OREANDA-NEWS. How would you describe the state of the Russian air transport  industry today?

Over the last four to five years, the transport industry has demonstrated both stability and growth. In fact, the level of growth is very strong - around 9-10% per year. The first quarter of this year is continuing the trend at around 10% growth.

This isn't too surprising because market development in Russia is very dynamic, and transportation is very much required - international as well as local.

In fact, international growth is higher than domestic growth, making the Russian market very attractive to foreign and local carriers alike. Traditional carriers are extending their activities in Russia, and as everybody knows, there are plenty of low-cost newcomers, including several airlines from Asia and the Middle East.

So competition is growing and in the future it will grow even more. But Aeroflot is used to working in a competitive environment, so in that respect it's normal for us. And these conditions help us to focus on making Aeroflot even more competitive.

You have previously complained about the infrastructure limiting your potential. There was talk of Sheremetyevo being privatised.

Is that still on the agenda?

No, the privatisation of Sheremetyevo is no longer on the agenda. However, the new Terminal, Sheremetyevo 3 - due to open at the end of 2007 - will be a private concern. Aeroflot owns 55% - 25% belongs to Vneshtorgbank and 20% to Vneshekonombank.

All Aeroflot flights and those of its partners in the SkyTeam alliance will be transferred to the new facility. Not only will it increase the capacity of Sheremetyevo and give us the opportunity to build our operational activities, it will also allow us to improve the image of Sheremetyevo. We expect it to be one of the best airport terminals around, very comfortable and with the latest technologies to ensure that passenger service is compatible with leading international standards.

In addition, a new runway is under serious consideration. However, there remains the serious problem of ground transportation between Sheremetyevo and the city. An ambitious project is under way to help remedy the situation. A railway link and new highway will go from Moscow to St. Petersburg and pass through Terminal 3.

Will being the principal player in the new privatised terminal
allow you to keep costs under control? It will let us control three things that are vital to our success as an airline. First, we will truly be able to create a hub. Secondly, we will be able to generate the necessary quality of service and thirdly, the costs of those services will be under our control.

Along with infrastructure, safety is a big issue in Russia. What more can be done to improve safety?
Safety is the number one priority for the industry, for Russian aviation and for Aeroflot.

There are some very serious administrative measures in operational safety in Russia, including the IATA Operational Safety Audit (IOSA). Passing IOSA is now necessary at state level. Aeroflot has undergone the IOSA process and achieved registration. We have just passed another, even more complicated audit with additional requirements.

Currently, there is a strong focus in Russia on the certification of airlines. There are also several projects concerning the consolidation of airlines, of which there are about 170 in Russia. This will help to control safety issues because more reliable and more experienced companies will be able to assist smaller, not so efficient companies. Basically, a bigger company has more resources - financial and administrative - to devote to safety. And certainly, fleet renewal is important and a lot of Russian airlines are now doing this.

What about pilot training. Do you have enough pilots in Russia?

We do have a problem with a shortage of pilots in Russia because the growth we mentioned before has been so strong. We didn't have enough time to prepare for the scale of aviation development.

However, more pilots are being educated in the state programme and Aeroflot itself has started a training school. A lot of investment has been made in the training programmes and a lot of work is being done to deal with previous problems with simulators. We actively use our own training centre, which is fully equipped with flight and safety procedures simulators.

In any case, we can't take pilots from abroad - it's prohibited by Russian law.

The other big issue in Russia is e-ticketing (ET). There was a legal barrier to ET until February 2007. Thaf s now been removed, so how do you see the development of ET in the Russian market?

Yes, until February we couldn't produce e-tickets. As far as Aeroflot is concerned, we have been technically prepared since last year. However, there is now a lot of work to do coordinating between GDSs, DCSs, and interline ET.

Once we got the legal situation sorted we started work immediately and we can now talk about 45% ET readiness - around 35-40 destinations. As of 1 June, in accordance with the regulations that apply to us, we started sales of ET in our sales offices in Russia and abroad. The main requirement was to install a cash register that will issue printed checks along with an ET slip - again, it's the law here.

We have signed interline agreements with all our partners and each month we adjust around five to seven carriers. Also, in the third quarter of 2007, agencies will be joining the programme, so we hope by the end of the year to be able to cover most of these issues.

The only thing that remains is that several regional airports are not ready for ET. If there is a possibility of using the local or regional DCS, we'll do it - otherwise we'll have to implement our own equipment. This, of course, is subject to negotiations with the airport so it could be a problem.

"How about the other Simplifying the Business (StB) projects, such as e-freight and CUSS. Do you see them playing a role?

Absolutely. We have installed several CUSS kiosks at Sheremetyevo and will install more in Terminal 3. All the other StB initiatives are in our plans. It was one of the requirements of SkyTeam. They advise us on preparations and we finalise all issues by the fixed date.

"Now you're a member of SkyTeam, has that changed your business?

Joining SkyTeam has helped us a lot because we passed international standards and these touch on a lot of issues in a practical way.

There are also all the commercial possibilities that we have gained through joining. We will try to use these in full and offer our clients a very large choice geographically speaking, as well as in terms of quality, common products, common initiatives and so on.

We still haven't used in full all the possibilities that the alliance offers us but already we have seen the load factor start to increase and transit traffic is growing too. Aeroflot has global ambitions and SkyTeam helps to implement them.

" I understand there is a plan to overhaul the air navigation service in Russia. What do you want to see as the result?

Most importantly, we are looking for an increase in capacity. We have to restructure management of air traffic and especially reduce vertical and horizontal separation — this will help to increase capacity.

Of course, there's a need for investment in infrastructure to do that and the government has an investment programme for the airports and navigation.

 have to ask about Alitalia. Aeroflot has tried to acquire control of this airline but eventually withdrew from the bidding. We've seen many different solutions proposed for Alitalia and there have always been problems. Did you have a Russian secret to solve them?

We had a strategic plan to make Alitalia profitable and efficient. We have experience in making changes. Aeroflot is operationally profitable and one of the most successful airlines in both the international and the domestic markets. And yes, there was 'a Russian secret'. I'm talking about the Russian market, which would have meant a new, vast business horizon for the Italian carrier - actually, a new life.

To make our plan work and risks appropriate we had to have a clear picture of the airline's operational and financial situation. But unfortunately, our bidding consortium, Aeroflot and UniCredit bank, had not had adequate information to formulate a well-supported business proposal. The conditions and requirements outlined by the Italian side in the privatisation process would have limited the ability of Aeroflot to implement the necessary measures to relaunch Alitalia. Those terms and conditions made a binding offer impossible.

This is why our company decided to withdraw from Alitalia bidding. We did it with regret. We have not acquired Alitalia but we have acquired valuable experience that will help us in the future. Aeroflot remains committed to expanding in Europe, both by increasing its own operations and by acquiring lucrative assets.

Going forward, you seem very positive on a lot of things. Where do you see the challenges for Aeroflot?

First is the restriction in connection with custom duties for new planes. Second is the state of airport infrastructure throughout Russia, which is very weak and not suitable for modern fleets and modern services. Third is the training of pilots and ground personnel because the market has grown and demands a growing number of specialists.

Russia, owing to its geography and size, is forced to be a great aviation country. Aviation has been required for many years and demand has grown. The increases in passenger and cargo traffic are some of the highest in the world.