Management practices of Russian companies. Vol.2. Коллектив авторов

today at Panov’s meeting with consultants from Bain, Aeroflot’s long-standing partner in developing strategic business development programmes.

      CHANGE OF FLAGSHIP?

      In Aeroflot Group’s previous strategy, the main member of the group was Aeroflot Airlines, whose fleet comprised medium-haul and long-haul, including intercontinental, aircraft. Aeroflot Airlines positions itself as a premium carrier. As the global trend shows, the premium segment will continue in the new post-COVID environment, but it will not grow as fast as the low-cost segment. The overall market tendencies and especially its business travel segment are changing. Companies are reluctant to buy business class tickets on short flights, the number of business trips have decreased as negotiations move to an online format, and the incomes of potential individual consumers in a pandemic are decreasing.

      INCREASE POBEDA SIXFOLD

      At the core of the suggestions made by Kate Cook and Trevor Geitz – consultants from Bain, an international strategic consultancy, is a proposal for the low-cost airline Pobeda of the Aeroflot Group to transfer the main routes (medium-haul) currently served by Aeroflot to Pobeda. Currently, the low-cost carrier has only 30 aircraft in its fleet. According to one of the scenarios developed by Bain consultants, Pobeda will carry 55–65 million passengers a year by 2027–2028. This is six times more than it was in the pre-crisis 2019, when the company served 10.3 million people. Accordingly, Pobeda’s aircraft fleet should grow to 170 aircraft.

      The consultants’ calculations show that Aeroflot’s projected total annual traffic of 130 million passengers by 2028 corresponds to the level of the entire Russian civil aviation industry for 2019 (128 million passengers). The expansion of Pobeda’s operations in Russia’s domestic market will result in a 30 % reduction in economy class fares. This will certainly not make their competitors happy, Panov thought. Trevor also stressed that the new domestic routes for Pobeda, which have low margins, are likely to be affected by the new trend of reduced business class travel in the short-haul segment. All of this has the potential to exacerbate the industry’s recovery from the pandemic. The risks of increased competition on domestic routes that Pobeda would enter were decided to be worked out in more detail at the next meeting.

      Aeroflot, which ranked first among Russian airlines in terms of passenger traffic in 2019 (37.2 million passengers), should focus on routes with high demand for business class (e.g. Paris, London, Geneva, Zurich) and long-haul routes (e.g. Lisbon, Madrid), as suggested by the consultants. Estimates of passenger traffic for Aeroflot should remain at the same level of 35–40 million passengers per year.

      HOW TO DIVIDE THE SKY?

      Aeroflot’s main competitors in Europe are its SKY Alliance TEAM partners – Air France-KLM,[1] Europe’s largest airline group, and Lufthansa Group,[2] representing the Star Alliance network.

      Andrey was familiar with Carsten Spohr, the head of German airline Lufthansa, who became the chairman and chief executive of the company in May 2014 and Benjamin Smith, a Canadian businessman and Air France-KLM executive who took over in 2018. Prior to that, Benjamin was president of Air Canada and its chief operating officer. Both Carsten and Benjamin are recognised professionals in the management of major airlines. All three have met many times at IATA venues (International Air Transport Association).[3]

      Andrey reflected on how the new strategy should take into account the specifics of the competitors’ anti-crisis activity and what measures to strengthen the competitive advantage, both on domestic and international routes, are likely to be proposed by consultants.

      RESTARTING THE AIR STRATEGY

      Once the board has approved the new strategy, it will need to work extensively to agree the new agenda with all stakeholders, break down the goals and KPI and communicate them to all members of Aeroflot group. For each budget figure, convincing arguments, calculations, assessments, and proposals for organisational change will be required.

      Going into the meeting with Kate and Trevor, Andrey reflected that today’s meeting on key changes to Aeroflot’s strategy was crucial, but only the first step on the road to new goals. What will this first step be, how high can and should Aeroflot fly in the long term, and which new destinations should form the basis of the sustainable development of the company, one of the world’s leading air carriers?

      NATALIA GUSEVA

      Professor, Department of Strategic and International Management, HSE Graduate School of Business

      #Cross-culturalManagement #ModernManagementTrends

      MARIA DVORYASHINA

      Guest lecturer, Department of Marketing, HSE Graduate School of Business

      #MarketingStrategies #MarketingMetrics

      APPENDIX 1

GROUP OF AEROFLOT COMPANIES

      Aeroflot[4] is a group of three key carriers, offering customers a wide choice of solutions through its extensive route network and various carriers, ranging from the low-cost carrier Pobeda and the regional carrier Rossiya, which has the social mission of connecting the Russian regions, to the premium carrier Aeroflot.[5]

      Aeroflot’s vision is to remain the uncontested leader in domestic and international air travel for Russia and be among the best airlines in the world, combining dynamic development and high reliability with quality service. The implementation of the company’s main objective is based on a system of values, such as client confidence, results for shareholders, teamwork, and social responsibility.[6] By early 2020, Aeroflot was the holder of the most prestigious international awards in the aviation industry:[7]

      • “Five stars” for punctuality of flights from the British analytical agency OAG. Among those receiving the maximum score, Aeroflot was the only airline in Russia and the largest in Europe in terms of traffic volume.

      • For the eighth time, Aeroflot has been named ‘Best Eastern European Airline’ by Skytrax World Airline Awards.

      • Aeroflot won the two main categories in the World Travel Awards 2019 – Leading Airline Brand and Best Business Class. The airline has maintained its status as the most recognisable brand in global aviation for three consecutive years, remaining the first and only holder of this title from the World Travel Awards in history.

LUFTHANSA GROUP

      The Lufthansa Group[8] is an international airline group represented by European network airlines, low-cost airlines with direct flights without connections and companies providing services to the aviation industry. The group includes Deutsche Lufthansa AG, Germany’s flagship carrier, Swiss International Airlines, Austrian Airlines, Brussels Airlines, and the low-cost carrier Eurowings.

      Lufthansa Group’s main priority is to combine an attractive route network, the highest quality of service, and affordable prices in the economy segment. By investing in technology, the company aims to make its customers’ journeys more comfortable: “Passengers may not notice it, but they will feel it.”

      Lufthansa Group is the founder of the Star Alliance network, which was established in 1997 as the first global airline alliance to offer international reach, recognition, and seamless service to international travellers. Its recognition by passengers has been acknowledged with numerous awards, including Air Transport World Market Leadership Award and Best Airline Alliance by Business Traveller Magazine and Skytrax.

AIR FRANCE-KLM GROUP

      Air France-KLM Group[9] is the world’s largest player in the air

1

https://www.klm.com/travel/ru_ru/corporate/airfrance_klm.htm

2

https://www.lufthansa.com/pe/en/lufthansa-group-star-alliance-and-partner-airlines

3

https://www.iata.org/en/pressroom/pr/28-03-2019-01/

4

https://www.aeroflot.ru/ru-ru/about/aeroflot_today/materials, https://www.youtube.com/watch?v=Zf1_T4ruZ68 (video)

5

https://www.aeroflot.ru/media/aflfiles/media/strategy/strategy_2028_rus.pdf

6

https://www.aeroflot.ru/ru-ru/about/aeroflot_today/ourbrand

7

https://www.aeroflot.ru/ru-ru/about/aeroflot_today/aeroflot_history/2010_2019/2019

8

https://www.lufthansa.com/ru/ru/lufthansa-group-star-alliance-and-partner-airlines, https://www.youtube.com/watch?v=DjYfOvRyZ1E (video)

9

https://www.airfranceklm.com/fr/groupe/atouts, https://www.youtube.com/watch?v=Zf1_T4ruZ68 (video)