The meeting focused on the quality of Aeroflot services, the establishment of a Far Eastern airline, the outlook for a low-cost Russian carrier and the reduction of Far Eastern flight fares
Transcript:
With Aeroflot CEO Vitaly Savelyev
Dmitry Medvedev: Mr Savelyev, over the past years, I have started hearing not only negative but also positive things about Aeroflot. This means the company is changing for the better. I remember in the 1990s people preferred to fly with other airlines that emerged in the Russian market. Now many of my colleagues, when I ask them which company is better, say that it is better to fly with Aeroflot, however clichéd it sounds. I know that you work hard on improving the company. Will you tell me in more detail what you’ve been up to recently?
I should stress that passengers usually rate airlines or any other transport company by the quality of services and the ticket prices. I have already touched on the quality. As for prices, it varies, of course. It is very important to develop more affordable services. I know you have low-cost operations. Please, elaborate on this, especially considering the difficult situation in the Far East, I mean the natural disaster that occurred there recently. Tell me more about your low-cost services.
Vitaly Savelyev: Thank you, Mr Medvedev. And thank you for your assessment. It is true, we are working on improvements. Aeroflot today is a group that is growing to become an aviation holding. Aeroflot retains its leading position in Europe. All rating agencies report that we are not ceding our leadership position. We are the number one airline in business and economy class services.
Speaking of the services, Aeroflot has carried 14 million passengers over the recent period. I believe our growth rate is 20%. We used to have 25% growth, but because we are a group of companies now, there are certain difficulties within the network. We give up some flights in order to prevent competition within the group, and therefore, the growth rate is 20%. But maybe you remember that Russian aviation in general has grown by 14% to 15% in the past years. Therefore, we are ahead of the market.
You are absolutely right. People are pleased with the service but they want lower fares. Here we have options how to make domestic flights more affordable. Now we are looking at two projects. One project that you initiated is the establishment of a Far Eastern airline. We have seen significant progress here. We have recently received a directive regarding this and I think that in late November we will be able to discuss it with you in more detail. We are ready to operate there under a new name, which is the Far Eastern Airline, and compete with both Russian and Asian carriers in the Far East.
The second project that we look forward to and that has seen very good progress as well… We hope that the instruction you made regarding corrections to the legislation will help, because foreign low-cost airlines – EasyJet, Wizz Air, for example – are already entering the Russian market. We must have the same competitive advantage as those companies. We are working hard on launching low-cost services. We have a business plan. The board of directors has resolved that if the Government approves and we receive a relevant directive, a low-cost airline will actually be established. That would be a seriously different carrier, as Russia has no experience in this area, except for the term itself, a “low-coster.” We believe it has many implications. There would be certain problems that we would have to handle together. For example, the location of cheaper airlines would require low-cost airports. We would have to give up some services. That will be an unusual product that we are going to promote.
Dmitry Medvedev: I’d like to understand (I’m sure you have estimated this) how much a similar company charges for the most popular flight – from Moscow to St Petersburg?
Dmitry Medvedev: "We’ve been spending a lot of money and attention on high speed motorways. They are very expensive but also very convenient for many people. I think we should develop airlines in parallel by all means, using low cost principles. In this case high speed trains will really be competitive with airlines."
Vitaly Savelyev: Yes, we have calculated this precisely. I’ll show you what a very interesting low cost airline has presented. Bain, an international company, has good experience in this field (we’ve hired low cost experts). In general, low cost is an interesting topic.
All companies that have used their subsidiaries to establish low cost airlines met with failure. They should be set up from scratch. We’ve thought a lot about this and we are building it from scratch. People should have a completely different approach, because these airlines must reduce their expenses to sell cheap tickets. Prices should be reduced not only in St Petersburg. Central Russia has a great demand for low cost airlines. We have lots for the first eight planes. This will be a tough product, Mr Medvedev. Seats on these aircraft will be the same as on commuter trains. They won’t recline and will have little room. There will be strict regulations on luggage and flight bookings – through the Internet only, as anywhere else (we can’t do anything about this). We must reduce all costs that you’ve talked about. In this case we believe at least 20%-40% from the current prices…
Dmitry Medvedev: Prices may be reduced.
Vitaly Savelyev: We’ll reduce them easily. We are continuously analysing the market. We can cut down prices even more but this issue requires separate discussion because there are some nuances. Then prices will be 50%-60% of what they are now. Low cost airlines will compete not only with domestic airlines but primarily with railways.
Dmitry Medvedev: This is what I had in mind.
Vitaly Savelyev: So, the prices of airline tickets (we’ve made an estimate) will definitely be below those on separate train compartments. We polled railway passengers and our passengers with the help of Bain (Bain & Company). A low cost airline will drain substantial passenger traffic. I can tell you about Europe. Take Ryanair, for instance. It is a successful company, one of the biggest in Europe. It is giving a hard time to all European airlines. Regular European aviation grows at an annual rate of 3%-4% whereas the relevant figure for low cost airlines is 38%-40%. So now we have an opportunity to establish a proper company that will be able to compete with others in three to five years when the market may change. There is a trend towards this.
Dmitry Medvedev: The opportunity of choice has been our most important goal in the last few years. We’ve been spending a lot of money and attention on high speed motorways. They are very expensive but also very convenient for many people. I think we should develop airlines in parallel by all means, using low cost principles. In this case high speed trains will really be competitive with airlines.
Vitaly Savelyev: "We’ve decided to lower our average economy class tariffs for the Far East by 20% till the end of the year."
Vitaly Savelyev: When the Sapsan project was launched we were worried that high speed trains may take many of our passengers. We flew three times a day and now we fly 20 times a day and still have our passengers. You’ve asked a question about the Far East.
Dmitry Medvedev: Go ahead, please.
Vitaly Savelyev: We understand the need to help the Far East in this emergency. We’ve decided to lower our average economy class tariffs for the Far East by 20% till the end of the year. Then we’ll see how we stand. This is a considerable reduction and we’ll work…
Dmitry Medvedev: It is indeed – by one fifth…
Vitaly Savelyev: Aeroflot has extended its support. Mr Medvedev, we have transferred 10 million roubles of corporate money to the newly-established fund and each of us, all top managers, are also contributing money of their own. We want to help the victims of the flood.
Dmitry Medvedev: I think this is the absolutely right thing to do. You should continue this work. Thank you.
Vitaly Savelyev: Thank you.
