Aeroflot reports big losses amid Ukraine turbulence

Leading Russian airline Aeroflot dived into loss in the first half of the year, buffeted by the problems afflicting the Russian economy, the group said on Thursday.

The Russian economy is experiencing sharp slowdown, severely exacerbated by Western sanctions against Russia's support for separatists in eastern Ukraine.

The slowdown, sanctions, and a fall of the ruble which raises the cost of foreign travel and holidays, have undermined travel agencies and put the brakes on recent 20-percent annual growth of air-passenger traffic.

Several travel agencies have gone bankrupt, stranding passengers abroad.

Aeroflot, which is controlled by the state, reported a net loss of 1.9 billion rubles (40 million euros, $53.0 million) in the first six months of the year from a profit of 45 million rubles in the same period last year.

The company has achieved firm growth and rising profits in recent years.

The airline, a member of the SkyTeam alliance with Air France-KLM, reported an operating loss of 1.4 billion rubles from a profit of 5.2 billion rubles at the same time last year.

Underlying operating profit as measured by earnings before interest, tax, depreciation and amortisation, a key measure of performance, dropped 54.0 percent to 5.0 billion rubles.

"Slower economic growth rates in Russia, combined with significant one-off factors, had a negative effect on the Group?s financial results in the first half of 2014," deputy chief executive Shamil Kurmashov said in a statement.

But the airline had outpaced market trends on some counts, he said, and sales rose by 9.4 percent to 140.3 billion rubles (2.9 billion euros), driven by a 10.3-percent rise in sales from passenger traffic.

But operating costs rose by 15.2 percent, mainly because of the addition of new aircraft, either bought or leased.

Kurmashov said: "We grew faster than the market in key areas of operating performance, optimised our route network and expanded our fleet with modern aircraft.

"Despite the volatile economic situation we face this year, the Russian market continues to hold significant long-term structural growth potential, and the Group's unique competitive advantages will enable it to continue to outgrow the market," he said.

- Consumers cutting back -

Aeroflot's chief executive Vitali Saveliov was quoted by Russian news agencies this week as saying: "I have never seen such a big fall in demand since 2009".

He said: "People don't know how the situation will evolve politically and economically, and are beginning to cut back on purchases of luxury items or on travel."

He estimated that the company's passenger traffic could rise by 8.0-9.0 percent this year instead of by 15.0 percent as expected, and that the group might delay the purchase of some airliners.

Aeroflot operates many new Boeing and Airbus aircraft.

At the beginning of August, the group had to suspend activities of its new low-cost company Dobrolet because it was a target of European sanctions for operating to Crimea, which Russia annexed from Ukraine in March.

Aeroflot has said it will launch a new low-cost company to get round these sanctions.