Analysis of the dynamics of air passenger transportation in Russia
See ACRA’s analytical commentary Where is Russian aviation flying to? from February 8, 2023 for more details.
In spite of all the difficulties that the Russian air market has faced, in 2023 its operational metrics demonstrated stable positive dynamics. The number of passengers transported last year increased by 10.7% year-on-year and reached 105 mln. Although passenger traffic did not reach the level of pre-pandemic 2019 (18% short) or the level of 2021 (5% short), the 2023 performance of Russian airlines can be assessed as a success in view of the operating conditions.
The structure of the market in terms of international and domestic routes was practically unchanged in 2023. The main market continues to be internal (Russian) routes, while the increase in international passenger traffic last year by more than a quarter only resulted in minor growth of this segment, from 19% in 2022 to 22% in 2023.
The results recorded by Russian airlines last year correspond to ACRA’s optimistic scenario (passenger traffic at 95–110 mln, domestic routes with a 75–80% share), although it assumed a considerable decline in geopolitical tension and removal of a significant part of the restrictions imposed on the Russian aviation market, which did not happen. The operational metrics were supported by the growth of real disposable incomes, the resumption of the trend toward increasing mobility of the population (it was largely limited from 2020 to 2022), and a number of other factors that led to an increase in demand for air transportation services.
Figure 1. Passenger traffic of Russian airlines, mln passengers
Sources: Federal Air Transport Agency, Ministry of Transport, ACRA
The factors specified above allowed Russian airlines to increase the volume of passenger traffic even in conditions of growth of ticket prices, although demand for flights is usually highly sensitive to this. As a result, total revenue of Russian airlines grew, according to ACRA’s estimates, by 31% in 2023 (to RUB 1.37 tln), which is an absolute record and even exceeded the indicator for 2019. At the same time, given accumulated inflation and the size of the market compared to 2014–2015, the market returned to the levels of 2017 in terms of the number of transported passengers. Consequently, the increase in ticket prices observed in 2023 has so far only compensated for the lack of adequate price indexation in previous years.
Figure 2. Revenue of Russian airlines, RUB bln
Source: ACRA
A similar picture can be seen when analyzing RASK1 dynamics. Over the past 10 years, there were two episodes of sharp price growth — from 2015 to 2016 and in 2021, when RASK increased by more than 15%. In the other periods, the indicator did not change or declined significantly (for example, in 2017 and 2020). Accordingly, with average annual inflation at around 7% in 2013–2023, the average annual increase in RASK over this period was approximately 6%. According to ACRA’s calculations, this indicator grew by 16% in 2023, which was due to both the growth in the cost of air tickets, as well as the increase in the share of more expensive routes, including the aforementioned international routes. Similar dynamics were demonstrated by the average price for economy class flights (+22% in 2023) calculated by Rosstat, although the method for calculating this indicator and RASK have certain differences. In January and February 2024, Rosstat recorded further growth of air ticket prices by more than 30%. Despite dynamics that are characteristic of the start of the year, the Agency assumes that RASK will not be much higher than last year’s indicator.
Among other factors contributing to the increase of airlines’ revenue, ACRA also highlights growth of the average flight distance, which had an impact on the passenger traffic of the market. Historically, the average flight distance for international routes has been more volatile than for domestic routes, although since 2020 this volatility has increased considerably amid the difficulties faced by the segment. At the same time, we note that the dynamics of the average flight distance for domestic routes to a much greater extent reflect the changes taking place in the market.
The rather strong decline of the average flight distance for domestic routes in the mid-2010s was largely explained by the development of the low-cost segment. This led to a significant shift in passenger traffic with a travel range of 800–1,200 km from rail transport to aviation. The sharp growth of the average flight distance from 2022 to 2023 was driven by development of domestic tourism, which partly replaced overseas trips, as well as the lengthening of routes to the airports in the south of Russia that were not shut down in 2022. The lengthening of routes due to avoiding certain territories increases airlines’ costs, but it is not always possible to shift these additional costs to the end user.
1 RASK (revenue per available seat kilometer) is an airline’s revenue per seat-kilometer. For the purposes of this analytical commentary, ACRA calculated RASK based on the total revenue of Russian airlines, since most carriers do not disclose revenue from passenger air transportation separately.
Figure 3. Average distance of domestic flights, thousand km
Sources: Federal Air Transport Agency, Ministry of Transport, ACRA
In 2012–2019, the dynamics of CASK2 closely correlated with the dynamics of RASK, therefore, the RASK/CASK ratio, although low, consistently ranged within 1.04–1.13x. In 2020–2021, the industry faced a sharp drop in air transportation traffic, so price incentives were introduced to support demand. As a result, in 2020, RASK decreased by 5% against the backdrop of a 13% increase in CASK, which led to the RASK/CASK ratio dropping below 1.0x — to 0.88x. Tight control over operating expenses allowed the market to restore this ratio to its standard level (1.05x) by the end of 2022, and this indicator grew to 1.21x in 2023.
Government support measures made it possible to mitigate the consequences of the unfavorable events for the market in 2022–2023. After airlines gradually adapted to the new operating environment, government subsidies began to decrease, which, among other things, drove ticket prices up in 2023. At the same time, last year the refund of aviation fuel tax remained, which had a positive impact on the performance of air carriers.
2 CASK (cost per available seat kilometer) is the operating expenses of an airline per seat kilometer. For the purposes of this analytical commentary, ACRA calculated CASK excluding depreciation costs, but included all lease payments. The calculations of CASK also excluded government support measures (including subsidies and aviation fuel tax refund).
Figure 4. RASK and CASK of Russian airlines
Source: ACRA
ACRA believes that the assumptions for the three scenarios described last year remain relevant this year. As in 2023, the Agency is currently considering the inertial scenario as a base case scenario, assuming that the geopolitical situation will remain unchanged along with the current restrictions for the Russian aviation market. Under this scenario, ACRA expects the traffic volume to remain comparable to 2023 (100–115 mln passengers) with an unchanged market structure (the share of domestic flights at 75–85%). It would be difficult for airlines to show stronger growth mostly due to the limited size of their fleet and the difficulties associated with its maintenance.
ACRA estimates the likelihood of aviation market being able to maintain the RASK/CASE ratio at the level of 2023 as low. In the Agency’s opinion, the major surge in air ticket prices has already occurred, and any further hikes may negatively affect traffic volumes. At the same time, operating expenses would retain their growth potential both due to an increase in aircraft maintenance costs and the need to raise wages. Of the measures of state support, only the aviation fuel tax refund will remain. As a result, the sector’s revenue in 2024 may be in the range of RUB 1.3–1.6 tln, and the RASK/CASK ratio may decrease to 1.10–1.15x.
The stress scenario is based on the assumptions of a potential aggravation of the geopolitical situation, as well as a tighter sanctions regime or stricter oversight of compliance with sanctions. This scenario incudes a notable deterioration in macroeconomic indicators, which would lead to an almost complete cease of government support measures for the sector and the inability to compensate for increased operating costs by higher ticket prices. In such a scenario, passenger traffic in 2024 may drop to 85–100 mln with the share of domestic flights above 85%. The total revenue of Russian airlines may decrease to RUB 1.0–1.3 tln, and the RASK/CASK ratio may fall below 1.0x.
The optimistic scenario suggests a noticeable relaxation of geopolitical tensions and withdrawal of most of the restrictions imposed on the Russian aviation market. In ACRA’s opinion, the main positive effect of this scenario is likely to manifest in the medium term. The Agency assumes that under this scenario, the number of passengers may increase to 115–125 mln in 2024, and the share of domestic flights may fall below 75%. The total revenue of Russian airlines may increase to RUB 1.6–1.8 tln, while the RASK/CASK ratio may amount to 1.15–1.20x.
