ANATOLY GOLOMOLZIN: THE SHARE OF AIRFUEL COST IN AIRLINE EXPENSES GOES DOWN, CARRIAGES ARE ON AN INCREASE

In Q1 2018 the share of aviation fuel and lubricants in the airline costs structure was around 20%

The Air Code of the Russian Federation gives air carriers the right to set airfare. Overall, airlines gear to long-term sales, and tend to open booking for regular routes at least 180 days in advance - the seasonal navigation period. Choosing tariffs, air carriers are guided by their market strategy in view of the demand - supply conditions (the main factors are seasonality, the scope and intensity of transportation on a particular route), competitors’ actions and the costs.

Deputy Head of FAS Anatoly Golomolzin gave the official statistical data: “The share of aviation fuel and lubricants in the costs of airlines is going down, being around 20% in Q1 2018 (against 27% on Q1 2014). The biggest elements are aircraft lease – about 27% (the share increased from 15% in 2014), airport expenses - 15% (reduced from 16% in 2014), maintenance - 11%, salaries and wages with taxes – approximately 8%”.

“Reduction of the aviation fuel share in the costs structure happened because refineries used to supply fuel to airlines via a chain of intermediaries rather than working with them directly.  As a result of investigating a series of antimonopoly cases in 2010 – 2015, non-productive intermediaries left the market, and prices went down to 30%. The annual average prices for aviation fuel in the past three years were changing at the close-to-inflation rates -year, sometimes being ahead, sometimes lagging behind”, said Anatoly Golomolzin.

He emphasized that institutional conditions are created in Russia to enable sustainability of aviation fuel and aviation fuel supply markets: “In large airports there are two-three refueling complexes. Fuel is stored and used by airlines in accord with the Rules for non-discriminatory access adopted by the Government in 2009. Airlines can purchase fuel through the exchange, applying risk-hedging instruments from price fluctuations. Most fuel supplies fall under direct contracts with oil companies for up to a year. Airlines get compensated from the budget for fuel excises”.

Deputy Head of FAS informed that a system of transparent and regularly published indicators of fuel prices is built up in Russia: “From mid-December 2017 to March 2018 the exchange prices for aviation kerosene reduced by 1.13 times. From mid-April 2018 to the end of May 2018 there was a 1.17 times growth. The peak exchange quotations in December 2017 were 3% higher than the peak value in 2017”.

“The bulk of fuel is bought by airlines in the off-exchange segment on direct contracts with oil companies at the prices that typically are lower than exchange quotations (as of the beginning of June – by 2200 Rub/ton)”, pointed out Anatoly Golomolzin. “From mid-January 2018 to March 2018 the off-exchange price index reduced by 1.13 times. From April 2018 to end of May 2018 the off-exchange price index increased by 1.15 times. The peak off-exchange index growth in January 2018 was 2% higher than the peak value in May 2018”.

Fig. Area aviation fuel index for the European part of Russia (SPIMEX)
Red: Exchange
Black: Off-exchange
Green: Netback

According to “Aeroflot”, in April (before the spring-summer season) the fuel surcharge, additionally paid by passengers flying on domestic routes, increased by 350 RUB, reaching 1850 RUB. The air carrier does not intend to further increase the fee in the near future.

Summing up, Anatoly Golomolzin stated that “in view of all factors, the positive air transportation trends continue in 2018. In 2017 the passenger flow increased by 18.6% in comparison with 2016 (domestic routes - by 10.9% and international routes - by 32.1%). In the first four months of 2018 the passenger flow increased in general by 12.4% (domestic routes - by 11.1%, and international routes - by 14.5%) in comparison with 2017”.