Rising fuel prices are exacerbating the pandemic problems facing Russian airlines

© Reuters. FILE PHOTO: Airplanes are seen parked at Sheremetyevo International Airport outside Moscow

From Gleb Stolyarov

MOSCOW (Reuters) – Demand for domestic air travel is growing in Russia but is nowhere near as strong as fuel prices, which is hurting airlines’ still fragile finances as competition between airlines helps contain fares.

Airport fuel prices have almost returned to pre-crisis levels after falling close to 2016 levels early last year, when airlines landed their fleets in April during Russia’s first and only lockdown, which ran through June.

Passenger flows have gradually recovered since autumn, especially on domestic flights, although demand remains far below pre-crisis levels and ticket prices remain unchanged due to competition between airlines and the low purchasing power of customers.

“The rise in jet fuel prices is bad for airlines given the same prices and lower demand,” a spokesman for state flagship airline Aeroflot told Reuters.

According to Aeroflot, fuel costs tripled from the second to the fourth quarter to 15 billion rubles ($ 201 million). Prices have increased more than 40% since June, the spokesman said.

The average fuel price at Moscow airports is almost 70% higher than last May, according to Refinitiv, not far from a peak in 2018-19.

At this peak, fuel accounted for 26% to 31% of the airline’s total spending before dropping to 19% in 2020, a company spokesman said. It’s rising fast now, he added.

“This will definitely worsen the financial situation of the airlines as it is impossible to translate that increase into the ticket price – competition is fierce but effective demand is low,” he said.

Airlines expect another seasonal spike in May and June, a Ural Airlines spokeswoman said.

“This will add to the losses of airlines that are already in a very difficult financial situation … sooner or later this will result in the entire industry having to receive government support,” said Mikhail Ganelin, senior analyst at Aton. a mediation.

The closure and deactivation of many international flight routes halved the flow of passengers in the past year.

The government backed the airlines with nearly 21 billion rubles and helped Aeroflot by buying stakes in a new stock offering.

Airline losses could have reached 200 billion rubles last year, the Association of Air Transport Operators (AEVT) said.

AEVT, which owns most of the major airlines except Aeroflot, has made proposals to the government to help airlines with concessions like subsidies and tax breaks, an industry source told Reuters.

($ 1 = 74.5700 rubles)

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