Russian carriers respond to crisis with fleet modernization

When crisis strikes, some players leave the market, while others increase their efficiency through fleet modernization (Photo by Leonid Faerberg / transport-photo.com)

The ongoing crisis in the Russian commercial aviation industry caused by a plunge of passenger traffic, especially on the revenue-generating international routes, is reshaping the market landscape, with several airlines having either left the scene or downsized. The fleet of the Russian carriers is also changing – in numbers and types.

As shown in Diagram 1, airlines respond to the crisis challenge in a natural way: by downsizing their capacities as much as possible. Looking at the past five years, up until 2014 the Russian cumulative fleet (measured by millions of seats per year) was growing at fast pace, although growth rates decreased from 13.4% in 2011 to 6.7% in 2014. However, as the diagram demonstrates, the number of new seats stayed roughly the same, and the slow down was due to intensive phase out of older aircraft, especially Soviet-built ones. Whereas in 2011 their share amounted to about 10%, by 2014 it had shrunk to 3%. The bulk of passengers were carried on Airbus (48.7%) and Boeing (41,6%) aircraft.

Diagram 1. Russian airlines’ capacity dynamics (million seats per year) and variation rates (%)

The watershed occurred in 2015, when the growth gave way to a steep 19% decline. The decline is expected to continue into this year, since the chances of improvement of the macroeconomic situation are vague, and many carriers’ financial conditions are still in the red. If they don’t manage to generate revenue during the summer season, they are likely to find themselves in a critical condition. The irony is that since the summer seasonality has become more pronounced due to a number of factors, lack of capacity may also become a reality.

The way the capacity was used also changed in 2015. In the period between 2011 and 2014, almost half of the new fleet—40-60%, depending on the year—was used to satisfy the growing demand, while the rest was replacement of phased out aircraft. In 2015, by contrast, 100% of the new capacity was fleet replacement, whereas the share of phased out Soviet-built aircraft was less than 5%.

Diagram 2 shows deliveries by OEMs. Evidently, Airbus and Boeing are accountable for the vast majority of all deliveries. Another evident feature is that against the background of a steep reduction of new aircraft deliveries in 2015, the share of Sukhoi Superjet 100 looks quite healthy.

Diagram 2. Aircraft deliveries to Russian carriers, by OEMs

At the same time, the share of factory-new aircraft as a part of the total number of deliveries in 2015 exceeded 50%, whereas in 2010 it was no more than 20%. One is tempted to assume that under the conditions of the unraveling crisis Russian carriers continue to upgrade their fleets. But the reality looks somewhat more prosaic: in the current situation only several strongest carriers can afford fleet renewal, and these traditionally order new aircraft.

Diagram 3 shows distribution of aircraft deliveries by type in 2014-2015. The share of narrow-body Boeing 737-800 and Airbus A320 family aircraft in 2014 was 53%, and SSJ 100’s share was about 17%. Notably, the share of wide-body Boeing 777 and 767 was 11%. In 2015, the situation hardly changed. The total share of Boeing 737-800 and Airbus A320 family stayed at the same level of 53%, albeit at a slightly different proportion due to completion of several contracts. The share of SSJ 100 grew to 19%, Boeing 777 and 767 – to 12%.

Diagram 3. Delivery distribution by types in 2014-2015 (%)

In total, from the beginning of the 2014 crisis Russian carriers reduced their fleets by 22%. Over 250 aircraft were grounded or returned to lessors. The fleet of aircraft traditionally operated on long-haul routes and on flights to tourist destinations was reduced most. Thus, all of Boeing 747 aircraft were parked because Transaero was the only Russian operator of the aircraft’s passenger version. The Boeing 767 fleet was reduced by 69%, with only 9% new deliveries and only 22% still in operation. Compare to Boeing 767 with 42% phased out, 9% new deliveries and 49% still in service. Airbus A330 looks best in this segment, with 100% of the fleet remaining in service with no reductions and no new deliveries.

In the narrow-body segment the reduction was most noticeable in Boeing 757 fleet, which are mostly used for taking tourist to leisure destinations: 44% phased out, no new deliveries. Of all Boeing 737 Classic aircraft, 40% were grounded or retuned to lessors and no deliveries were made.

Boeing 737NG reduction reached 33%, but they were the leader in deliveries – 24%. Out of the Airbus A320 fleet, 84% stayed in operation, with only 13% reduction and 3% new deliveries.

The average age of the operated fleet reduced by one year compared to the 2014 level, to 11.2 years.