Russian airlines seem to be building on recent growth despite domestic hurdles and a global crisis that has gripped the industry in the wake of the Sept. 11 terrorist attacks in the United States.

The industry has a long way to go to achieve a full recovery, as it is still plagued by factors including the population’s low spending power, an outdated fleet and infrastructure and a lack of investments.

As of early 2001, a total of 294 airlines were officially registered in the country. Many of them are fully owned by the state, and in many others the state is a major shareholder. Since the August 1998 financial crisis in Russia, which buried the hopes of many airlines, domestic airlines have learned to work in the new conditions, and now there are reasons to believe the market for air-transportation services has stabilized and begun to grow.

In 2000, the volume of air-passenger transportation increased 1.4 percent over the 1999 figure, reaching 21.76 million people. According to the Russian Transport Clearing House, domestic airlines serviced 21.62 million passengers during the first 10 months of this year, which represents a 15.3 percent increase over the corresponding figure for 2000.

The volume of cargo transported by Russian airlines has also shown a stable increase: 530,000 tons of cargo was transported by air in 2000, up 7.3 percent from 1999; during the first 10 months of this year domestic airlines transported 496,940 tons of cargo, up 11.8 percent from last year.

Statistics show that international passenger transportation has demonstrated the most impressive growth: 8.4 million passengers in 2000, up 17.5 percent from 1999, and 8.76 million passengers during the first 10 months of this year, up 20.3 percent from last year.

International cargo transportation demonstrated a slower growth rate in 2000: 300,000 tons, up 3.8 percent from 1999, while in the first 10 months of this year growth was more impressive – 278,690 tons, up 14.5 percent from the corresponding figure for last year.

Domestic cargo transportation volume grew 12.4 percent in 2000 over 1999, but in the first 10 months of this year it gained only 8.4 percent over last year.

In 2000, domestic-passenger transportation volume equaled 13.36 million people, down 6.7 percent from 1999, but the trend reversed this year: The first 10 months of this year saw a 12.1 percent growth.

A decade ago, the market was completely dominated by Aeroflot, which was far ahead of its competitors in volume of business, income, fleet and destinations served. Since then, the situation has changed dramatically. There are more than 200 airlines operating in the country even now, but nearly 90 percent of the passenger-transportation market is controlled by the top 30 airlines, and 50 percent by the top four – Aeroflot, Pulkovo, KrasAir and Siberia. In the segment of cargo transportation, 50 percent of the market is controlled by Aeroflot, East Line, Atlant-Soyuz and Volga-Dnepr.

This year, the balance of forces in the passenger-transportation segment of the market is expected to change. In all likelihood, Siberia will climb to second position after Aeroflot. Siberia, a Novosibirsk-based airline, has successfully merged with Moscow-based Vnukovo Airlines, acquiring its fleet, flight network and route licenses.

During the first 10 months of this year, Aeroflot served 5.09 million passengers, up 17.7 percent from the corresponding figure from last year. At the same time, the volume of postal deliveries and cargo transported by Aeroflot during the first 10 months of this year totaled only 84,000 tons, down 4.9 percent from last year, which reflects the general reduction of cargo transportation by air on international markets, where the company mainly operates.

From January through September 2001, Siberia, having merged with Vnukovo Airlines, served 1.49 million passengers, up nearly 150 percent from last year’s figure, and transported 9,530 tons of cargoes, up 60 percent from 2000.

During the first 10 months of this year, KrasAir served 898,300 passengers, up 40.5 percent from last year.

Breathing down the neck of the industry’s leaders is Surgut-based Tyumen Aviatrans (TAT). In addition to being the country’s biggest helicopter operator (the company gets 46 percent of its income from providing helicopter transportation services to oilmen and various UN peacekeeping missions), TAT has achieved a drastic increase in its cargo and passenger transportation by airplanes in the last year. During the first 10 months of this year, TAT served 848,214 passengers (up 57.1 percent from last year) and transported 91,200 tons of cargo (up 58.1 percent from last year).

Aeroflot remains aggressive on the market and is pushing on to develop both domestic and foreign route networks. Aeroflot CEO Valery Okulov said his company is determined to consolidate control of 30-40 percent of the domestic market for air transportation over the next three to four years.

At the same time, of all Russian airlines, it was Aeroflot that suffered the most from the consequences of the Sept. 11 attacks. According to Okulov, Aeroflot draws up to 70 percent of its income from international flights. The crisis that followed the Sept. 11 tragedy forced Aeroflot to revise its capacity targets from 5 percent growth to a 3 percent reduction from last year’s winter season figure. In addition, Aeroflot has revised its flight schedules, dropping destinations and frequencies and launched a cost-cutting program that provides for more efficient use of the Western-made airliners that it operates. Okulov admitted that after saying goodbye to profit expectations of $20 million this year, the company is now fighting for the modest goal of staying in the black.

Despite the problems that have beset Aeroflot, it is still difficult for the country’s smaller airlines to compete with such a giant.

Toward the end of the last year, Domodedovo Airlines (Moscow), KrasAir (Krasnoyarsk), Chelyabinsk Airlines and Aviaexpresscruise (Moscow) signed a cooperation agreement with the aim of consolidating their positions on the domestic market and joining efforts in resisting the onslaught of Aeroflot. But the strange alliance, comprising companies very different in both size and business approaches, has failed to distinguish itself in any way.

By late October this year, the alliance’s members had decided to establish a coordinating organ that would help them adopt common business schemes and approaches, work out a unified tariff policy and coordinate flight timetables. Meanwhile, Siberia has been increasing its share of the market through acquiring Vnukovo Airlines and pursuing an aggressive policy on the domestic market, setting up outlets in various cities and swallowing smaller companies.

KrasAir has achieved noticeable progress this year. It emerged as the first in Russia to establish a hub airport in Krasnoyarsk. Running a hub airport requires employing modern technologies and methods of marketing and planning.

By and large, the competition on Russia’s market for air transportation still involves rather primitive methods – from price wars to administrative pressure. State regulatory functions are performed by the State Service for Civil Aviation, Rosaviatsiya, which is losing its leverage due to the new state law limiting areas of licensing from next February.

(The author is Editor-in-chief of Air Transport Observer.)