The head of AEHT emphasizes that restrictions on international flights will not lead to a directly proportional increase in demand for domestic tourism destinations. “Not all consumers will prefer this option, and a situation cannot be ruled out when, due to the threat of the spread of coronavirus inside the country, restrictions on domestic flights will not be introduced,” he points out.
In addition, 30–40% of all carriers’ costs are fixed costs (regardless of the performance of flights) for the rental and leasing of aircraft, maintenance, and labor costs. For the first half of 2020, and not for the whole of 2020, as previously predicted, carriers will lose up to 70 billion rubles, said Tasun.
Russian carriers may lose up to 360 billion rubles due to the cancellation of international flights amid a pandemic, Bain & Company experts calculated for RBC. As Bain aviation practice expert Sergei Zaitsev said before the complete cancellation of flights abroad, the remaining flights carried only a social function and already had “almost no financial feasibility”.
What support measures do carriers ask for?
AEWT invites the government to take several support measures:
- Zeroing VAT on flights through Moscow. This measure will reduce the fiscal burden on airlines in the amount of up to 36 billion rubles., Tasun points out. The need to nullify VAT when flying from regions to Moscow throughout 2020 was previously discussed by RBC and President of Utair – Passenger Airlines, Pavel Permyakov. According to him, it will help return the industry 3-4 pp margin and maintain air traffic in the country. Currently, 10% VAT is applied to flights through Moscow. The tax on routes bypassing Moscow to support regional flights was zeroed in April 2019.
- As soon as possible, fulfill the order of President Vladimir Putin of October 12, 2019 on the allocation of compensation from the Reserve Fund to airlines for kerosene, which has risen in price in 2018. They promised to pay about 25 billion rubles to carriers, but this has not yet happened.
- Double the amount of funding for existing regional air carrier subsidy programs. For 2020, these subsidies amount to about 9 billion rubles.
“AEWT considers it necessary to take urgent measures to prevent the rapid growth of airline losses, primarily on domestic airlines due to the introduction of excess carrying capacities (airplanes freed from flights abroad – RBC) to the domestic market due to international air traffic restrictions messages, ”writes Tasun. These measures are needed to create “conditions for the financial survival” of Russian airlines, which will help to avoid possible bankruptcies and the negative social consequences caused by this, as well as create conditions for a quick recovery in the post-crisis period, Tasun concludes.
In addition to state support measures, airlines are actively negotiating with leasing companies to defer payments or reduce the leasing rate. The first was able to negotiate with Aeroflot: according to Kommersant, the carrier received from VTB Leasing a deferral of payments for 67 aircraft (19% of the group’s fleet) from April-September 2020 to July 2021. In addition, companies have previously requested direct financial assistance. The head of the Federal Air Transport Agency Alexander Neradko spoke about this possibility, but so far the government has not reported any specific compensation.
On March 16, Prime Minister Mikhail Mishustin announced that there would be a deferral of tax collection for the tourism and aviation industries. In addition, the authorities will form an anti-crisis fund of 300 billion rubles. for all sectors of the economy, including airlines.
How airlines are trying to develop domestic transportation
From March 1 to March 22, 2020, according to AEHT, the number of completed flights in Russia increased by 15% compared to the same period in 2019. Since March, Utair has opened 18 new destinations in Russia, including from Moscow to Vladikavkaz and Astrakhan. S7 will have at least 12 new directions, among them from Irkutsk to Sochi, Simferopol and Anapa, told RBC the press service of the airline. Aeroflot also plans to launch flights from its second hub (after Moscow) in Krasnoyarsk to Yakutsk, as well as flights from Moscow to Yaroslavl.
“But seat occupancy [на внтуренних рейсах] Now it does not exceed 60%, ”said Boris Shokurov, Deputy Executive Director of AEBT, to RBC. Moreover, in the past this indicator was much higher – 80.5%. “At first, airlines will operate at a loss, but the logic here is to try to make some money even in such a crisis situation,” says RBC’s top manager of one of the companies. To attract passengers, carriers gradually began to lower ticket prices: Aeroflot over the past weekend reduced the cost by half, Ural Airlines – by 25%.
Domestic flights were already unprofitable, airlines partially covered their expenses with the help of international transportation. In 2018, according to AEHT, the loss from domestic flights amounted to 60.4 billion rubles. “The chaotic reorientation of the vacated part of the aircraft fleet to the domestic market will lead to an overabundance of carrying capacity on domestic airlines,” Tasun warns. In a letter to Belousov, he indicates that such a strategy could worsen the economy of domestic flights and only increase the operating losses of companies.