Sector

Sovereigns

Activities

Transportation

Type

Analytical commentary

Analysis of the recovery of air passenger transportation in Russia

In H2 2021, the Russian air passenger transportation market came as close as possible to the level recorded at the end of 2019 prior to the outbreak of the coronavirus pandemic. Russian airlines transported 11 mln passengers in October 2021, which was only 1% lower than the indicator recorded for October 2019. Although November’s lockdown put a damper on the overall recovery trend, ACRA estimates that as early as the start of this year passenger traffic may reach the level of December 2019 when compared month-on-month.

In 2021, there were 111 mln air passengers, which is 13% lower than in 2019. Passenger turnover is somewhat lagging behind traffic in terms of recovery rates, but overall the performance of these indicators is similar. In 2021, the growth of COVID-19 infections did not have such a substantial impact on the rate of recovery of the air passenger transportation market as the introduction of additional restrictions. Taking this into account, ACRA assumes that if the authorities refrain from deploying additional restrictions and there are no other significant shocks for the industry in 2022, then by the end of the year the number of passengers transported by Russian air companies may reach the 2019 level, even in the event of sharp growth of the number of COVID-19 cases. Under the optimistic scenario, the Agency assumes market growth of 5–10% in real terms.

Figure 1. Recovery of passenger traffic of Russian airlines alongside average daily COVID-19 cases



Sources: ACRA based on data from the Federal Air Transport Agency, стопкоронавирус.рф

Nevertheless, in ACRA’s opinion, it is too early to speak of a complete recovery of the sector. This is because the structure of the market in terms of international and domestic flights changed during the pandemic. Prior to 2020, these segments had an almost equal market share, which fluctuated slightly depending on the economic cycle. However, in 2020–2021, the share of international flights, which were most profitable, declined to 20%. In addition, the fact that companies are maintaining rather low prices for air tickets due to strong competition in the market is slowing down the rate at which revenues recover. In ACRA’s optimistic scenario, which does not foresee any serious shocks in 2022, total revenues of air carriers may reach the pre-pandemic level by the end of the year. If new restrictions are introduced this year against the backdrop of an unfavorable epidemiological situation, and the restoration of international air transportation is delayed (or other large-scale risks for the industry are realized), then the total revenue of airlines may not fully recover until 2023–2024, according to the Agency’s forecasts.

Figure 2. Passenger traffic of Russian airlines, mln passengers


Source: ACRA based on data from the Federal Air Transport Agency

Apart from revenues, profitability has also not recovered in the air transportation market yet. It is worth noting that before the COVID-19 pandemic, the industry was on the verge of operating unprofitability. Rising inflation is pushing up airlines’ operating expenses, mainly fuel costs that represent a major share in operating expenses. The price index for jet fuel in fuel tanks at the airports of the Moscow Aviation Hub (MAH), as calculated by the St. Petersburg International Mercantile Exchange (SPIMEX), is now about a third higher than the 2019 average. Therefore, ACRA is of the opinion that profitability in the air passenger transportation segment may reach the level observed before the start of the pandemic no earlier than 2025.

Summing up, passenger traffic recovery is just the first step toward a general improvement in the situation in the air transportation market. The next step, which involves recovery of the share of international traffic, may be completed fairly quickly after the epidemiological situation improves. On the contrary, to increase profitability, airlines should demonstrate their strong commitment and take considerable efforts. Until then, the credit situation in the industry will remain tight.


Figure 3. Price index for jet fuel in fuel tanks at the airports of the MAH


Source: ACRA based on data from SPIMEX

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Analysts

Alexander Gushchin
Director - Head of SME Ratings, Corporate Ratings Group
+7 (495) 139 04 89, ext. 121
Svetlana Panicheva
+7 (495) 139 04 80, ext. 169
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