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. Last Updated: 07/27/2016

Rivals in the Sky Shift Gears to Form Alliance

Since the collapse of the old Soviet air-transport monopoly, Transaero, the plucky start-up, has stood out like a beacon in the dull skies.

It has built a reputation by turning its back on shabby Soviet standards, offering warm meals, smiling flight staff and leased Boeings that do not creak and rattle like its competitor's Tupolevs and Ilyushins. Some foreign executives even joke they will only do business in towns serviced by Transaero.

But Transaero has just shaken hands and started a partnership with Aeroflot Russian International Airlines, the airline whose name is a by-word for Soviet-style service.

A memorandum of close cooperation between the former rivals was signed at the end of June. The deal, the details of which have not been made public, is believed to include an accord on complementary, rather than competitive, flight schedules and an agreement not to conduct fare wars against each other.

Perhaps the agreement should not come as such a surprise; the fight between state-owned Aeroflot and Transaero, its free-market rival, has always had its contradictions, among them the fact that Aeroflot owns 10 percent of its rival, and other state-owned enterprises, including the Ilyushin and Yakovlev design bureaus, also have stakes.

But the alliance could change the face of Russian aviation. The two airlines account for about 30 percent of domestic departures. Counting both domestic and international routes, Aeroflot carried 3.5 million passengers in 1995 compared to Transaero's 1.8 million.

"Perhaps posterity will look back on this day as the unification date of Russian civil aviation," said Yevgeny Shaposhnikov, Aeroflot general director, speaking at a press conference June 25.

"This is a strategic partnership agreement," added a high-ranking Aeroflot official, who requested not to be named. "There are too few functional air transport services for us to be beating each other over the head."

But the agreement is hard to pin down. Analysts suggest that it could be a move to counter foreign competition and to gain more effective control over Sheremetyevo international airport.

Sergei Grachev, director of Transaero's marketing, analysis and planning department, said the deal was also a matter of marking out territory. He said the agreement leaves his company to develop domestic services, while Aeroflot can focus on international flights. This would mark a change from the past few years; the two carriers have tended increasingly to compete both domestically and internationally.

Aeroflot was created from the former international division of the old Soviet state monopoly. It has a large network of international routes but was initially low on domestic routes because most of Russia's regional domestic airlines, the so-called "baby flots," passed out of its control.

Transaero, on other hand, started by developing a network of domestic flights from Moscow, including Norilsk, Sochi, Yuzhno-Sakhalinsk and St. Petersburg. Last year it achieved a load factor, proportion of available seats filled, of 75 percent but, like other Russian airlines, Transaero faces difficulties in the domestic market where passenger traffic has slumped drastically since the dissolution of the Soviet Union.

Up to now, Transaero has been successful in gaining international routes to compensate and this trend has accounted for much of its growth recently. This summer it began service to Los Angeles.

There has always been speculation that the fact that Tatyana Anodina, the mother of Transaero founder Alexander Pleshakov, is chairman of Russia's International Aviation Committee, MAK, has made Transaero a government favorite. In addition to its other areas of responsibility, MAK supervises the planning of foreign airline flights over Russian territory. Very few other new Russian airlines have gained rights for scheduled international flights.

However, prior to the agreement, Aeroflot had lobbied hard to counter Transaero's encroachment on what formerly was its monopoly on international flights. The appointment of Shaposhnikov, the last marshall of the armed forces of the Soviet Union, as the new head of Aeroflot last fall gave the airline a heavyweight lobbying force.

Shaposhnikov had also announced that Aeroflot intends to more launch domestic flights and flights to CIS destinations, in addition to stopovers in some Russian cities on international flights.

By calling off competition, some analysts say one of the most significant results of the alliance will be increased competitiveness with international airlines that service Russian domestic destinations outside Moscow.

Aviation sources say the German airline Lufthansa is seen by the Russian airlines as their prime international competitor. Lufthansa already has four Russian destinations beyond Moscow and St. Petersburg -- Nizhny Novgorod, Samara, Yekaterinburg and Novosibirsk -- and has the rights to serve 10 more.

According to aviation analyst Paul Duffy, the Aeroflot-Transaero deal may lead to a situation where passengers could arrive from outside Russia on Aeroflot and board Transaero flights to complete the domestic portions of their journeys, or vice versa. Aeroflot operates most of its international flights from Sheremetyevo 2, the country's premier air gateway, while Transaero is based across the runways at the older Sheremetyevo 1 terminal. That the two airlines share the same airport in Moscow is a major advantage over the current situation where domestic transfers can involve a long journey to Vnukovo or Domodedovo airports.

Analysts believe another main goal of the alliance could be to exert more influence over Sheremetyevo itself. In May, Vasily Akporisov was relieved as Sheremetyevo 2 general director, and Sergei Stulov, a former Transaero vice president, was appointed in his place.

Transaero president Pleshakov has proposed the formation of a "special troika" made up of representatives from Transaero, Aeroflot and Sheremetyevo itself, as a coordinating council to tighten control over the airport.

Cooperation between Aeroflot and Transaero may extend, said one source, as far as the interchange of aircraft.

While some analysts suggest the alliance will be mutually beneficial to its partners, others call it an attempt to merge the "unmergeable."

"A complete union has not and cannot occur," said a Russian aviation analyst who asked not to be identified. "Transaero and its new partner are managed by people from different worlds."

-- Simon Baker contributed to this article.

A cornerstone of Transaero's recruitment policy has been only to choose cabin crew who had never worked for Aeroflot, because of Aeroflot's reputation for surliness and poor service.

Analysts do not think that Aeroflot will attempt to take over its smaller rival. "This is extremely unlikely," said an Aeroflot source. Something like this would only happen, he said, if Transaero wanted to lose its independence.