In recent news, Aeroflot CEO, Sergei Aleksandrovsky has stated that the Russian flag carrier is expecting a “strong” operating profit in the third quarter of this year.
During the 2023 Eastern Economic Forum this week, Aleksandrovsky shared an optimistic outlook regarding the future of Aeroflot with reporters.
The Eastern Economic Forum is an international forum held each year in Vladivostok, Russia. Its primary purpose is to encourage foreign investment in the Russian Far East. It has been held each year since 2015.
During the event, Aleksandrovsky reportedly told reporters, “We (Aeroflot) plan to end the third quarter with a strong operating profit.” However, Aleksandrovsky didn’t provide specific forecasts for other financial results and KPIs.
Windfall tax for Pobeda
In addition to this, Aleksandrovsky mentioned that Pobeda, the low-cost carrier within the Aeroflot Group, “will be the only airline in the group to pay the windfall tax”. The payment is estimated to be around “650 million rubles (£6.7 million USD).
In simple terms, windfall tax is a term used to describe “a one-off tax levied on companies deemed to have made unreasonably high profits” (Institute for Government, 2022).
This summer Russian President, Vladimir Putin approved a windfall profit tax on large Russian companies as the government seeks additional sources of income for the ongoing war in Ukraine. (Bloomberg 2023).
It’s worth noting that Aeroflot reported an IFRS (International Financial Reporting Standards) net loss of 102 billion rubles for the first half of 2023, compared to a net profit of 73.7 billion rubles in the same period of 2022.
The poor economic performance is most likely due to the crippling effect of sanctions and regulations levied as a result of the war in Ukraine.
Effect of Ukraine war
Since the beginning of the war, Aeroflot has had to strip back its route network considerably. As it stands the majority of Europe and North America have seen a suspension of flights to, from, and even overflying Russia.
Similarly, carriers from Russia cannot overfly European and North American airspaces, often being forced to reroute and take long detours.
However, when considering exchange rate revaluations, the net loss actually decreased by 26% to 20.1 billion rubles from 27.2 billion rubles the previous year.
Aeroflot’s domestic and Asian route network still appears to be operating as usual with the Russian flag carrier still offering direct flights to international destinations such as New Delhi, Bejing and Dubai.
The carrier even offers a thrice-weekly route to Havana, Cuba, on the doorstep of the USA, with an artic route avoiding European airspace.
Generous state funding such as the “$3 billion from Russia’s National Wealth Fund” (Reuters, 2022) has played a key part in keeping the airline Airbourne in the wake of harsh international sanctions. Therefore, we can assume the future of Aeroflot appears to be secure for the time being.
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