Interview: Pavel Udod, Azimuth Airlines’ chairman on why Russian regional airlines were better prepared for COVID-19 crisis

Before Azimuth Airlines was founded, Pavel Udod facilitated launch of Superjet 100 operations with Yakutia Airlines in 2013 (Azimuth)

The COVID-19 pandemic restrictions cut Azimuth Airlines’ April traffic by 65 per cent – a relatively moderate loss compared to industry average. The airline even managed to climb to sixth position in the rating of Russia’s largest airlines, surpassed only by the much larger S7 Airlines, Aeroflot, Utair, Rossiya and Ural Airlines.

Rostov-based Azimuth has been successfully operating a fleet composed entirely of Russian-made Superjet 100s for almost three years. It started looking at larger western-built aircraft just before the coronavirus crisis hit. In an interview to Russian Aviation Insider ‘s sister publication ATO.ru, the airline’s co-owner and chairman of the board Pavel Udod revealed how the lockdown affected Azimuth Airlines’ fleet plans and why he thinks Russia’s regional airlines turned out to be better prepared for the air travel market stall.

How are things looking for you? Most of us are in the same situation, I presume. There were better times (laughs)

Azimuth Airlines was expecting to add three VIP-configured Superjet 100. Are these plans still in effect. They are, we are expecting the first delivery before the end of this year. Azimuth will be the operator of these aircraft, but the business aviation project will be managed by another company, called Slava. It will be in charge of sales and customer relations. The project is likely to launch in 2021.

And how about your plans to add larger aircraft – you were looking at Airbus A220s, have you put that on hold now? In fact, we haven’t. But the choice of type is not finalized yet, we’re still analyzing. We plan to introduce larger aircraft in 2021 or beyond, and we’re moving in that direction. So far we have not changed our schedule, we had no fleet expansion plans for this year, apart from the VIP aircraft.

In 2019 Azimuth posted net profits, what about this year? Well, considering what’s going on right now, we’re not nourishing plans to post profits. This year is unlikely to be the best in terms of financial performance, but the projected loss is sustainable.

Are you planning any layoffs? We will definitely not reduce our staff, maybe we’ll even take more people onboard, both for our business aviation project, and for regular operations. We are planning to add more Superjet 100s in 2021, so we need to train pilots in advance. But I must say, that’s unless additional serious risks appear, like the second wave of the COVID-19, then we’ll have to adapt.

Is there a basis for optimism in the current traffic trends and seat load factor? I’m cautiously optimistic, I’ve never been a pessimist. There is an upward trend in passenger numbers, it is clearly manifesting itself. For Azimuth Airlines, April was the toughest month. It was probably the same for most airlines. In April our seat load factor was lowest, at 42 per cent. In May it approached 50 per cent, and the average yield started to climb.

It’s hard to assess the June figures so far, but even the first days show that the seat load factor is going up. It is steadily above 50 per cent, and may be even higher at the end of the month. We’re increasing the number of flights. The booking trend is still very shallow, but the traffic is on the rise.

In May we carried about 37,000 passengers, up from 33,000 passengers in April. In June the projection is definitely over 50,000. These figures are certainly short of the same months of 2019, but the upward trend is obvious.

Looking back at these three years of operations, are you consent with the way this project is developing?  Azimuth is developing in line with its business plan, and until recently, even slightly ahead. Now, of course, we have had to introduce some amendments to the initial roadmap. But in this COVID-19 pandemic situation Azimuth Airlines proved its sustainability.

I believe regional air travel demonstrates the highest levels of viability in such crisis periods. Regional airlines have smaller fleets than major Russian air carriers, and a significant number of our flights are operated under state subsidy programs. Demand for regional and local air travel remains. So regional airlines found themselves less affected.

Azimuth continues virtually all of its direct inter-regional flights avoiding Moscow, albeit at reduced frequencies on some routes. Yet, we had to temporarily suspend connection between Moscow and cities like Krasnodar and Pskov.

At the same time, we continue paying airport fees, purchasing fuel and so on, so that debts don’t pile up. But we are negotiating leasing payment benefits, like everyone else.

Have you managed to arrange that with GTLK? [Azimuth’s all 11 SSJ100s were delivered under lease contract agreements with State Transport Leasing Corporation, known by its Russian acronym GTLK].It is coming together, but the negotiations are still underway. We’re moving in the right direction – negotiating payment intervals and dates. The lessor is conscious of our objective difficulties. But since the owner of our Superjet 100s belongs to the state through Transport Ministry, all decisions have to be coordinated with the state, which requires additional time.

We are confident that we’ll end up with an acceptable solution for all parties involved. At least, we have not received any demands from GTLK to immediately cover the entire leasing payments.

Are you satisfied with the way the government is supporting the industry through the ongoing crisis? Once again, the main factor, which softened the impact of the COVID-19 pandemic on regional airlines were the support measures for regional air travel extended by the Russian government in the recent years. [Namely, state subsidies for regional air travel and for leasing payments, as well as partially offsetting regional airlines’ investments into maintenance centres.] Not all of these measures are working 100 per cent. But we continue cooperating with the government on improving them.

An issue, which is still pending is loans for payroll for strategic enterprises, and Azimuth Airlines is one of these. If this is resolved positively, we’ll be able to sustain our staff and not send employees on unpaid leaves.

In terms of the latest measure [compensation to airlines for losses associated with traffic reductions], our share there is quite insignificant. Compensations are allocated for losses incurred between February and June. In February and March we did not experience traffic reductions, so we didn’t receive any offset. In April we did see traffic declines, and we were eligible for several millions of roubles. But there’s a stringent control of where these money go. For instance, we cannot pay for aircraft parking, because all of our aircraft continued operations.

Still, this support is also very important, although the final amount we received is not so significant.

Interview by Artyom Korenyako