. Last Updated: 07/27/2016

Aeroflot Moves to Cash In on Cargo

ReutersSome analysts criticized Aeroflot for inexplicably shelving plans to spin off its cargo operations from its passenger business.
Aeroflot on Tuesday unveiled ambitious plans to nearly double sales and revenues from its cargo operations within three years.

"Last year we overhauled our cargo operations, so starting from 2004 we expect to increase revenues and volumes by 25 percent a year in the next three years," Aeroflot deputy general director Igor Desyatnichenko told reporters.

Desyatnichenko said the flagship carrier wants to increase its market share of cargo shipments between Europe and Southeast Asia. Aeroflot carried just 1 percent of the total 2.3 million tons shipped between the two regions last year. In all, Aeroflot carried 114,000 tons of cargo in 2003.

In addition to carrying mail and packages on its passenger jets, the company has serviced the Europe-Southeast Asia route with four cargo-only DC-10s that operate out of Hann Airport in Germany. But Desyatnichenko said Aeroflot plans to replace the 30-year-old jets with a fleet of six newer MD-11 freighters, the first of which is scheduled to start operating in early 2005.

Aeroflot hauled a total of 31,000 tons of cargo last year, 4,000 tons of which were carried on Il-76 domestic freighters that have since been mothballed.

"There is no business for these aircraft in Europe," Desyatnichenko said, referring to new European noise requirements that the Russian-made craft do not meet.

The company also intends to make Oslo a second hub in Europe to service Tokyo, Seoul, Shanghai, Beijing and Hong Kong between two and four times a week, he said, adding that the company will also launch charter flights from Helsinki.

In addition to adding long-haul craft, Desyatnichenko said, Aeroflot needs a fleet of some 10 mid-range jets by 2010 for routes between Moscow and Europe. He said the company is already in talks with Sirocco Aerospace, an Egyptian company that holds exclusive rights to the Rolls-Royce-powered Tu-204 craft made in Ulyanovsk.

Andrei Goryashko, head of Aeroflot's cargo operations, said the company had shelved plans to spin off his department into a separate company. He declined to say why.

While Aeroflot is the leader in domestic air cargo with about a fifth of the market, competition is increasing.

Volga-Dnepr, for example, the global leader in flying oversized cargo, recently set up a new company to compete with Aeroflot and other general cargo carriers.

Dubbed AirBridgeCargo, Volga-Dnepr's subsidiary will kick off its service in April with flights from Luxembourg to points in China via Moscow and Novosibirsk. It will operate initially with a fleet of two Boeing 747-200s, but expects to expand that to include Il-96s, Tu-204s and modernized Il-76s.

Volga-Dnepr could not be reached for comment.

Desyatnichenko was reluctant to talk about the new competitor, saying only that Aeroflot expects its longtime clients to be "loyal."

Aeroflot currently works with such forwarders as Nippon Express, Shenker, Pan Alpina, Danzas, and Kuehne and Nagel.

Desyatnichenko said Aeroflot has an advantage over international carriers on the Europe-Asia route -- time. Most carriers fly around Russia to avoid paying overflight fees, so Aeroflot can undercut its competitors' flying time by three to four hours.

At the high end of the market, express delivery, Aeroflot intends to seal a tie-up with global heavyweight DHL within two to three months.

Goryashko said the market for express deliveries to and from Russia is growing by 35 percent a year, making it an attractive business to enter.

Yelena Sakhnova, transportation analyst at United Financial Group, said that Aeroflot's 25 percent annual growth target is only slightly higher than her own forecast of 20 percent.

She applauded Aeroflot's decision to enter the express market, but criticized the company's decision not to spin off its cargo business.

"It's disappointing. Most cargo is still carried on passenger liners, and it would be best to set up a cargo subsidiary to have a better understanding of the economy of cargo operations," she said.