Gloomy Days Ahead For Russian Airlines

Think the airline industry has it tough in the U.S.? Looks like it's no better in Russia. The Russian news agency ITAR-TASS has reported that the Russian aviation industry is in deep trouble and some airlines are facing potential bankruptcy. The reason is the same one that is plaguing the U.S. airlines, jet fuel prices. The cost of aviation fuel in Russia has risen over 70% and even though Russia has its own vast oil deposits, kerosene prices in Moscow are some 5-6% higher than in Europe. Some are predicting that as many as 50% of Russian airlines could go under if conditions don't improve.

In Russia the heaviest demand for air tickets is during the summer peak, and demand falls considerably in the low season October-February, and so some air carriers may be short of revenues to pay to fuel suppliers. Smaller airlines are more vulnerable. Yevgeny Ostrovsky, the director general of a trade house supplying jet fuel to Russian airports, predicts that only five airlines, Aeroflot, S7, Rossiya, Transaero, and YUTair, are likely to survive due to their strong partnership with the government or with large corporations. Even Aeroflot, the largest carrier, has seen the price of jet fuel cut down its profit margin from the 9% it posted in 2006 and 2007 to 3% this year to 2% in 2009.