Russia's Aeroflot gears up for one-off $820mn loss in 2018 on high fuel prices

Russia's Aeroflot gears up for one-off $820mn loss in 2018 on high fuel prices
Aeroflot's bottom line has been hit by the rising cost of fuel
By bne IntelliNews November 15, 2018

Russia's largest air carrier national Aeroflot prepares for a one-off revenue miss of RUB55bn ($0.82bn) in 2018 due to ruble devaluation and fuel price growth, Interfax reported on November 13 citing the CEO of the company Vitaly Savelyev. 

Reportedly he estimated that jet fuel is 35% more expensive year-on-year in 2018, which alone would cost Aeroflot RUB32.8bn. Another RUB22bn could be lost on weaker ruble, as over 50% of company's payments are in FX.

As the government bets on aviation as one of the instruments of boosting regional interconnectivity under the six-year infrastructure development plan, it is possible that jet fuel prices could potentially be tackled by direct regulation. Most recently high motor fuel prices led to a direct intervention by the government with the largest domestic suppliers. 

Currently Aeroflot is buying jet fuel Russian oil majors Rosneft, Gazprom Neft, and Lukoil based on long-term contracts regulated by oil-pegged price formulas. The head of the Federal Antimonopoly Service (FAS) previously urged carriers to buy fuel on commodity bourses to minimise costs.

In the meantime the air travel market is expected to see tightening competition, with Aeroflot announcing an ambitious growth strategy which directly targets domestic regional market shares of its closest private competitors S7 and Ural airlines.

Ural, in turn, recently announced adding new foreign destinations. S7 aims to get a competitie edge by modernising its fleet, in large part to minimise fuel consumption by latest Boeing and Airbus jets.

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