ATN: Aeroflot is getting stronger with steady growth over the last years in passenger volumes. 2014 has been significant successful in the domestic market compared to the international. What drove this huge increase in domestic passenger numbers?
VS: The Russian market has always been the key focus of Aeroflot. The Group, made of Aeroflot and 5 subsidiaries serves more than 50 domestic destinations, i.e. all relevant routes. For the full year 2014, the Group carried 34.7 mln passengers, a 10.7% year-on-year increase.
Aeroflot’s strategy is to continue investing in the domestic market, which has great growth potential (less mature than Europe and North America).
This means:
-Selective expansion of our network, primarily in Russia and the CIS;
-Balanced development of regional subsidiaries (regional, budget and charter flights);
-Strengthening international partnerships...
ATN: Aeroflot becomes stronger and popular in the East markets; China, South Korea etc. Is this due to a strategy towards these markets or does it derive from a strong passenger demand from people travelling to/from these destinations? Which are your main markets and do you have any plans for network expansion?
VS: Transit traffic between Europe and Asia is an interesting opportunity for Aeroflot. We offer some of the best connections between Asia, Europe and the US through Moscow Sheremetyevo airport.
In this respect, we are effective players in the Chinese market: almost 60% of outbound Aeroflot passengers from China are international transits.
ATN: You recently introduced a new menu for the business class passengers. What was the rationale behind it?
VS: Aeroflot commits to offering an outstanding quality and variety of food, relying on top chefs and confectioners in the creation of our menu. Top-quality ingredients and recipes, using healthy ingredients with a perfect presentation and top-class service are crucial success factors for Aeroflot’s in-flight menu. Most recently, within the celebrations for the year of Russia in Monaco, Aeroflot cooperates with the most popular and talented Michelin starred chefs.
ATN: You are a member of the SkyTeam Alliance. What have you gained or lost since joining the alliance?
VS: The SkyTeam alliance is a way to maintain and expand our network, limiting investments and increasing return (SkyTeam now serves 1 052 destinations in 177 countries worldwide). Together with the alliance Aeroflot could provide more flexibility and ease of choice to its passengers. This year SkyTeam is celebrating its 15 anniversary and Aeroflot is proud to have contributed to its success. Still, we strongly believe that Alliances should adapt to the changing market environment and we are pushing for an updated governance and business approach.
ATN: What are your strategic plans for 2015 and the following years?
VS: We have clear goals for our long term development - Vision 2025: to be a top-5 European airline and a top-20 globally by passenger traffic and revenue.
To achieve this we will leverage the strategy developed so far:
-Advantageous geographic position for Europe-Asia transit routes
-High levels of service (awarded Best Airline in Eastern Europe by Skytrax World Airline Awards several years in a row);
-Innovation (Aeroflot significantly invests in in-house research and development projects);
-Improved regulatory environment: Aeroflot has achieved a number of changes to aviation regulation, including allowing foreign citizens to work as flight personnel for Russian airlines.
ATN: You operate a mixed fleet of various aircraft types and sizes. Do you have any plans towards a common type in order to harmonise your fleet?
VS: Today Aeroflot has a fleet of 157 Airbus, Boeing and Sukhoi Superjet 100 – the youngest fleet of any major carrier operating more than 100 aircraft. As of March 2015 Aeroflot had contracts for the new A350 and B737 aircraft. An extremely high degree of harmonisation, leading to maximum operational efficiency.ATN: There is a tendency across several legacy carriers to start subsidiary carriers with a different business model. What are your thoughts on this policy and your plans, if any?
VS: Ambitious long term targets (2025 vision, of which I’ve been talking above) were approved by the Board of Directors, upon the recommendation of the management team: a remarkable example of strategic alignment between shareholders and executives. The effective combination of organic growth and the acquisition of six regional airlines in 2011 were used to develop a multi-brand business model: the most effective product proposition to each customer segment, with a careful consideration of different geographies. Customer segmentation, in a market with impressive growth rates and unique geographic extension, requires strict strategic discipline if it is to deliver shareholder value.
The integration plan of the daughter companies has been completed in less than three years, streamlining fleets, centralizing purchasing, IT infrastructure, back office activities. Most importantly, network development, revenue management and sales have also been centralized, resulting in a successful and profitable migration from a single airline to a global group.
In a further refinement of the multi-brand strategy, a low cost carrier, called Pobeda, started operations in December 2014. The new carrier is focused on customers that are outside Aeroflot’s reach without diluting the main brand position: it is therefore a crucial part of the growth strategy and not a defensive approach, and it has been made possible by the necessary legislative amendments recently introduced by the Russian government.
ATN: The political and economic turbulence across the world affects several clusters of the economy. Has Aeroflot been affected and what measures has it taken to overcome the challenges?
VS: In 2014 our key sales regions were Eastern Europe, South-East Asia, the CIS and the Baltics. The fastest growth among top-20 countries in 2014 came from Korea, Israel and China.
Higher sales in South-East Asia have been driven not just by direct flights but also by transit passengers, as explained above.
Aeroflot is confident in the long-term potential of the Russian market and believes that the company’s strategy is strong enough to manage the challenges of the current economic situation.
ATN: Safety over the last year has been a matter of great concern. Aeroflot maintains a good safety record. In a totally unstable world what measures do you take to operate to some messy destinations?
VS: Aeroflot pays special attention to ensuring the highest safety standards. In 2013, Aeroflot’s flight safety performance indicator was level (99.961%). The SAFA safety ratio at Aeroflot’s subsidiaries also improved significantly. In 2014, Aeroflot enhanced further its flight safety performance and plans a number of initiatives for safety performance 2015. Obviously, a young and modern fleet plays an essential role, together with thorough and in depth constant training of all operators.
ATN: EU has adopted recently some sanctions. Do they affect your operations?
VS: A major casualty of the EU sanctions was Dobrolet, our first low-cost carrier, which was forced to shut down in August 2014.
Still, we managed to relaunch the low cost project within our Group in a record time – and currently Pobeda (our new LCC) is within Russia’s national Top-10 carriers (passengers carried in Q1 of 2015). The LCC Pobeda began operations in December 2014, just 3 months after Dobrolet’s grounding, and has carried over 600,000 passengers since then.
ATN: We would like you to comment on your business class product, as well as share with us any passenger comments from their experience?
VS: Aeroflot business class is known worldwide for its highest standards of comfort and the atmosphere of traditional Russian hospitality.
Business class travelers on short-haul flights on board our newest A319/329/321 aircraft enjoy cozy seats with 38 inches (96 cm) pitch, 19 inches (46 cm) width and 18° decrees recline in 2-2 configuration. Our passengers on board Aeroflot long-haul fleet aircraft (state-of-the-art Boeing 777 300 ER’s and Airbus 330’s) experience the ultimate comfort on full-flat seats in 2-2-2 configuration.
The aircraft are equipped with ergonomic seats designed in accordance with the latest comfort requirements. B777’s cabin configuration offers 3 classes – Business, Comfort and Economy. Comfort Class gives an opportunity to enjoy express check-in, extra baggage allowance, and newly designed, comfortable seats in a separate cabin. Passengers also benefit from a special menu, double Aeroflot Bonus miles and many other advantages.
We have already described our approach to on board service: let us just add that the business class menu is revised every three months according to customers’ preferences at Aeroflot on-board menu tasting ceremony.
