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Russian flirting with low fares – again

Russia is giving the low-fares air transportation model a second chance. The new budget carrier Dobrolet, a subsidiary of the country’s largest airline Aeroflot, made its first revenue flight on June 10 from Moscow’s Sheremetyevo airport to Simferopol in Crimea. The company’s 189-seat all-economy Boeing 737-800 was 96% full on this flight, carrying 148 adult passengers and 34 children. Dobrolet currently operates two of the type, both leased, plus a single Sukhoi Superjet 100 regional jet taken from Aeroflot to meet the three-ship minimum fleet requirement for obtaining its Air Operator Certificate. The document was issued by the Federal Air Transport Agency on May 19. Dobrolet expects to expand its Boeing 737-800 fleet to eight aircraft by the end of this year, and should eventually bring it up to 40 by 2018. Simferopol is the only destination so far. But the airline aims to launch flights from Moscow to Perm and Volgograd in August. By the end of the year its route network is expected to have expanded to cover several other domestic destinations. Dobrolet plans to launch international flights to CIS countries and Europe beyond 2016. By 2018, it expects to be serving 45 routes and carrying over 10 million passengers annually. Dobrolet is the second attempt to launch a low-fares business model in Russia. The previous experience came at the end of the 2000s with the privately-owned start-ups SkyExpress and Avianova. Both ceased operations in 2011 due to financial difficulties. The launch of Dobrolet, on the other hand, was well planned beforehand on the regulatory end. “A low-fares carrier will not take off in Russia unless we harmonize our legislation with the global standards such as non-refundable tickets, separate onboard meal and baggage fares, and foreign pilots,” Aeroflot CEO Vitaly Saveliev stressed in October 2013 when announcing the company’s plans for a budget subsidiary. And the authorities were quick to respond. Laws allowing airlines to sell non-refundable tickets and hire foreign aircrew were adopted this spring and come into effect in summer. The State Duma (Russia’s parliament) is already discussing the possibility of introducing baggage surcharges. Nevertheless, some of the existing Russian realities still make the low-fares model a rather risky business. First of all, there is the lack of airports which could offer lower ground servicing prices. Although initially Aeroflot wanted Dobrolet to operate from Moscow’s Domodedovo or Vnukovo airports, the budget subsidiary ended up having to compete with its parent airline at Sheremetyevo. There are plans to move Dobrolet to Moscow’s Ramenskoe airport, which is owned by the Rostec state corporation, but the facility will not be built until 2015. The airline’s potential Russian regional destinations mostly cannot offer inexpensive airport options either. Another factor is that the launch of Dobrolet is likely to trigger a new wave of price wars among Russia’s top carriers. Although Aeroflot’s major rivals Transaero and UTair are not planning to launch their own low-fares subsidiaries, these two airlines are integrating individual budget elements into their full-service models. Since January this year, Transaero has been operating Discount-class flights from Domodedovo with Boeing 737 Classics and Tupolev Tu-214 narrowbodies. The service is currently offered on 18 domestic routes, some of which coincide with Dobrolet’s planned network, and also on international flights to Kazakhstan, Ukraine, Germany, Israel, Italy, and Lithuania. Two Discount flights to Vienna and Milan are operated from St. Petersbrug’s Pulkovo. UTair launched special low-fares fights from Moscow’s Vnukovo to Chelyabinsk and Omsk this winter. The fares are valid if purchased online from the airline’s website not later than three days prior to departure. The airline flies new 220-seat, all-economy Airbus A321s for these services.

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