About a year ago, Russian former charter operator Nordwind Airlines undertook a drastic change in strategy by deciding to launch scheduled flights. Now, in 2017, barely a month goes by without the airline announcing the delivery of another aircraft, the introduction of a new service, or a new rebranding plan.
“For now, the key to the company’s success is to appreciate the identity of each passenger,” Joakim Everstin, the head of innovation and technology evangelist for Sabre Travel Network, said in an interview with Russian Aviation Insider in June this year. “For they are not mere figures in a table indicating the airline’s passenger traffic but are all individuals. If you treat each person with due respect and provide them with a relevant service, these passengers will come back again and again.”
These ideas, articulated by a representative of one of the leading providers of solutions for the global travel industry, fittingly describe what the top managers of Nordwind, an affiliate of Pegas Touristik, have in their minds right now.
It all began with charter
Next year Nordwind Airlines celebrates its 10th anniversary: the legal entity named Severny Veter LLC (Russian for “northern wind”) was established in the first half of 2008.
Prior to 2014, the charter airline, jointly owned by Pegas LLC (which holds 95.1% of NordWind’s authorized capital) and Karine Burkey (4.9%), one of Pegas Touristik’s top managers, was on a steady growth path. The carrier had been adding capacities, reliably delivering tourists to the holiday destinations most coveted by Russian travelers, and was achieving economic numbers that propelled the company into the Top 10 of Russia’s airlines. However, the depreciated ruble in 2014-15), the ban on charter flights to Turkey between the fall of 2015 and the summer of 2016, and a complete cessation of Egyptian destinations since November 2015 until present upset the applecart for both the tour operator and its subsidiary airline.
In September 2014, Nordwind Airlines had 27 aircraft at its disposal (one Airbus A320, eight A321s, four Boeing 737s, four 757s, seven 767s, and three 777s). It began 2015 with cutting its fleet down by one third. Nine airliners went out of revenue service in line with the carrier’s new optimization program, including its only A320, three 757s, and five 767s (of which three were placed in storage). At that time the airline explained to Russian Aviation Insider that the capacity reductions had been triggered by a collapse in demand for holiday destinations. It also stated that all the phased-out aircraft would be “turned back to lessors on mutually agreed terms”.
It is worth mentioning that in November 2014 Nordwind had, for the first time in its history, registered a drop in passenger traffic (down 39% year-on-year). The downward trend continued in December with a 7% decrease. Despite that, the overall statistics for 2014 showed that the airline had served 4.5 million passengers (22% more than in 2013). Even though passenger turnover in 2014 decreased by 1.2% over 2013, if we take into account the performance of earlier years, the indicator demonstrated double-digit growth.
The following couple of years turned out to be the toughest time that the airline has had to face. In 2015, Nordwind served 40% fewer passengers compared to 2014, whereas last year that figure declined by a further 33% over 2015. The passenger turnover was shrinking at a double-digit rate. In 2016, the company’s passenger traffic constituted 1.8 million, 2.5 times less than in 2014, which had so far been the record-breaking year in the airline’s history. However, this year Nordwind is back on track to register a rise in passenger traffic: in January through May it served 789,000 travelers, up 120% year-on-year. In the same period, the operator’s passenger revenue kilometers grew by a modest 7.5%, reaching 2.1 billion. Another factor indicating that the company is currently enjoying a transformation period is the average passenger trip mileage: in the first five months of 2017 it constituted 2,700 km, two times less than in the same period in 2016.
The first clear signs of the company’s transformation were tangible in the spring of this year when its top management announced new fleet expansion plans and the airline’s eagerness to enter the domestic market, whilst also launching a rebranding campaign. The latter will not just cover aircraft exterior/interior renovations, but also denotes serious service quality improvement efforts.
The news about fresh aircraft deliveries to Nordw started to come in batches. By early July, the company’s fleet had grown by eight airliners to reach a total of 18 units (four 777-200ERs, seven 737-800s, and seven A321s). Among the newly received aircraft were, for example, two brand-new A321s and three one- or two-year-old 737-800s. Moreover, the carrier is expecting to receive 10 more aircraft by April 2018. In particular, during this summer, Nordwind is planning to add a couple of A330s to its flight schedule.
Nordwind Airlines has already emphasized that “a fresh and well-balanced fleet comprised of best-selling Airbus and Boeing aircraft” brings an optimum opportunity to passengers both in terms of market capacity and flight length. In a press release dated June 28, 2017, the operator stressed how it had become more active with regard to domestic flights. More recently, the company welcomed the millionth passenger on its scheduled network; at the same time, the number of its passengers served on regular flights between January and May grew 30 times year-on-year.
As of late June, the airline’s route network had grown to include 33 Russian destinations, offering an overall total of 500 weekly frequencies (75% of the company’s charter flights have been converted to scheduled operations). Nordwind now claims to offer the biggest route network, with 25 destinations, from Simferopol airport in Crimea.
Hub model of travel business
The aforementioned facts are just the tip of the iceberg though. The changes that the company is experiencing are much deeper, reveals Imran Nazarov, sales director for Nordwind Airlines and a senior manager at Pegas Touristik.
In the fall of 2015, for example, at a meeting with representatives of West-Siberian travel companies, Nazarov confirmed the development strategy Pegas Touristik was to adopt within the new economic environment. The optimization process has since been finalized, so that today the company is striving to dynamically develop its product lines and all other services.
That new strategy will allow for the steady extension of Pegas Touristik’s product line even during a slump in demand. “We have never had as many as eight or nine winter offers from Novosibirsk before,” Nazarov pointed out, adding that this strategy was achievable through the optimization of the flight programs of the two affiliated carriers, Nordwind and Pegas Fly, by redirecting some of the tourist products to regular flights, a policy which generates regional tourist flows to Pegas Touristik’s major hubs. “We have launched scheduled flights inside Russia; this will give us a chance to increase the number of domestic flights to 20 by the summer. We will use a mix of regular flights and charters to deliver our passengers to major hubs and then to holiday destinations.”
As of 2017, Nordwind’s route network includes three hubs: Moscow’s Sheremetyevo, Simferopol (with two aircraft based there), and Sochi. Pegas Touristik will remain present at the two southern airports even during the winter period.
Face the customer
Nazarov says Nordwind is not looking to compete with the major players on the Russian market: the aim is rather to develop a new product. “Increasing the number of passengers within a short period of time is not a goal in itself for us,” he explains. “What matters is the quality of the product. The winner will be the airline able to offer passengers a satisfactory service. Customers do not need a ‘one-size-fits-all’ approach, but rather warm and positive emotions on board the aircraft. We will not be selling seats in the cabin, we will be selling relationships with our passengers.”
Nordwind will use the introduction of its new aircraft (including those which are aimed to replace the carrier’s existing fleet) as one of the positive factors on which to build its new product. “The fresh interior trim, the new livery, the new inflight entertainment system that we will be installing on all our aircraft, are all highly important. Today, passengers have a wide spectrum of services to pick from, and we have to offer them the very best,” Nazarov stresses.
Nordwind Airlines hopes its efforts to renovate will bear fruit in the coming years. Although he specifies no target dates or figures, Nazarov accepts that “everything will depend on whether or not the market situation contributes to the measures we are undertaking (human and capital investments, the new IES, passenger support at airports, etc.); the strategy has to demonstrate sustainable growth to guarantee any success.”
Chances are high that at some point in time Nordwind Airlines will completely switch to online sales. “The new generation of passengers are favoring online travel services,” Nazarov notes. “Whether we want it or not, package tour sales will go down in future. Our Western colleagues have already got the idea. The person who earns money and can afford buying stuff values time most of all. And such passengers will be choosing a package tour via the internet rather than at a travel agency. That is why those air carriers which are in the passenger charter business today must think about tomorrow, about creating a product that will meet customer needs.”
Nazarov also says that although the carrier is investing a great deal in its future development, the financial resources available to it are not limitless. There are many variables to consider too. The general market situation has pushed lease rates down, for example, and in the summer period almost all flights prove profitable. “Our major goal is not to chase after huge money. The task is to avoid losing much while investing in passenger loyalty.”
Apart from Nordwind Airlines, Pegas Touristik also owns Krasnoyarsk-based carrier Ikar (Russian for Icarus). That operator received a new impetus for development in 2013 and is now operating under the name of Pegas Fly. Ikar is owned by Karine Burkey and is headed by Andrey Lengarov, a former Nordwind CEO.
“Since Ikar entered the market of charter air transport services, all its flights have been performed on behalf of Pegas Touristik,” Legarov explained in an interview with Russian Aviation Insider in late 2015. “After a year of cooperation our partners made a very attractive offer to use the Pegas Fly trademark when rendering our flight services. We gladly accepted it, knowing that such a name, synonymous with the world-famous travel agency brand, would facilitate the process of winning over customer loyalty and would be crucial for the new carrier.”
Pegas Fly served 505,000 passengers in January-May 2017 (up 96% year-on-year); its revenue passenger kilometers reached 2.5 million, outpacing the achievements of Nordwind Airlines by nearly 20%. The Federal Air Transport Agency reports that Pegas Fly’s fleet is half the size of Nordwind’s: the airline operates just two Boeing 737-800s and six 767-300s.
By Artyom Korenyako
Russian Aviation Insider
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