Aeroflot Group posts its first annual profit growth for three years

Aeroflot Group, Russia’s largest airline conglomerate, served 60.7 million passengers in 2019 (Aeroflot)

Aeroflot Group, which includes premium segment airline Aeroflot, low-cost carrier (LCC) Pobeda Airlines, medium-segment operator Rossiya Airlines and Russian far eastern regional carrier Aurora Airlines, has published its consolidated financial statements, issued in accordance with new International Financial Reporting Standards (IFRS 16), which show a 2019 net profit of 13.51 billion roubles (US$215 million).

Aeroflot Group achieved all its key operating and financial indicators in 2019, with a nine per cent increase in passenger numbers to 60.7 million leading to a 10.8 per cent increase in revenue, which totalled 677.88 billion roubles.

“The results for 2019 must be considered in the context of a number of external factors. The year began with consistently high fuel prices and foreign exchange pressures on the non-roubles component of our costs, which put pressure on our results for the first quarter of 2019,” states Andrey Chikhanchin, Aeroflot’s deputy chief executive for commerce and finance. “In the second quarter, we saw a rise in operating fuel costs following the closure of Pakistan’s airspace, which led to longer flight times to destinations in Thailand, India and Vietnam and required lower passenger loads. During the summer season we were working against the high base effect of the same period in 2018, when Russia hosted the FIFA World Cup. Nevertheless, Aeroflot Group managed to improve its performance due to high demand in the summer season and a substantial reduction in the fourth quarter loss from 16.3 billion roubles in 2018 to 6.8 billion in 2019,” Chikhanchin adds.

In the year, an increase in passenger traffic meant revenue from scheduled passenger flights increased by 12.2 per cent year-on-year to 557.13 billion roubles, whilst revenue from charter flights decreased by 1.1 per cent to 37.44 billion roubles. Cargo revenue rose year-on-year by two per cent to 19.28 billion roubles as cargo and mail volumes grew by 4.3 per cent.

2019’s operating costs increased by 12.1 per cent year-on-year to 617.22 billion roubles, primarily due to an increase in operations supported by a 10.3 per cent year-on-year growth in capacity.

In the 12-month period, aircraft fuel costs increased by five per cent year-on-year to 190.88 billion roubles. This was mainly due to the group’s operational growth and an increase in carrying capacities.

Excluding fuel costs, overall operating costs increased by 15.5 per cent year-on-year to 426.34 billion roubles.

With the introduction of the new IFRS 16 financial reporting standard, depreciation expenses have become one of the most significant cost items as they affect all aircraft on the Group’s balance sheet.

Staff costs increased by 12.4 per cent year-on-year to 92.41 billion roubles, mainly due to an increase in the number of flight crews to support the Group’s network growth.

Aircraft maintenance costs increased by 26.2 per cent year-on-year to 30.57 billion roubles, due to an increase in aircraft servicing, which in turn was down to an increase in the number of flight hours and the depreciation of the rouble, as well as investments aimed at maintaining product quality.

As a result of these factors, the Group’s EBITDA totalled 168.92 billion roubles, with a margin of 24.9 per cent.

Given all the factors mentioned above, Aeroflot Group’s net profit for 2019 amounted to 13,512 million roubles.

As of 31 December 2019, its total debt decreased by 13.1 per cent year-on-year, to 573.70 billion roubles. The reduction is the result of adjustments to the valuation of leases following the strengthening of the rouble against the dollar.