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. Last Updated: 07/27/2016

INDUSTRIES IN TURMOIL: Air Travel Plunges 30% Amid Storm




Russia's financial crisis is forcing the airline industry to fly through turbulent skies as both domestic and international carriers see passenger numbers dive by a third.


Air cargo at one point was hit even harder than the passenger market when importers, struggling to adjust to the volatile ruble, stalled trade, leaving cargo planes stranded on the tarmac.


But the cargo business is slowly starting up again and Russia's passenger airlines are taking cost-cutting steps to ride out the storm. They also are hoping to keep customers on board with deeply discounted tickets.


None of Russia's estimated 180 airlines has gone bankrupt since the crisis began, according to the Federal Aviation Service, and analysts said there would be few if any bankruptcies in the months ahead because the state and regional governments own significant stakes in most carriers.


Still, the drop in passenger volume has been enormous. The number of domestic passengers fell 30 percent from the start of the crisis in mid-August to the end of September, the first deputy director of the Federal Aviation Service, Viktor Galkin, was quoted by Itar-Tass as saying earlier this month. Air cargo dived 40 percent over the same period, he said.


Sergei Shiplyko, deputy head of the State Committee on Tourism, said the number of Russians travelling abroad has plummeted 70 percent, and the volume of incoming tourists has dropped 40 percent, Reuters reported.


Aeroflot International Airlines, Russia's largest air carrier, was one of the first companies to announce cost-cutting measures to deal with the falling demand.


Aeroflot, which is 51 percent state-owned, said at the beginning of September that it would slash hard currency expenditures by buying fewer spare parts and in-flight meals overseas, Reuters reported.


The airline also asked its Western leasing agents to reschedule its payments on aircraft. But Aeroflot officials were quick to add that the request did not indicate an impending default.


One analyst said, however, that the rescheduling request bodes ill for the company. "This is a pretty good sign that if you aren't having big problems now then you are expecting problems fairly soon," said Kim Iskyan of MFK Renaissance.


One of Aeroflot's biggest Russian competitors, privately owned Transaero, also moved last month to reduce its costs, deciding to return four leased aircraft and drop or scale back some flights.


In giving up two McDonnell Douglas DC-10-30s and two Boeing 757s, Transaero spokeswoman Galina Ponomaryova said the company wanted to use aircraft that were less expensive to operate.


Ponomaryova also said the company had closed two new routes, Moscow-Tyumen and Moscow-Samara, and had cut down on the frequency of some other flights.


Paul Duffy, an independent aviation analyst, said smaller carriers were experiencing the same problems as Aeroflot and Transaero. "Regional airlines have seen the number of their passengers drop quite significantly," he said, adding that some of them had started banding together to facilitate payments outside of the collapsed banking system.


Nevertheless, Duffy said falling passenger numbers did not mean airlines would go belly up.


"The fact that so many of these airlines are partially or wholly owned by regional governments will prevent the kind of industry-wide collapse you would expect anywhere else under these circumstances," he said.


In a desperate attempt to hang onto customers, many airlines have kept pre-crisis prices for domestic flights. Aeroflot, for example, charges its dollar-listed tickets at a rate of 6.2 rubles to the dollar. This means that its Moscow-Vladivostok flight listed at $550 actually costs about $230.


Transaero has a similar discount, charging 9.4 rubles to the dollar for domestic flights and 12.3 for flights to the Commonwealth of Independent States, or CIS, a loose coalition of some of the former republics of the Soviet Union.


For international tickets, both airlines use the Central Bank's official exchange rate, which on Wednesday was 15.04.


Western air carriers have been hit by dwindling demand just as hard as their Russian counterparts, airline officials said.


Pierre de Baecque, Air France's general manager for Russia, the CIS and Poland, said ticket sales in Russia fell 40 percent to 50 percent almost immediately after the crisis struck in August. He said the actual drop in traffic was closer to 25 percent.


Lufthansa, the foreign carrier with the most Russian destinations, has seen a similar drop in passengers, said Ulrich R?ger, the airline's regional director for Russia and the CIS.


Both airlines are holding talks with the Central Bank on getting permission to accept payments in hard currency, which airlines were allowed to do until this year. It would help them avoid potentially steep losses if the ruble falls again, the airline spokesmen said.


The recent stability of the ruble, which lost 60 percent of its value since mid-August but has stayed close to 15 rubles to the dollar over the past few weeks, has been a welcome relief for one part of the airline industry f Russia's cargo carriers.


Yulia Mazanova, spokeswoman for major cargo carrier East Line, said regular flights were finally starting back up again after more than a month of near idleness.


"Some of our biggest clients just weren't shipping anything at all," she said. "Now it's getting a little better."