Aeroflot eyes joint ventures in Europe and Asia

Aeroflot believes that global alliances are losing traction and joint ventures are the next move (Photo by Aeroflot)

Russia’s largest carrier Aeroflot has started negotiations with several European and Asian airlines regarding forming joint ventures

Russia’s largest carrier Aeroflot has started negotiations with several European and Asian airlines regarding forming joint ventures, Giorgio Callegari, Aeroflot deputy CEO for strategy and alliances said at a European Aviation Club meeting in Brussels, Aviation Week reports. He mentioned ongoing talks with several operators but refused to name them, citing confidentiality agreements.

Callegari maintains that cooperation within joint ventures would be more efficient compared to the global alliances, which are loosing traction. Aeroflot has been a SkyTeam member since 2006. The airline’s executive emphasized the necessity to move on to a higher level of collaboration and a being involved in a more intense joint business with partners.

Commenting on why Aeroflot has decided to focus on Europe and Asia Callegari explained that the group views Europe as a gateway to Americas, whereas Asia has been demonstrating highest commercial aviation growth rates. He also said Asian market was the most promising globally.

Aeroflot’s executive pointed out that Aeroflot’s double-digit growth rates may actually be an obstacle to forming a joint venture, as it may intimidate potential partners. “It is difficult for an established carrier in Europe with a 3% annual growth to find an acceptable arrangement with a carrier that is growing very fast,” he said to Aviation Week.

In the first half of this year Aeroflot’s traffic grew 12.2% year-on-year, to 13.4 million passengers. Its revenue for the same period grew 24%. The group’s total traffic, including that of its subsidiaries Rossiya, Pobeda and Aurora, grew 10.3% to 19.7 million passengers. From 2009 to 2015 the carrier’s volumes had grown from 11.1 million passengers to 39.4 million. The group’s revenue quadrupled from 106.1 billion rubles (about $3.5 billion) in 2009 to 415.2 billion rubles (about $5.8 billion) in 2015. The load factor improved 8.1 p.p. and reached 78%, and the fleet average age reduced from over 15 to 6.4 years.

Aeroflot’s objective is to make it to the Europe’s top-five airlines rating by 2025. At the end of 2015 the carrier held seventh position in the list of European airlines by traffic, and 24th in the global airlines rating, having risen from 15th and 68th lines, respectively, in 2009.

Industry experts believe that forming joint ventures is a way to globalization in commercial aviation. The industry today is regulated by Chicago convention, which obliges the carriers to act in the interests of their state. This provision is an obstacle to creation of trans-national companies.

Global alliances were the first instrument of overcoming this restriction. They enable airlines to co-ordinate their operations while maintaining financial sovereignty. Joint ventures imply a deeper level of cooperation, including joint management of financial flows. Such form of cooperation offers more opportunities to the partners, enabling them to set off passenger traffic fluctuations and compete against the fast growing low-cost carriers.