FLUG REVUE October 2003: Aeroflot has new strategy, plans modernized fleet

AEROFLOT´S NEW STRATEGY

By Andreas Spaeth

Despite all the radical changes that have occurred in the new Russia over the last decade, travellers arriving at Moscow's Sheremetievo airport, the home base of Aeroflot, could be forgiven for imagining that they are entering a Soviet museum. The terminal, whose brown interior and exterior recall the style of the 1970s and which was constructed from units prefabricated in Germany in preparation for the 1980 Olympic Games, endows the airport with an almost nostalgic aura. This impression is reinforced by the complete lack of public transport connections to the city centre or the domestic terminal. Instead, one is greeted by hordes of Mafia-like taxi drivers, the airport personnel bark out brusque commands, and there is no way of predicting how long one it will take to pass through passport control, either on arrival or departure.

A320 for Aeroflot

New A320 will arrive before the end of 2003

Hardly auspicious for an airline which has to process a majority of the five-and-a-half million passengers it carries each year in such circumstances and feels itself called to higher things. Ten kilometres closer to the city centre, Evgueni Bachurin is sitting in the inconspicuous back section of a hotel constructed out of large panels, which serves as Aeroflot's head office. Before the Commercial Director of Aeroflot Russian Airlines is a model of a Boeing 767 in the new colours of the airline that will make their debut in European airports this autumn.

“We intend to match the best airlines in the world for service in the future, possibly as soon as the next seven years. That is our vision,” he told FLUG REVUE during an interview. But before it can do this, Aeroflot must first of all shake off the burden of the past and radically overhaul its image, a daunting task. The name Aeroflot alone arouses extremely negative associations amongst virtually every potential ticket purchaser, at any rate in the West. For decades Aeroflot was viewed as a symbol of the run-down Soviet system, for which it actually fulfilled a vital function.

Everything even remotely connected with civil aviation in the Soviet Union has borne the name Aeroflot since 1932. Aeroflot grew into a giant that covered everything to do with aviation, from an agricultural air service to helicopters, airport operations and even air traffic control. Including its cargo aircraft and helicopters, at the end of the Soviet era Aeroflot had almost 11,000 aircraft at its disposal, employed some 600,000 people and handled over 100 million passengers per year. Its route network covered 117 destinations in 94 countries in 1983, yet on international routes Aeroflot carried only 2.7 million passengers per year at that time, as few citizens of the Soviet Union were allowed to travel outside the country.

After the collapse of the USSR and the formation of the Commonwealth of Independent States (CIS) in December 1991, the airline disintegrated into a huge number of “baby flots” in the various former regional directorates of Aeroflot. The new private companies which sprang up operated the existing aircraft fleet largely unregulated and were responsible for many horror stories of overladen aircraft, drunken pilots, flying antiques fit only for the scrapheap and, of course, numerous accidents. At the height of this trend, between 1994 and 1996, there were almost 400 airlines just in Russia. Since then the number has dropped back to 230, and the Putin government is planning to license only 70 providers in the future. It was the wish of the previous government under Boris Yeltsin that the name Aeroflot should be confined to Russia's national carrier, and in July 1992 Aeroflot Russian International Airlines (ARIA) was founded. The new airline's majority shareholder (51%) was the state, while the remaining shares were sold to the workforce and private investors. At the same time the first Western aircraft, an Airbus A310, joined the ARIA fleet in Moscow. This has since been followed by several Boeing 767-300ER's.

After the wild excesses in aviation in the endless expanses of the former Soviet Union had completely shattered the trust of potential international customers, the crash of a brand new A310 over Siberia in March 1994 scared off the public from flying with any Russian or CIS airline. And with justification, for it transpired six months later that the real cause of the accident was that the captain had allowed his 16-year-old son into the pilot's seat.

“That accident is still one of the main problems as regards our image, and also one of the reasons why we are rebranding,” explains Evgueni Bachurin almost ten years later. “The name Aeroflot still conjures up thoughts of crashes, but in fact the Airbus over Siberia belonged to a quite different company, and since then there have not been any more accidents either.” In actual fact the doomed flight was operated by an obscure Russian airline which did not even have a valid operating licence, but the aircraft still bore the name Aeroflot.

Despite this setback, ARIA pressed ahead with its expansion plans and boosted its fleet with further leased A310's, Boeing 737-400's, 777-200ER's and a DC-10 cargo plane. The emphasis continued to be on international routes, while in the strongly regulated domestic market ARIA was only granted landing rights at half a dozen cities. But already by 1997 it was carrying four million passengers, and in 2001, with 5.5 million passengers, it broke through the next psychological barrier. In a reversal of the former situation, the company which, as the national carrier, was renamed “Aeroflot Russian Airlines” in June 2000, today earns the bulk of its revenue from customers on international routes: 3.8 million out of the 5.4 million passengers carried in 2002 were on cross-border flights, accounting for 82 percent of sales. 35 percent of all international passengers from and to Russia flew with Aeroflot.

“On many routes we are no longer the cheapest provider. Our fares have risen dramatically over the last few years, as our Western aircraft make us better placed to compete on European routes,” says Bachurin. There had been acceptance problems in the West on account of the Russian jets, which in some cases had meant operating at 30 to 40 percent cheaper fares than competing Western airlines, whereas today they were only three to four percent cheaper, Bachurin admitted.

It was thus high time that Aeroflot should position itself as a quality carrier. Probably no other airline has a more diffuse corporate image than the Russian carrier – as of the summer of 2003 there are around ten different variations of paintwork and logo on the 73 passenger aircraft in the fleet, according to managers at Aeroflot. To keep up visually with the other airlines, Aeroflot commissioned the London agency Identica to finally create a modern, uniform image for the entire fleet, although it was told that the hammer and sickle must be a part of it.

In defence of the decision Evgueni Bachurin points out, “Many people in Russia view the hammer and sickle as a strong brand,” although he concedes that this “will only be attached as a sticker so that we can change it quickly if we find something better.” In his view, the statement conveyed by the new colour scheme, a pleasing and somewhat unspectacular design, is much more important: the fuselage shines in silver metallic paintwork (not polished metal as American Airlines used to have), the belly and tail are dark blue, both delineated by a narrow orange stripe, and a stylised Russian flag adorns the tail in a fashion not dissimilar to British Airways' present livery.

“Identica were asked to come up with a design that would stand out at every airport, and they have done that,” says Bachurin. “Blue is the traditional colour of Aeroflot, so we have kept that. The old red has been replaced by orange, which is more friendly and stands for improved customer friendliness.” Orange will also feature in the cabin in future, around the seat belts and the headrests of the leather seats. “The new colours are intended to show customers that Aeroflot is changing for the better and that we are the Russian national carrier.” This is the most important message. Within two to three years the entire fleet of around 70 aircraft will be resplendent in the new colour scheme.

However, a change of appearance is not enough on its own to raise a quality carrier from the ashes of a turbulent past. Hence there is a lot of activity going on at Aeroflot at present. To start with, Aeroflot flight attendants are receiving an intensive training programme from the Australian company Performa, which is teaching them to pay more attention to customers' wishes and also to smile more. “Today we alternate between very good and dismal service. In future we intend to offer a constant level of service,” says the Commercial Director with disarming openness. As part of this, a new service concept in Business and First Class (initially there will only be one premium Business Class), featuring restaurant-like catering and flexible mealtimes, was introduced a few months ago on the New York-Moscow route and this will shortly be extended to the Tokyo route. Whereas other airlines herald such innovations with lavish advertising campaigns and glossy brochures, Moscow cannot supply even one photo of the new product.

The fleet is especially important to the future quality strategy, and here Aeroflot faces major challenges. The Russian state imposes a hefty surcharge amounting to 46 percent of the purchase price on imports of Western aircraft, even though the domestic aircraft industry is barely in a position to deliver competitive aircraft on schedule. Aeroflot managed to obtain a dispensation for 27 Airbus or Boeing jets, which they are allowed to operate free of duty. This quota has already been fully exhausted on eleven A310's, ten Boeing 737-400's, four Boeing 767-300ER's and two Boeing 737-200ER's, all of which are leased. In the autumn of 2003 a major fleet renewal programme that will entail complete replacement of the entire Western fleet apart from the four existing 767-300's will get under way. This will result in savings to the tune of over $100 million per year. Short- and medium-range routes to Western Europe are to be flown in future with eight A320's and ten A319's, all to be leased from either Airbus or GECAS. Five additional Boeing 767-300ER's will shortly be available for long haul routes, but the airline has to stick to the limit of 27 Western jets. “Perhaps that will change when Russia joins the World Trade Organisation in 2010,” says Leonora Konovalova, director of strategy at Aeroflot, somewhat optimistically in an interview with FLUG REVUE.

Meanwhile the airline is already suffering from slippage in the delivery of six Ilyushin IL 96-300's on order, which are to fly the long haul routes along with the existing six IL 96-300's and the 767-300ER's. “We need those planes immediately in order to resume services on routes like Singapore, Kuala Lumpur, Seoul, Bombay, Male and Colombo and to increase existing frequencies,” says Evgueni Bachurin, but the Ilyushins will not now be available until the end of 2005. Otherwise, Russian aircraft are playing an ever smaller role in the fleet, whose optimal size is planned in future to be around 100 aircraft, plus the same number again of regional jets. The 13 Ilyushin IL-62M's have already been taken out of service or sold, the 14 Ilyushin Il-86's are likewise only seldom used on scheduled flights and are to be operated in future by a new charter services division. Twenty Tupolev Tu-154's and twelve Tu-134's will be used primarily on domestic routes, with five ageing Tu-134's to be replaced in 2005 by five newer aircraft.

The other top priorities on the agenda of the new Aeroflot are to strengthen the domestic services, in which segment the airline's market share is currently only ten percent because of the restrictions on the routes it is allowed to fly, but which it plans to raise to 30 to 50 percent, and to join an airline alliance. Aeroflot already co-operates closely with Air France and Delta Air Lines, so that membership of the SkyTeam alliance is a logical next step and is already scheduled for the end of 2003 or the start of 2004.

In order for the other alliance airlines and Aeroflot to mutually benefit, the company urgently needs a new terminal in its home airport – and preparations for the $435 million project to construct Sheremetievo 3 next to the existing Terminal 2 are already under way. Aeroflot is to invest in the new operating company to the tune of a 25% shareholding. It is hoped that the new terminal will open in 2007.

“We are ideally positioned for traffic between Europe and Asia, and with a new terminal we will finally be able to share in this lucrative market,” says Bachurin. But the airline is already benefiting from the booming Asian business: under agreements signed decades ago, virtually all the Western airlines have to make compensatory payments to Aeroflot for the right to overfly the Siberian routes. This brings in some $273 million per year and accounts for almost one-quarter of the operating turnover of the company. As the EU now wants to jettison these outdated agreements, Aeroflot is looking around for longer-term sources of income.

From page 22 of FLUG REVUE 10/2003

Last updated 1 September 2003

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