Aeroflot looks to spread its Russian Wings

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For most airlines, the banning of smoking on all flights may not seem like a
particularly radical move. But for Russia's flag carrier Aeroflot the
recently introduced ban marks a major shift in policy. In one of the most
tobacco friendly countries in the world, where restrictions on smoking in
public places are rarely observed if introduced at all, Aeroflot's move could
alienate its traditional customers. For Aeroflot though, the move is symbolic
of its attempt to remould itself as a modern, international carrier, and to
end its reputation of being a low-priced relic of rather unfriendly
Soviet-style service. Since its birth in the early years of the aviation
industry Aeroflot has enjoyed a near monopoly in its domestic market, and was
the only choice for the few Soviets travelling abroad. When the country began
to open itself to competition in the late 1990s, Aeroflot lost its virtual
monopoly and, as a result, the revenues.

Revolution missed The company lost out badly to foreign airlines as its
ticket booking software was obsolete, and its flights were absent from almost
all online booking companies.  Aeroflot's boss is trying to boost the
company's profile



Foreign travel agents complained about Aeroflot's reluctance to issue
electronic tickets and to provide its passengers with the now widely accepted
practice of picking up a booked ticket just before the departure. In addition
to the computer problems, Aeroflot also had an image of being unsafe. But in
recent years, under Valery Okulov, the company's chief executive and Russian
former president Boris Yeltsin's son-in-law, Aeroflot has started to regain
market share.

Fighting back When the Russian currency was devalued in 1998, the company
found itself in a position to cut costs and prices. And with the economy
rebounding, Aeroflot enjoyed a sharp rise in sales of domestic flights. The
company, which generates the major of its revenues in the former Soviet Union
and Western Europe, was relatively untouched by the crisis which gripped the
aviation industry following 11 September.  More than 11 million passengers
pass through Moscow's main airport each year



Passenger number increased by 15% in 2001 and the company even managed to
record a small profit. Now Aeroflot is targeting the international market.
Last year the company employed Identica, a London-based consultancy, to
improve the carrier's image. Damian Schogger from Identica says that there is
a misconception of Aeroflot in the West. Although it has a image of badly
maintained or dangerous planes, its safety record is among the top 5% of the
world's carriers. T

roubles ahead But Aeroflot faces several problems as it seeks to expand.
Aeroflot spokeswoman, Irina Dannenberg cites Russia's lack of international
standard airports as one of the main obstacles to the airline's development.
Moscow International Sheremetyevo airport, built in the late 1970s, is
already running at full-capacity, and construction of a new airport is not
expected anytime soon. Aeroflot also needs to modernise its fleet of 111
planes, of which only 27 are Western-built Boeings or Airbuses. The small
size of the company means raising cash to buy or lease planes is not easy,
even though the recent slump in the aviation industry has cut leasing costs.
The industry troubles have also pushed down ticket prices across the
industry, reducing Aeroflot's price advantage over other airlines.

Smoking ban not enough Analysts agree that Aeroflot is set to maintain its
dominance within the Russian domestic market, as low-cost airlines are not
expected to threaten in the near future. But the company could face problems
with any international expansion plans. Analysts says the airline could be
squeezed between the large European flag carriers and low-budget airlines
such as Ryanir and Easyjet. Banning smoking is a start, but it seems that
Aeroflot still has much to do before it can be seen as a serious
international player in the aviation industry.







Leo/ORD

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