Regional Market Russia
The Russian Federation stands out as a high-growth region for the aviation industry even among the BRIC countries with promising opportunities and challenges for all stakeholders. Lufthansa Consulting clients include airlines, airports and aviation authorities as well as related industries such as ground handling companies, cargo terminal operators, aircraft manufacturers and financial institutions. Our experts, including Russian speakers, are ready to assist you and find solutions to match your aviation business needs. Our clients range from global network airlines to medium size and small regional carriers, large aviation hubs and small regional airports. We look forward to working with you.
The Transport Week is an annual business event which includes a series of nationwide and international activities dedicated to the transport industry.The main aims of this year’s event are to openly discuss the most pressing transport issues and the strengthening of mutual understanding between representatives of the government and the business community.
Meet our Associate Partner responsible for the Russian and CIS market, Stanislav Solomko, who will be holding a speech about Unmanned Aerial Vehicles (UAV).
This year, the 14th Eurasian air transport forum will take place at the Renaissance Monarch Centre in Moscow from 1st to 2nd November.
Due to the development of the Eurasian aviation as well as global air transport, Wings of the Future 2016 is dedicated to become a place where all kind of aviation experts will have the opportunity to discuss and share their opinion of upcoming changes. Among others, the Eurasian development trends as well as the evaluation of airline business models are included in the great variety of this year’s key topics.
Meet Associate Partner Stanislav Solomko, responsible for the Russian and CIS market, Associate Consultant Alexander Saprankov and Anna Shachikova.
The Moscow International Forum for Innovative Development “Open Innovations” will take place at the Skolkovo Technopark in Moscow, Russia.
The two-day conference is an annual forum with the dedication to new technologies and prospects for international cooperation in the field of innovation. Their major objective is the exchange of practical experience, the promotion of leading research studies and development projects and the creation of new mechanisms of international cooperation in the field of innovation.
Bruno Boucher, Associate Partner and Head of Africa West, Central and North will hold a speech about Unmanned Aerial Vehicles (UAV). Furthermore participants have the opportunity to meet Dr. Andreas Jahnke, Managing Director, with Stanislav Solomko, Associate Partner responsible for the Russian and CIS market and Senior Consultant Mikhail Andriyanov.
The Estonian newspaper Eesti Päevaleht conducted an interview with Mr. Stanislav Solomko, Associate Partner and Head of the Markets Russia, CIS, and Baltic States regarding Lufthansa Consulting’s project for Nordica. Read the translated interview below:
The Ministry of Economic Affairs and Communications commissioned an expert opinion from your company, and your general assessment of the business plan of Nordica was positive. Please tell us how you came to this conclusion.
First of all, let’s take a few steps back. Airlines depend on passengers, i.e. clients, just like all other businesses. Air passengers can broadly be divided into two groups: those who are interested in the lowest possible price; and those who travel, for example, between Tallinn and Stockholm every day. The latter are clients who are prepared to pay more for the service they need. Passengers who’ll pay more are the most important ones in regional aviation, which is to say the business model Nordica follows, because no regional airline can compete with Ryanair or Wizz Air in terms of price.
Look at Ryanair: they started out with 11 routes from Tallinn, but if I’m not mistaken they now only have three. That shows that budget airlines don’t work in every region. The Stockholm route is the best example of where Ryanair failed. It wasn’t their business model to fly there three times a day; much less often. But that was Estonian Air’s niche: attracting clients who pay well, like bankers and senior managers – anyone who’s interested in a convenient flight schedule.
This is where Estonia’s new airline, Nordica, should also succeed if they manage themselves properly. I’m pretty sure they will, since Estonian Air was already one of the most cost-effective airlines in Europe. The decision of the European Commission that brought its activities to an end was an unfortunate one. So if Nordica manages to keep its costs under control and focuses on the right segment, they’ll be a success.
I’m not an aviation expert, but it seems to me that most Estonian air passengers look for the lowest price. I’m inclined to think we don’t have that many well-paying clients. Am I wrong?
Well-paying clients fly more, so keeping hold of them is vital. It’s important to note here that a well-paying client doesn’t automatically mean a client who flies in business class. It means anyone who’s ready to pay 50 or 60 euros for a ticket instead of 20 euros for a budget airline, so at least premium-class passengers. Ryanair can be used as an example here again. They only flew to Stockholm three times a week, but one in every three clients wants to fly back on the Stockholm-Tallinn route that same day. That’s why Estonian Air’s schedule, which had three flights a day, was better, and beat Ryanair.
How should Estonian Air have been managed to avoid bankruptcy?
Sure, the Commissions’ decision was lawful, but it’s sad the airline had to pay such a high price. There was no money for the expansion plans made in 2011-2012, but the investment made sense. True, it was very risky. As tends to be the case in business, investments don’t always pay off in the first few years, and Estonian Air’s shareholder – the state – wasn’t prepared for it. Making big investments only pays off fast if the company’s shareholder is rich or the state has oil. Take Qatar, for example, whose airline still isn’t making a profit, but it’s expanded strongly. Their economy’s growing as a result and the country’s on the map as a travel destination. When we look at an airline based solely on its financial indicators, we see one picture. But when we add the benefit to the state, we see the bigger picture, which is a lot more positive.
Both Estonia and Lithuania have seen their airlines go bankrupt. Only Latvia’s done better. Should the Baltic States have one joint airline?
The scope of a larger company would obviously be broader, and by that logic one large company would make more economic sense. But if you look at SAS, which has tried to follow a similar model, their results haven’t been great, as you know. They’re constantly struggling with financial issues. What this means is that making such a model work is complicated. Lithuania’s problem is that the passengers there look for cheap tickets, not suitable schedules. That of course gives budget airlines the advantage. It’s a different story with Latvia and airBaltic. Their expansion was a success because they weren’t as dependent on state aid as Estonian Air. The Latvians also have enough well-paying clients, and lots of routes to Western and Eastern Europe. It’s true that the poor economic status of Russia is also has an impact on Latvia and forcing airBaltic to review its routes. Establishing a joint airline is also complicated by the fact that both Tallinn and Rīga want to be hubs. It certainly wouldn’t work like that.
To read the original version of the published interview, please click here.
Nowadays passengers have a wide choice of airlines, ranging from low cost to legacy carriers, depending on their travel preferences and cost sensitivity. Rapidly growing and fast-moving competition compel airlines to get on track and work on their product offers in order to maintain passenger loyalty and win new customers. Regular product reviews and subsequent adjustments are essential in response to changing passenger needs, competitors’ offers and upcoming trends.
The impact of a well-developed product improvement initiative is often underestimated. The definition of a new product or current product adjustments may affect satisfaction levels among an airline’s customers and benefits for further stakeholders as partners, airline management, employees and shareholders.
Product optimization need not be restricted to high investment. It also gives airlines an opportunity to reduce related costs for innovative products by up to 20% based on establishing the right processes, raising efficiency and eliminating disinvestments. Simultaneously, revenues may be increased by up to 15% by diminishing the product investment backlog and boosting the attractiveness of the product.
In terms of product optimization, Lufthansa Consulting offers clients a comprehensive approach, using a well-proven set of tools and methods to create an optimal solution, tailored specially for the airline in question and the competitive challenges it faces.
Lufthansa Consulting has worked successfully with many airlines around the world to optimize their product and find answers to increasing competitiveness.
New greenfield airport in strategic location in Russia is designed by Lufthansa Consulting to function as a hub with two runways and a capacity of over 15 million passengers. The concept provides revenue enhancements and investment opportunities.
Processes and procedures were improved to conform with EASA requirements, particularly in material related activities. The airline achieved the first steps towards compliance both as an organization and as a maintenance organization.
Optimum performance on the ground and in the air – not wishful thinking, but day- to-day reality in one of the most challenging environments.