Ural Airlines' strategy: from a primary carrier to primary airports

24.10.2013 — Analysis

Until just a few years ago, most passengers thought of Ural Airlines and Koltsovo airport as Siamese twins who held a residence permit for Ekaterinburg.

But nowadays, the departure point for a UAL flight might not be Ekaterinburg at all, but perhaps Moscow or St. Petersburg, and for this reason not everyone associates the airline with the capital of the Urals. In an exclusive interview, Sergei Skuratov, the general director of Ural Airlines, spoke to RusBusinessNews about how UAL operates as a national-level carrier.

- Mr. Skuratov, Ural Airlines has been and remains the primary carrier for Koltsovo airport. What percentage of passengers fly out of Ekaterinburg "on your wings"?

- It's true, there was a time when Ural Airlines was the only carrier that flew out of Ekaterinburg and was responsible for 100% of its flights, but those days didn't last long. Today the airline provides about 35% of the total passenger traffic from Koltsovo. That was our statistic in 2012 and it's still true.

In my opinion that's a normal figure. Any market can become saturated. One notable difference is that our passenger traffic is currently growing faster than the airport's. During the first three-quarters of this year, passenger traffic at Koltsovo grew 15%, compared to 27% for Ural Airlines, because our airline made the right move - our development is not limited by the opportunities at that airport.

The difference in the numbers is the result of our search for new approaches. Obviously Ural Airlines is initiating new flights each year and increasing its frequency of flights, but we're also quite busy in other airports as well - Moscow, St. Petersburg, etc.

In general, the percentages are calculated afterwards, first we formulate the volume and geography of our flights. We have no particular desire to raise or lower those percentages, they're working figures.

- All right, but what about the figures for your payload capacity?

- Overall, Ural Airlines fills a little over 70% of its seats each year. A lot of factors influence that figure. There are flights within Russia that operate at 50% capacity, and others, from Moscow in particular, where that number is 80%. Only some of the flights from Ekaterinburg are like that, most of them operate at about 60%.

I've pointed out more than once that for most Russian airlines, domestic flights either lose money or just break even. For example, Ural Airlines offers winter flights to Norilsk that operate at no more than 50% capacity, which means red ink. But, in our opinion, that's not so bad. Yes, those winter flights lose money, but we understand this and support them year-round with an eye toward the summer payload. This calculation is justified because Ural Airlines is one of the best air carriers in Norilsk.

- As the primary carrier for Koltsovo, did you help the airport develop a business model for its work with other airlines?

- I think we helped them. After that single aviation business was divided 20 years ago into an airport and an airline, there was a difficult period of trying to figure out how to coordinate the work. We found ourselves in 30 arbitration courts in one year! Of course the airport had different managers back then, but the fact remains. We have now arrived at a model that is acceptable to everyone and have learned to live together. Of course, there are still a few problems, but they can be quickly and efficiently resolved in the course of normal operations - it's a standard business process.

But I can say with confidence that having a primary carrier makes an airport very happy. One airline that provides 35% of its traffic means a stable source of income for an airport. I don't think that this percentage could be quickly matched by someone else, if all of a sudden we weren't at Koltsovo anymore. I very much doubt that someone else from another company would continue with those winter flights to Norilsk.

There are also many examples of airports that have lost a primary carrier, including major cities like Chelyabinsk, Samara, Krasnodar, and Krasnoyarsk. The airports there are in a difficult situation, they're having a hard time. So when we suddenly enter these regions with a few flights, creating a fan of air travel, that powerfully stimulates the development of the airport itself and the city. And everyone knows that - they're happy to see us and they help us, the governors shake our hands and ask if we want to become the region's primary carrier.

- And what's included in this concept of a "primary carrier"?

- In my opinion, more than anything it's where the company has located its technical facilities and is legally registered. So Ural Airlines is the primary carrier for the Sverdlovsk region. Our technical facilities are located here at Koltsovo airport, and we're currently building a new center for aircraft maintenance.

This will be a unique structure, one-of-a-kind in Russia - a hangar complex measuring one hundred by one hundred meters, which can simultaneously accommodate four A320 planes, or two A320s plus one wide-body, such as an A330. Once this center is up and running, Ural Airlines will be able to handle its own heavy-duty maintenance operations. Currently we have to book those services in foreign centers. This is expensive, both in terms of money and time because the plane has to be taken out of operation.

Ural Airlines is a legal entity registered in Ekaterinburg and paying all its taxes here, and those are paid faithfully, by the way. The company is not a single ruble behind on its taxes. And we're talking about a lot of money! The company currently employs 2,200 people, and the airline's average salary is 83,000 rubles a month - just the personal income taxes alone amount to tens of millions of rubles.

But it's about more than taxes. Most of our employees live here. Every day, they make purchases, demanding and paying for goods and services, many of which are produced locally. Of course, we also employ professionals in other cities. For example, we have a good technical facility at Domodedovo, a separate squadron is based there. That's understandable - we have a lot of traffic from Moscow, comparable to Ekaterinburg.

- How many airports does Ural Airlines currently use?

- Our main bases, as I've said, are in Ekaterinburg and Moscow, followed by St. Petersburg. In addition, we send a lot of flights out of Samara, Krasnodar, and Nizhny Novgorod. Those cities are followed by Krasnoyarsk, Irkutsk, Ufa, and Kazan - our routes fan out everywhere.

- There's a popular belief that we could, say, take away Ural Airlines' Moscow destination and then a competitor would take over those slots and offer lower prices because of the frequency of the flights. What's your view of this "fantasy scenario"?

- Currently there are 20 flights a day from Ekaterinburg to Moscow, seven of which are ours. The airport will give slots to any carrier. So I don't think it's quite right to say that Ural Airlines is blocking anyone from coming in here or that there are too few airlines operating on the market. We don't force any of our passengers onto our flights - they choose our company themselves, based on their preferences and their own list of criteria.

There are, of course, a small group of people who would be happy to fly "on a broom" but are only willing to pay three rubles. But I would advise them to take a close look at the carrier they choose and evaluate the risks. Recently, for example, an Israeli company promised cheap fares from Ekaterinburg, but for some reason they never flew anywhere - they just made a lot of noise about it.

- Today, looking at the lineup of airliners at Koltsovo, you could really say "every nation has come to pay us a visit" - Lufthansa, Finnair, Flydubai, the Italians, the Czechs, the Turks... But you were the ones who paved the way to fly abroad from Koltsovo. What is Ural Airlines' current share of the international flights from Ekaterinburg?

- We're responsible for a respectable share of international traffic. And, unlike our foreign colleagues who fly, for example, between Prague and Ekaterinburg or Helsinki and Ekaterinburg, we offer broad geographic coverage - 30 different countries to which Ural Airlines operates several flights a week from Ekaterinburg and other Russian cities.

If someone requests a charter flight, we're prepared to fly anywhere, even to the US, although we'd have to have stopovers. If we get requests for charter flights - we'll fly.

The airline was created for passengers and takes their wishes into consideration. A simple example is that of the foreign companies that fly into Ekaterinburg - what they call business class is just an empty seat between two others. That's economy class with just with a particular approach to service.

We've spent several million dollars revamping the front cabin in our airplanes and equipping it with comfortable, wide seats in business class. As a result, Ural Airlines' business class is almost always full - we offer wonderful service, drinks, and food. In short - we've created a comfortable environment for our passengers.

- Your fleet of aircraft is a pertinent subject. Have you satisfied your appetite for Airbus aircraft? Will we see Boeing planes carrying the UAL label? And will the A330 make an appearance on your routes?

- Every year we get between five and seven Airbus aircraft from the A320 family. I've already signed a contract to obtain six planes between now and May of 2014. Our short-term goal for the next 3-5 years is 50 aircraft, right now we have 30.

But I'm not advocating that we pursue the idea of just adding a large quantity of planes to our fleet. Of course it's possible to buy a lot of planes at once, but then they'll just sit around and a plane needs to be in the air.

Ural Airlines is committed to keeping our planes in operation. This year we averaged a total of 4,250 flight hours per airplane, or over 12 hours per day. Judging by these numbers, and according to research by the manufacturer (Airbus), Ural Airlines is far ahead of European airlines. In Russia, only S7 does better than we do - all the others, including Aeroflot, lag behind.

It's extraordinarily difficult to achieve those kinds of flight hours - it requires an airline to have a powerful engineering team. We've invested heavily to create that kind of team: all of our technical staff can work fluently in English (which is an amazing thing in Russia!), because all of the Airbus documentation is in English, without translation rights. And every year, foreign experts conduct comprehensive studies and test Ural Airlines' willingness and ability to service Airbus aircraft.

In regard to wide-bodied aircraft - it's too early to say if it will be a Boeing or an A330. We're currently evaluating a number of different options, comparing the configurations and operating conditions of the following types of planes: the A330-200, A330-300, and the Boeing 777. In accordance with the airline's development plans, the wide-body aircraft are scheduled to make their appearance in 2015. First we need to prepare the facilities, that technology center, for this type of equipment.

- And, finally, what figures does the airline plan to reach in 2013 and 2014? And to what extend are they achievable?

- We'll fly 4.5 million passengers this year. And I don't think it will be too difficult for us to add an additional million next year.

Interviewed by Vadim Dynin