HSE experts see the threat of conflict of interest within the group of “Aeroflot”

The experts of the Institute for transport Economics and transport policy HSE (Higher school of Economics) has prepared a report on the situation in the airline industry to Deputy Prime Minister Arkady Dvorkovich. With the study were able to see “Kommersant”.

As the report notes, after “Transaero” on the market there is a tendency towards monopolization. So, the Aeroflot group in the first quarter of this year increased its share of traffic up to 55% (in January-March 2014 was 40%), analysts estimated. S7 group has strengthened its position by 3 percentage points to 15%, “Ural airlines” — up to 6%.

Group “Aeroflot”, said the HSE, was “market dominance ahead of the nearest competitor four times and almost a complete monopoly on long-haul transportation from the Russian side”. The authors of the report concluded that preservation of a competitive environment in the aviation industry will be “the result of the goodwill of “Aeroflot”.

While analysts have criticized the business model of “Aeroflot”, which, according to the HSE, will lead to systematic conflict of interests within the group. Now Aeroflot is a multi-brand structure that brings together segments premium (Aeroflot), economy (“Russia”) and the low-cost carrier (“Victory”).

The report explains that at the moment in the world of Aviatrassy there is a tendency towards convergence of business models the classic carriers and low-cost airlines and a shift premium of companies in the segment. So, reward companies reduce the quality of supply and low-cost airlines expand the list of services in pursuit of a more profitable customer.

Experts predict that passengers will go from “Aeroflot” to “Russia”. This ultimately will limit the development of segment — to retain high-margin customer in the “Aeroflot”.

Specialists of the HSE drew attention that the division of business “Aeroflot” will not improve the situation, as Russia will not be able to continue to exist without serious state support”. In turn, the formation of a separate strategy for this company worsen the position of “Aeroflot” and will further strengthen the conflict of interest in the group.

The authors of the report concluded that maintaining the existing model of market development carries risks for the industry and consumers, while any new strategy is also linked to “serious difficulties”. So, alignment conditions, for example, the redistribution royalty on the TRANS-Siberian routes, which are now “Aeroflot” receives from foreign carriers, and the admission of other companies to an international destination will not lead to the formation of competition – it’s “you’ll never beat the stock market forces a group of “Aeroflot”. The experts stated that due to market circumstances and regulatory decisions now the choice of the industry development associated with various “bad” options.”

In S7, commenting on the report, agreed that Aeroflot has a monopoly on some international routes. The company noted that the group after the departure “Transaero” has received 100% of the most popular routes from Moscow that were interested in other players.

Aeroflot noted that members of the group exchanged views with the head of the Institute for transport Economics and transport policy HSE Mikhail Blinkin, however, refused to comment on the content of the report. The source said “Kommersant” that subject to the foreign carriers its market share since the beginning of the year is only 39.6% and in 2015 amounted to 46%.

Upon the instructions of Arkady Dvorkovich the study was sent to the Ministry of transport, Ministry of Economics, FAS, Minister on “Open government” Mikhail Abyzov and the industry participants. The FAS promised to study and consider the report in the work. Blinkin told the publication that the meeting of experts with the top management of “Aeroflot” was the consensus. He promised that the compromise of postie will be published in the near future.