Aeroflot posted a profit in the first half of the year for the first time since 2017

Aeroflot's net profit for the first half of 2024 amounted to 35.3 billion rubles. Profit for the reporting period was recorded for the first time since 2017. But the company will face expenses on spare parts and engines

Russia's largest airline Aeroflot received a net profit under RAS for the first half of 2024 in the amount of 35.3 billion rubles against a loss a year earlier. Profit adjusted for exchange rate differences amounted to 24.3 billion rubles. Revenue for the second quarter increased by 47.2%, to 166.9 billion rubles, for the half-year - by almost 52%, to 312 billion rubles.

"The company continues to show high revenue growth rates, outpacing the growth rate of costs, thanks to the growth in transportation volumes and seat occupancy. In the first half of the year and the second quarter of 2024, the company showed historically high revenue for these periods, positive gross profit, and for the first time since 2017, net profit," the carrier said in a statement.

Passenger turnover for the past period increased by 32.7%, seat occupancy rate was a record for the first half of the year at 86.9%. The airline's passenger traffic increased by 28% year-on-year to 14 million people, the number of flights performed by 20.8%, the carrier explained.

The net profit figure also included more than RUB 10 billion in dividends from subsidiaries, the company specified. In 2023, the low-cost airline Pobeda, which is part of the group, received a record net profit of RUB 21.3 billion.

As a source in the carrier explained to RBC, exchange rate differences mainly affect the assessment of payments under aircraft leasing agreements. After the buyout of part of the fleet into Russian ownership for the period from 2022 to early 2024, the share of Aeroflot's foreign currency leasing obligations decreased from more than 90% to 60%, the company's DIRECTOR of Investor Relations and Capital Markets Andrey Napolnov reported in March. But some payments are still denominated in foreign currency, the source clarifies.

According to Aeroflot's annual report, insurance settlements were completed in 2023 for 76 Boeing and Airbus aircraft in the group's fleet (these aircraft were on operating lease). In addition, 18 aircraft were bought out from financial leases, which are not subject to sanctions . In February of this year, settlements were completed for seven more aircraft. Aeroflot's fleet at the end of 2023 consisted of 171 aircraft, and the entire group's fleet consisted of 349.

Changing the business model

The company also announced a change in its business model. "Aeroflot has effectively moved to a business model with a high level of capital expenditures, requiring resources to cover investment needs, allowing for the implementation of financing of the capital expenditure program for the purchase of spare parts, components and units to maintain the airworthiness of the fleet, as well as the digital transformation program, including a large-scale replacement of key it systems," the company explains.

“Of course, the airline had previously purchased variousconsumables for fleet operation. These are simple items — filters, gaskets, etc. They need to be changed frequently. But there is another category of components, for example, the same aircraft engines. Now access to aircraft engine service is, to put it mildly, difficult — they need to be either repaired ourselves or sent to Iran, but not all engines have been repaired in our country or in Iran, — notes Oleg Panteleev, executive director of the AviaPort agency. — Previously, before the introduction of sanctions, our carriers, when a particular part broke down, could contact Western spare parts pools and receive a similar product for the duration of the repair, interrupting the operation of the airliners for a minimum time. After the sanctions, access to the pools is closed. And now the task is to form the required volume of reserves at home. The operator of one of the world's largest pools of replacement spare parts is, for example, Lufthansa Technik, whose services were also used by Russian airlines, the expert noted.

Borrowed funds for the air transportation business at the current key rate of the Central Bank are simply unaffordable, so "we will have to get into the net profit as much as possible in order to reinvest it," he noted. "The more we can spend from the profit to form a pool of our own spare parts, the better for the stability of the airline. Because the main risk for the aviation industry today is the shortage of transport capacity, aircraft downtime." In addition, in the future, if possible, the Aeroflot group will be able to provide replacement spare parts to other airlines, separating this area into a separate business , in world practice it is quite profitable, Oleg Panteleev adds.

Aeroflot's fleet maintenance and repair costs have increased 3.5 times compared to last year, to 32.98 billion rubles, according to the report. This is explained by both the increase in flight hours and the rise in the cost of spare parts.

As for the localization of information systems, Aeroflot is still in the process of replacing such products as commercial analytics, dynamic pricing analysis, production activity system, business accounting system (formerly SAP, now 1C) with domestic analogues. "All these products are constantly being refined and changed in the process of installation for Aeroflot, to meet the specific needs of the group," explained a source at the airline.

What analysts say

The trend recorded back in 2023 (the airline, excluding exchange rate revaluations, received an adjusted net profit of RUB 50.5 billion for the year against an adjusted loss of RUB 40.4 billion for 2022) continued at the beginning of 2024, notes Alexander Gushchin, Senior Director of the Corporate Ratings Group at ACRA. “From January to June, passenger traffic increased by 28%, while passenger traffic on international routes, which are traditionally more profitable, grew by 34%. In addition, the market was characterized by a general increase in revenue rates for transportation,” the analyst notes. According to Rosstat, from the beginning of the year to June, the index of air travel costs increased by 28.2%. The average price for one flight in economy class per 1,000 km of flight in June was already RUB 8,473.

At the same time, the third quarter will have a key impact on the carrier's annual results, Gushchin continues. "Our forecast for the Russian air transportation market does not assume a significant increase in the number of passengers carried in 2024 compared to last year," he notes. In 2023, Russian airlines carried 105 million people. In May, the authorities adjusted the forecast for passenger traffic against the backdrop of a shift in the supply of Russian aircraft: it is expected to decrease this year to 98.1 million people. At the same time, Aeroflot can maintain good financial metrics at the end of the year, Gushchin believes.