Airline Weekly - March 7, 2011

Cover Story

A Russian Ryanair? Ultra-LCC Avianova’s CEO Andrew Pyne speaks with Airline Weekly

Imagine trying to operate a low-cost carrier in a market where you can’t offer non-refundable fares and can’t, practically speaking, control your own seating density. Those are just two of the challenges facing Russia’s Avianova, which launched in 2009. But it’s backed by owners with a long record of success elsewhere in the world. It has only five aircraft for now, but it will soon serve 20 cities, and if it manages to continue navigating a tricky landscape, Avianova could well have an outsized influence in a market that’s large—but should be much larger. CEO Andrew Pyne spoke with Airline Weekly about how things have gone so far and what lies ahead.

Airline Weekly: Can you tell us a bit about the demographic characteristics of Avianova’s passengers? Are these generally price-sensitive leisure travelers? First-time fliers? Any business traffic?

Andrew Pyne: I think we can say this is essentially a new traffic segment. We’re aiming to draw passengers away from trains and buses and into the air. You tend to see people who have never traveled or have only traveled by surface.

AW: You fly to a number of cities along the Black Sea. Does that leisure market account for a big part of your revenues?

AP: The Black Sea has four of our 17 destinations. It’s not a dominant part of our network, but it’s an important part. We have a good geographical reach. We fly to the north, to the west—Kaliningrad—and we are about to launch services into Siberia [Surgut, Tyumen and Kurgan], which will take us to 20 destinations. We have a strong national profile. AW: Does Avianova obtain substantial revenue from ancillaries? What kind of products and services are for sale?

AP: Of course ancillary revenue is critical. The game plan is not novel. We want to get people in to the aircraft at the lowest possible fares and let them pick and choose what to spend money on. But we are trying to be innovative and creative in terms of new initiatives. Even standards that are taken for granted in western Europe or the U.S. are new to Russia. We were the first to charge for checked bags in Russia. The first to charge for seat assignments. Among the first to charge for food and beverages—standard practices elsewhere, but we were pioneers to introduce them in Russia. The take-up has been strong. Seat assignments in particular have been far more successful than we might have hoped.

AW: Can you tell us what percentage of revenues comes from ancillaries?

AP: It’s difficult to reveal that, but clearly it’s a growing area for Avianova.

AW: And as for profitability in general?

AP: That too is difficult to reveal, but obviously the start-up phase requires substantial investment and you’re not going to be profitable in your first months. We’re on track in terms of where we... (493 of 1973 words)

Also Inside this Issue:

Oil is up again, and airlines don’t like it. Neither do passengers, who are getting hit with rising fares and surcharges. And neither does the global economy.

But for now, airlines can enjoy looking back at 2010, which was a good year for the industry by historical standards. Brazil’s TAM and Ireland’s Aer Lingus, for example, have more to celebrate than just Carnival and St. Patrick’s Day, respectively. Both carriers were solidly profitable last year.

So, for that matter, was Portugal’s TAP, which benefited from the same Brazilian economic boom that’s propelling TAM. It now seems only a matter of time before someone tries to buy the Lisbon-based carrier.

Back in Brazil, TAM was active in the aircraft market, becoming the third customer for the A320-NEO (after IndiGo and Virgin America). It also bought some B777-300ERs. Its Brazilian regional rival TRIP, incidentally, bought some planes too (Brazilian-built E190s).

The Brazilian boom aside, IATA again lowered its profit forecast for the industry, not for lack of demand but solely due to pricier fuel. No wonder IATA is so keen to develop biofuel alternatives to petroleum.

Several U.S. carriers, including American and the always-bullish US Airways, said demand remains strong and pricing power firm. One conclusion to draw from this: all of the industry’s mergers, alliances and partnerships are achieving their intended consequences. Sure enough, SkyTeam invited another new member last week (Lebanon’s MEA) and American and WestJet announced a codeshare and frequent flier partnership.

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