S7 Airlines’ domestic traffic growth continues to slow down

Thus far, S7 Airlines is Russia’s only operator of the newest single-aisle Airbus A320neo and the Boeing 737MAX aircraft (S7 Airlines)

S7, Russia’s largest private airline group that, after Aeroflot, includes the country’s second largest passenger carrier, experienced a 6.7 per cent traffic improvement in January 2019 compared to the same month last year. The two airlines that make up the group – Sibir and Globus Airlines, both of which operate under their brand name S7 Airlines – collectively carried some 1.17 million passengers in the month.

Notably, the group’s international segment picked up by 13.6 per cent whilst its domestic traffic growth slowed down to 3.9 per cent. This is its lowest January growth rate in the last four years and is close to the growth registered on international routes in 2016, a year characterised by an overall decline in the Russian air travel market, unlike the current market situation. In January 2019 aviation authority Rosaviatsiya reported an 8.8 per cent improvement of all Russian airlines’ combined operational results.

S7 Airlines’ January results are indicative of several influential developments. In January 2016, the domestic market was the growth driver for the group, but this year the trend has been reversed. The international travel sector, traditionally more profitable, is now the larger contributor to the group’s growth and, at the same time, competition between Russian airlines is becoming ever more fierce and this is affecting the airlines’ revenues. Among the nation’s top-five airlines, with the exception of indisputable market leader Aeroflot, the difference in passenger numbers is now starting to level out. In a tough economic environment dominated by price wars, fuel-cost spikes, rouble devaluation, increased VAT and declining consumer demand, all airlines are being forced to fight for their market share in the international segment.

Meanwhile, ahead of the expected expansion created by the arrival of the newest single-aisle aircraft fleet (B737MAX, A320neo), it is important for S7 Airlines to maintain a positive rate of climb in its international segment. Like S7, to justify their purchase, those carriers which are among the first to take delivery of these efficient but very expensive new assets will have to utilise them intensely, especially on the hard-currency revenue-generating international routes.

With S7 Airlines the first to introduce the Airbus A320neo and Boeing 737MAX to the Russian market, the initiative enables it to launch several attractive new routes and therefore secure its competitive advantage in the market. For example, in the winter, it strengthened its position in south-east Asia, with the launch of flights from Krasnoyarsk to Bangkok and from Irkutsk to Phuket and Cam Ranh. From its Novosibirsk Siberian hub the airline operates its new Boeing 737MAX-8s on routes to Nha Trang in Vietnam, offering flight durations of up to 7.5 hours. Its total winter network featured 181 destinations in 26 countries.