S7 Group’s low-cost offshoot to take-off in mid-2022

Russia’s largest privately-owned aviation holding to launch stand alone carrier operating A320neos

Russia's S7 Group low-cost carrier (ATO.ru)

S7 Group, Russia’s largest privately-owned aviation holding, officially announced creation of a new low-cost carrier. The launch of operations is slated for July 2022 with ticket sales to begin a few months in advance. According to the company, the project timeline is linked to aircraft delivery schedule.

The new airline will operate a monotype fleet of new Airbus A320neo powered by Pratt & Whitney engines. Preliminary agreement for delivery of the first four aircraft is already in place, while negotiations are underway for further four. The budget carrier plans to add between six and eight aircraft annually within the first three years of operations. All A320neos will feature single-class configured with 186 seats with 29 inch pitch.

According to Tatyana Fileva, shareholder, chairwoman of S7 Airlines, first deputy to general director of S7 Group and daughter of the group’s founder Vladislav Filev, by 2024 the new LCC will have 24 aircraft in its fleet and carry up to 7.8 million passengers across the network of 66 point-to-point domestic regional destinations.

The group may supplement its fleet with bigger Airbus A321neos at some stage, but this is not a first priority. There are no plans to utilize the Embraer E195 crossovers. According to Fileva, the choice of aircraft type is attributed to S7 Airlines’ positive experience with A320neo family aircraft (all powered by P&W GTFs). The group’s MRO division S7 Technics, probably the most experienced A320neo maintenance provider in the country, will be in charge of the fleet’s continued airworthiness.

S7 Group is expected to invest between 2.5 and 3 billion roubles of its own money into creation of the low-cost offshoot, with break-even projected in four years. No outside investment is sought for the project. The group will solicit a new Air Operator Certificate for the LCC, and emphasizes that the new project launched by S7 Group’s shareholders is completely independent of S7 Airlines. No code-sharing or other synergy is envisioned for the two airlines. According to Fileva, the new airline is aiming for CASK to be 40 per cent lower than that of S7 Airlines. The target may be achieved not only through fleet utilization and cost control, but through reaching special agreements with airports. Since no such agreements are in place yet, the future route network of the airline is not disclosed. It will reportedly focus on direct regional routes across midland Russia. Russian airlines’ capacities are still disproportionately concentrated in Moscow and to some extend in St. Petersburg, Fileva argues, and direct flights between regions is the market niche where the new LCC could prove efficient without creating head-on competition with S7 Airlines with its primarily hub operations. By contrast, the LCC will follow a de-centralized model with several bases, typical for low-cost carriers.

Notably, improving connections with Russia’s underserved regions is in line with the government’s intentions, which are supportive of the idea of developing low-cost travel within the country. “Creation of a new LCC will to a great extent satisfy the demand of our population for low cost travel,” Russia’s transport minister Vitaly Saveliev commented. Saveliev was at the realm of Aeroflot, when its low-cost subsidiary Pobeda Airlines started off, becoming Russia’s only LCC so far. 

The management team of the new airline will be led by Grigory Davydov, currently director for strategy for S7 Airlines, and reinforced with other key professionals from across S7 Group. It will be independent of S7 Airlines, except some assistance with flight crews at launch. Still, Tatyana Fileva is quite optimistic about the future of the new airline.

Apart from Aeroflot Group’s LCC division Pobeda Airlines, the new LCC is likely to compete cost-wise with another operator, Smartavia. The latter announced it would transform its current hybrid model to true low-cost one, in May 2021. It will start taking delivery of 40 new Airbus A320neos next year and targets up to 16 million annually passengers by 2025. The airline’s ambition is to become one of Russia’s five largest carriers.

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