President of Russia Vladimir Putin: Mr Poluboyarinov, overcoming the economic challenges created by the pandemic is still on our agenda. The transport industry has suffered the most, and air travel was its worst-affected sector. Aeroflot is Russia’s largest carrier. I know that it is gradually recovering, at least passenger traffic on domestic flights has increased compared to the previous year. However, overall passenger traffic is lower than it was pre-pandemic, in 2019. What is the situation today?
Aeroflot CEO Mikhail Poluboyarinov: You are quite right, Mr President. I have prepared a brief presentation, and if you will allow me, I would like to show you a few slides to brief you on the latest developments.
You were right to note that globally the sector is still struggling. In 2020, passenger traffic dropped by 60 percent, and in the first seven months of 2021 the decline was 47 percent. Analysts do not expect the global market to recover before 2024.
In Russia, air travel has suffered less. We have yet to overcome the crisis, but the situation is much better. In January-July 2021, we recovered almost 70 percent of our traffic. Moreover, domestic flights demonstrated an 18 percent increase above the pre-pandemic level.
Accordingly, we can say that global recovery has been slow, but the Russian market has been leading in promoting recovery in its domestic air service. Still, we do not expect to reach pre-pandemic levels before 2023.
Vladimir Putin: Are you referring to domestic flights?
Mikhail Poluboyarinov: Yes, but domestic flights include both international destinations, and flights within Russia.
Speaking of Aeroflot’s market standing against this backdrop, we see that passenger traffic is recovering along with the Russian market. By August 2021, we almost reached pre-pandemic levels with only 11 percent to go. Of course, it was the fast recovery of domestic traffic that drove this growth. If we look at domestic air services, we can see that in the summer of 2021 our group exceeded the 2019 indicators by 30 percent.
Aeroflot has been able to deliver this result thanks to a new route network. We never had anything like this before. Only the Soviet Union had a route network of this kind. The gist of the new approach is that instead of relying on Sheremetyevo as our single hub, we place more emphasis on all the major regional airports. This way, people can travel to the Black Sea coast, where so many of us love to spend our holidays, bypassing Moscow. This is a convenient solution, and we intend to keep moving in this direction.
As for international air services, there has been some recovery, even if it has been on the slow side: we are still 62 percent below the previous year.
As for the impact all these developments have had on our financial performance, 2020 was extremely challenging for us. We reported a loss of 123 billion rubles. Overall, thanks to targeted and timely government support, we were able to meet all our financial obligations, and, most importantly, to retain our unique team.
As for 2021, we are doing everything to minimise losses and cover as many financial needs as we can on our own, without asking the state to step in. For example, we almost broke even in the second quarter of 2021, which nearly doubled our financial indicators for the first six months of 2021.
We did report a loss of 27 billion because international air services had yet to recover at the time, but this was still better than the year before when we had a loss of 58 billion. As a matter of fact, the market has praised our efforts: since the last share issue last year our shares have added 12 percent, and we received a high credit rating that is just one point below the sovereign rating.
I would like to say a few words about our strategy. Despite the pandemic-related slump, Aeroflot is accomplishing all the tasks of the strategy that you have approved. I would like to briefly recall the main provisions of the strategy until 2028. Aeroflot should become a global premium-class flag carrier, prioritising high-profit and medium-range flights from Moscow and also long-haul flights. Pobeda is a low-cost carrier offering low prices and focusing on the rapid growth of the market’s mass segment. Rossiya Co. is our centre of competences for effectively operating Russian-made aircraft, and its chain focuses on flights bypassing Moscow.
I would like to report that we have implemented all of the strategy’s plans, conceived by us for 2020 and 2021.
In brief, we have launched a joint route network of our three air carriers from Sheremetyevo, we have given over 50 Aeroflot aircraft to Rossiya and Pobeda, and we have launched a new regional hub in Krasnoyarsk, and this hub has proved to be quite successful. We now operate flights from the new modern B and C terminals at Sheremetyevo, and we have set up a centre of competences for operating Russian technology at Rossiya Co.
Vladimir Putin: How does this hub function in Krasnoyarsk and what do you think about its prospects?
Mikhail Poluboyarinov: To be honest, we did not even expect this to happen because all historical trends were disrupted during the pandemic, and we have launched the hub little by little since the summer. Our first routes linked Krasnoyarsk with Sochi, Simferopol and Blagoveshchensk. People were quite eager to buy tickets because they liked direct flights and because they also liked to deal with Aeroflot. Passenger traffic volumes soared at a breathtaking pace. Therefore, we are now planning to operate Airbus A320 airliners from there.
Vladimir Putin: In his time, Governor Lebed promoted the idea of the Krasnoyarsk hub.
Mikhail Poluboyarinov: Indeed, that was a very correct idea and the right choice.
Mr President, in this connection, I cannot help but note and, maybe, even boast a little that, despite the complex situation in our sector, Aeroflot has not wavered in its achievements and it guarantees high punctuality and high-quality services to its passengers. Even in August 2021, we took first place in the world for punctuality, despite unprecedented air traffic volumes.
Our stable and high customer satisfaction index exceeds that of such companies as Air France, Delta, KLM and Lufthansa. In effect, we are outpacing them. Of course, our clients remain loyal, because of our consistent approach towards punctuality and service standards.
If I may, I will briefly dwell on our main growth driver as well as the driver of price reductions, Pobeda Airlines. There is no other airline today, in the world or in Russia, that would have performed so well, even closing 2020, the most difficult year, with a profit of 1.5 billion rubles. We expect the company to carry over 14.5 million passengers in 2021. I would like to note that, as we have planned in our strategy, we will cut prices by up to 30 percent for destinations that Pobeda Airlines serves. It is not just a plan – it is a reality, which includes joint flights operated by Aeroflot and Pobeda.
Undoubtedly, we can note Pobeda’s big contribution to increasing mobility. At least 13 percent of customers have been able to afford to fly for the first time in their lives, and 30 percent of the destinations served are unique. Therefore, I believe it is important that, thanks to the launch of the Pobeda low-cost airline, Aeroflot Group has offers for passengers in all price segments.
A few words about our company Rossiya Airlines. It is growing as a centre of excellence and effective operation of domestic aircraft. The chosen strategy proved correct, as we observed an increase in efficiency and in the health of the aircraft fleet. Thus, Sukhoi Superjet has reached 75 percent serviceability in 2021. This has never happened before. In July 2021, growth in Sukhoi fleet's flight hours at Rossiya Airlines exceeded the July 2019 level by 27 percent.
Despite the problems that the aviation industry is struggling with, we continue to fulfil our obligations to our partners. At the end of 2021, Rossiya Airlines fleet will have 66 Sukhoi Superjets; next year we expect to have the first four MC-21s, and, as planned, in 2028, we should have 150 Superjets and 85 MC-21s.
Vladimir Putin: You have 350 aircraft in your entire fleet, do you not?
Mikhail Poluboyarinov: Now there are 352. In 2028, we will have 235. This will account for nearly half of the entire fleet in 2028.
Vladimir Putin: 235 Russian-made jets?
Mikhail Poluboyarinov: Yes, domestic production.
Mr President, I would like to say that all the measures taken have enabled us to maintain the group’s economic efficiency, and also to fulfil our social obligations.
Our own flat rates programme that you supported continues to evolve. In 2021, we have already surpassed our 2019 level: we will transport 2.5 million passengers, including 1.3 million to the Far East. This is more than in 2019, when we transported 2.3 million.
Therefore, I can say that we can see great support for this programme from the population. And we ask you, Mr President, to support Aeroflot's proposal for the further development and implementation of this programme in 2022.