Investing in Biggest Airline in Russia

Why we want to invest to Aeroflot.

Aeroflot (PJSC Aeroflot Russian Airlines) is the flag carrier and largest airline of the Russian Federation. It is an open joint stock company that operates domestic and international passenger and services, mainly from its hub in Moscow at Sheremetyevo International Airport.
Aeroflot is also one of the oldest airlines in the world. It’s history started back in 1923. During the Soviet era, Aeroflot was the Soviet national airline and the largest airline in the world.
After the USSR period it became a semiprivate (It is 51%-owned by the Russian Government) company, 19th most profitable airline in the world in 2007. Aeroflot is still considered the de facto national airline of Russia.

Biggest airline in Russia

By year 2017, Aeroflot owns 42% of Russian “sky” (42% of all flights are made by the company) . It is planning to increase the number of planes in its fleet up to 361 by end of 2018 and up to 401 by year 2022.

Aeroflot plane

Big increase of passenger traffic

In the first months of 2017 Aeroflot has 17% increase in passenger traffic all over the flights. The company is planning to further increase numbers and go up to additional 11,8% from 2017 numbers.
On the meeting with President Putin, the CEO of Aeroflot mentioned that the airline plans to become the best in Europe and to take the leading positions in the world rankings on passenger traffic.

Possibly high dividends

The CEO of Aeroflot stated on the summer 2016, that moving forward the company is ready to pay out at least 50% of the IFRS net income. The general director of the carrier also informed President Putin that Aeroflot had reached a record capitalization of 116 billion rubles, which exceeds the similar indicator of Air France – KLM.

Moving towards new technologies

Aeroflot-Rossiyskiye Avialinii PAO (MCX:AFLT), has welcomed Bitcoin and its likes. Company wants to be prepared for the possible change of crypto-currencies status and it is examining ways of possible use of such currencies. Aeroflot has recently published a procurement notice for proposals for the implementation of crypto-currencies and related technologies in its operations.

Great results in safety, trust and passengers satisfaction

Aeroflot was the first Russian company to hit the high four-star rating of the Skytrax in terms of service quality. In 2017, for the sixth time,  Aeroflot gained the prestigious international award Skytrax World Airline Awards in the category “Best airline in Eastern Europe”. Same year Aeroflot was awarded the highest rating “five stars” in the most prestigious category – “Global airline” – from the American aviation association APEX.

Aeroflot is among the world’s leaders in ensuring the safety of flights. The coefficient of the program of the European Commission SAFA  corresponds to the level of the world’s leading airlines. Aeroflot was the first Russian carrier to get certificate from IOSA and constantly confirm this certificate. The airline has successfully passed an ISAGO ground safety audit as well.

man in airport

What are we aware of

After doing great in year 2016, Aeroflot entered turbulent zones in 2017.
Results of first three quarters of 2017: revenue does not keep pace with costs.
Company’s poor operating results for the 2nd quarter of 2017 got published on August 29 and provoked a sharp decline in quotations.

Increased Operating Expenses

Operating expenses grew at a high rate (+ 15.4%) to 362.9 billion rubles.
The cost of aviation fuel increased by 21.7% and amounted to 89.9 billion rubles. The increase in aviation fuel costs is caused by an increase in average prices for jet fuel in rubles, as well as an increase in traffic and flying hours.
The cost of servicing aircraft and passengers amounted to 74.7 billion rubles, an increase of 15.3%, mainly due to growth in traffic volumes as well as due to the introduction of initiatives to improve the quality of service. Labor costs increased by 25.8% to 60.5 billion rubles.

Weak Ruble

Possible further weakening of the Russian currency can cause the decrease in passengers traffic especially on international flights.

Stronger competition.

The sudden increase of stock price at 2016 – 2017 was partly due to the bankruptcy of main competitor – Transaero when Aeroflot managed to get the best destinations from the failed company.  In the nearest foreseeable  future there will be no such gifts.
Overall – we decided to wait until March, when PJSC Aeroflot – Russian Airlines is going to publish the results of the 4t quarter and of the whole year. Until then – we monitor.

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