion accounted for fuel costs, exceeded the revenues generated by transporting passengers and freight shipments. Revenues for these two segments reached a combined total of 553.2 billion roubles, some 534 billion (up 16.6 per cent year-on-year) and 18.9 billion (up 14.4 per cent), respectively.
As reported previously by Vladimir Tasun, the head of Russia’s Air Transport Operator Association, the country’s airlines’ collective losses for last year are estimated at 50 billion roubles (US$770 million) due primarily to surging fuel costs and the depreciation of the national currency.
“Across the group, jet fuel prices increased by 36 per cent which, because of the group’s consumption volumes, led to an additional cost burden of 48 billion roubles. The depreciation of the rouble created additional pressure on the financial results, given that almost half of the company’s costs are foreign exchange-denominated,” comments Aeroflot’s deputy general director Andrey Chikhanchin.
In summary, the group’s results reflect the general tendency of declining profitability due to surging expenses. The fact that Aeroflot managed to stay is the black is a fortunate exception to the state of the rest of the Russian air travel industry.
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