This article from NYTimes.com has been sent to you by psa188@juno.com. /-------------------- advertisement -----------------------\ Share the spirit with a gift from Starbucks. Our coffee brewers & espresso machines at special holiday prices. http://www.starbucks.com/shop/subcategory.asp?category_name=Sale/Clearance&ci=274&cookie_test=1 \----------------------------------------------------------/ Air Travel in Russia Remains Strong December 27, 2001 By SABRINA TAVERNISE MOSCOW, Dec. 21 - Russian airlines have been relatively untouched by the Sept. 11 terrorist attacks on the United States that have brought so many Western carriers to their knees. Amid a global collapse in air travel, in Russia it actually rose by 12 percent from September through November of this year versus the comparable period last year. For all of 2001, Russian airlines will have carried 24 million to 25 million passengers, up from last year's total of 21.8 million. In a vast land of notoriously bad roads, where traversing the country by train takes the better part of a week, Russia's air travelers have little choice but to keep flying. And considering Russia's spotty safety record, they are not easily frightened. The remote threat of terrorism is not enough to discourage flying. "Russians aren't afraid - they know it all and have seen it all," said Vladimir Savov, an airline industry analyst at Brunswick UBS Warburg, a Moscow-based investment bank. "At first there was a little shock, but on the domestic market, everything is fine." Still, the industry has a long way to regain ground lost in the 1990's, when economic collapse and sharp rises in ticket prices wiped out the domestic leisure travel industry. Domestic air travel has shrunk 80 percent since the fall of the Soviet Union. At the same time, however, international travel, virtually nonexistent in Soviet days, has doubled. And when world air travel collapsed this fall, these flights were affected. The partly state-owned Aeroflot, Russia's largest airline, accounts for 68 percent of Russia's international flights, and has a much smaller share of the domestic market. It estimates that it lost about 3 percent of passenger volume this year. That, however, is a small loss compared with the huge declines in the American airline industry since then. "For us, the negative effects gathered slowly," said Alexander Zurabov, Aeroflot's first deputy director, referring to the terrorist attacks in the United States and the spate of plane crashes later in the fall. "There was not a sudden drop like in America." Aeroflot, which had been dogged by financial scandals and slow to adjust to market competition, improved markedly when a new management team took control in 1998. Since then, it has hired the consulting firm McKinsey & Company to advise it on how to reorganize, has eliminated unprofitable routes and has added more flights on high-demand routes. That helped increase passenger volumes by about 30 percent, to about 6 million, and last year turned Aeroflot's chronic losses into profits. The company's stock price is up 36 percent since August, buoyed by the recent bull market on Russia's stock exchange. Even more important for Russia's airline industry is consolidation among the country's 290 regional airlines, analysts say. These companies, spun off from Aeroflot in the early 1990's and nicknamed Babyflots, lack the money to upgrade Soviet-era fleets. They clog Russia's small domestic market, and, analysts say, must merge to make the market more efficient. "Eighty percent of airlines are financially unstable," said Igor Medzhibovsky, deputy director of the Ilyushin Finance Company, a Moscow-based aircraft-leasing company. "They are not able to afford even leasing new aircraft. The Russian government wants merging and concentration to be happening as soon as possible." Though consolidation has been slow to start, there are some early signs that it has begun. This summer, Siberian Airlines agreed to acquire a Moscow-based carrier, Vnukovo. Siberian Airlines, based in Novosibirsk, an airport hub for Asian destinations including four major Chinese cities, has grown quickly. After the merger it would become the second-largest passenger airline in Russia. Siberian Airlines has had some tough moments of its own. In October, one of its passenger planes was shot down by a stray Ukrainian missile fired from the Black Sea during a training exercise. All 76 people on board were killed. At the time, the company said it would sue the Ukrainian government for more than $10 million in damages. A spokesman said that the company, mired in paperwork from various government commissions inspecting the plane crash, had not yet filed suit. Still, the company said, the crash did not hurt business. One obstacle to consolidation is the cozy relationship between regional airlines and local airports, which grant them exclusive agreements and prevent out-of-area airlines from landing planes. The regional airports "use a lot of cunning ploys" to keep out national carriers, said Aeroflot's Mr. Zurabov. "For example, ongoing runway repairs stop only for the half hour while the local airline lands its plane." That is beginning to change. Increased competition and tougher financial discipline is leading to a shakeout in the industry, and industry experts say the federal government has been tougher with small, insolvent companies. And as Russia's economy, which is entering its fourth year of growth, continues to expand, the country's airline industry will benefit. Even the attitudes among Russia's notoriously surly flight crews have begun to change. More and more, employees "want to work in a modern company, not a glorious one," said Larisa Solodukhina, who runs staff training programs at Aeroflot. http://www.nytimes.com/2001/12/27/business/worldbusiness/27RUSS.html?ex=1010474315&ei=1&en=68c803ad61d729f3 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact Alyson Racer at alyson@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2001 The New York Times Company