New Russian airline to heighten competition

Russia will soon have a new national air carrier – a project of the Moscow City Government and the State Corporation Rostekhnologii. It could spell trouble for Aeroflot and other domestic carriers.

A new Moscow based carrier, combining Moscow Government airline Atlant-Soyuz and Air Union – could be registered by November 11th. Rostekhnologii General Director, Sergey Chemezov, says it would be the outcome of two years of planning.

“A decision was made over two years ago by the Russian government to create a company that would be an alternative to Aeroflot.  Today the founders of this state-run company met for the first time.”

Provisionally named “Russian Airlines” – the new carrier will fly both domestic and international routes, carrying both passengers and cargo.  An agreement was made along with the administration of Siberia's Krasnoyarsk Territory in September to merge several AiRUnion alliance members to ease cash-flow problems.  Moscow Mayor, Yuri Luzhkov says the new airline will put an end to these problems.

“The creation of the company will replace a whole line of air companies that lie in a state of financial and technical troubles – and in a state of bankruptcy.”

Earlier this year, AiRUnion was unable to pay for jet fuel – with Russian airports responding by refusing to service their planes – stranding thousands of travellers. The creation of this new company is a way for the Moscow City Government and the State Corporate Rostekhnologii to address both issues that are faced by the air transportation sector and also help to meet growing demand for services.

The new carrier plans to create a domestic hub network – including Moscow's Vnukovo airport, and bases in St. Petersburg, Krasnoyarsk, and Khabarovsk.  Analysts say that's a long-held ambition of Russia's largest airline Aeroflot – but it has been unable to achieve it, and Elena Sakhnova, Transportation Analyst, VTB Capital, says the airline may have considerable clout in the marketplace.

“This is a state-owned airline and this may mean that we will see a lot of lobbying, a lot of support, a lot of budget money going to this company.  And it may mean that competition may not be freer and that other airlines might suffer.”

One major challenge for the new airline will be a fleet upgrade. The state-supported company will need the means to purchase foreign-made aircraft compliant with environmental regulations in order to fly abroad. Most of Air Union's existing fleet are Soviet-era aircraft, which will not compete with rival airlines like S7 and Aeroflot which mostly fly modern Boeings and Airbuses.