Russian airlines’ cumulative losses decrease in H1

Major Russian airlines improved their operational performance (Photo by Leonid Faerberg / Transport-Photo.com)

Cumulative loss of Russian airlines at the end of the first half 2016 stood at 13.9 billion rubles. Compared to the same period last year, when the country’s carriers posted 26.5 billion in losses, this is an improvement by almost 50%.

According to the Russian Air Transport Operator Association (RATOA) revenue from international service increased from 5.4 billion rubles for H1 last year to 8.5 billion this year. Domestic lines also showed improvement, albeit in less losses – 22.3 billion rubles against 31.9 billion the year before.

The improvement of cumulative financial performance on international lines is not an indication of a turn-around in traffic numbers, which continue to slide. According to Federal Air Transport Agency, at the end of eight months of 2016 traffic on international routes decreased 26.5% YoY to 20.7 million passengers. At the same time, domestic traffic grew 5.7% to 37.8 million passengers. The total traffic declined by 8.6% to 58.4 million passengers.

RATOA holds that one of the factors that contributed to the improvement of the Russian carriers financial performance was a reduction of value-added tax (VAT) on domestic lines from 18% to 10%, introduced last year. At the same time Russian carriers cut labor and fuel costs by 14-15% and reduced overall operational expenses by 37%.

Another circumstance to consider is that last year Transaero’s huge losses had a noticeable negative impact on the cumulative performance. Exit of Transaero at the end of last year is one of the causes behind the positive dynamics.

However, in other aspects the costs increased. Aircraft lease payments continued to plague carriers’ balance sheets, growing at the rate of 67% for the period in question, to 133 billion rubles.
Russian carriers also paid 73.4 billion rubles (up 8% YoY) for airport services. Cost of meteorological services grew 11%.

RATOA does not rule out the optimistic scenario, which will see airlines’ cumulative losses further shrink until the end of the year. Reopening of charter connection with Turkey and possible restart of air service to Egypt may be the drivers behind the improvement.

Should the government approve the decision to lift the VAT on domestic lines, this will certainly also serve the cause.

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