Company Profile PJSC AEROFLOT Strategic Report Annual...

03PJSC AEROFLOTAnnual Report 2016


Company Profile Strategic ReportBusiness OverviewCorporate Social ResponsibilityFinancial ReviewCorporate GovernanceAppendixes

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COMPANY PROFILECHAPTER 1



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Aeroflot Group Airlines

Domestic 46International 87Total 133


Domestic 17Local 18International 16Total 51


Scheduled routes in 2016 Scheduled routes in 2016 Scheduled routes in 2016 Scheduled routes in 2016

9.9% Share of the Group’s passenger traffic


Aeroflot is Russia’s biggest carrier, leader of the Russian civil aviation industry, and one of the oldest airlines in the world. Aeroflot is based in Moscow Sheremetyevo Airport.

Rossiya is one of Russia’s largest carriers and the market leader in the North-West of the country. Based in Pulkovo (Saint Petersburg), Vnukovo (Moscow) and Rostov-on-Don airports. In addition to its scheduled flights, Rossiya operates charter flights.

Aurora is the Group’s carrier in the Russian Far East. It is based at Vladivostok, Yuzhno-Sakhalinsk and Khabarovsk airports and operates flights between the key population centres in the Far East and Eastern Siberia and flights from its base airports to remote cities and villages of the region.

Pobeda is the Group’s low-cost carrier, launched to further increase social mobility. Pobeda is based at Vnukovo airport in Moscow.

3.0 billion ASK

101.8 billion ASK

7.6 billion ASK

25.2 billion ASK

Available seat-kilometres




24 189 12 67 Aircraft fleet as at 31 December 2016

Aircraft fleet as at 31 December 2016



29.0 million PAX 8.8 million PAX

2.2 billion RPK

82.7 billion RPK

6.7 billion RPK

20.5 billion RPK

1.4 million PAX

Passenger turnoverPassenger turnover Passenger turnoverPassenger turnover

4.3 million PAX

73.0% 81.3% 88.3% 81.1% Passenger load factor

Passenger load factor






MORE INFORMATION ONMULTI-BRAND STRATEGYIS AVAILABLE AT PAGE 33

MORE INFORMATION ONOPERATING RESULTSIS AVAILABLE AT PAGE 44

MORE INFORMATION ONROUTE NETWORKIS AVAILABLE AT PAGE 51

MORE INFORMATION ONAIRCRAFT FLEETIS AVAILABLE AT PAGE 67




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2016 ResultsIn 2016, Aeroflot Group achieved high operating and financial results despite the challenging situation in the passenger transportation market. The Group strengthened its market position thanks to its effective strategy, which is well adapted to external requirements and is based on a presence in different market segments, and also to digitalisation and focus on financial discipline.

Staying on a growth track

Connecting cities and continents

Delivering the best offers

Ensuring sustainable development

Improving corporate governance

Enhancing financial stability

42.3%share of the Russian air transportation market

43.4 millionpassengers carried

326scheduled routes

51 countryflight network

4 starsin the Skytrax rating – Aeroflot airline

36.6 thousandpeople employed by the Group companies (as at 31 December 2016)

7+ corporate governance rating assigned by the Russian Institute of Directors

RUB 495.9 billion revenue (+19.4%)

10.3% passenger traffic increase

14.1% international passenger traffic increase

153unique destinations in the summer schedule, 144 in the winter schedule

SkyTeamAeroflot is a member of the global alliance

Aeroflot is the Best Airline in Eastern Europe according to Skytrax World Airline Awards

Social Support,Non-statePension Coverage – responsible approachto employees

3independent directors on the Board of Directors

RUB 137.6 billionEBITDAR, 27.7% EBITDAR margin

7.6% domestic passenger traffic increase

42.1%share of international passenger traffic

292aircraft in the fleet

30aircraft – net increase in the fleet

37long-haul aircraft have Wi-Fi access points

7 thousandfree tickets issued as part of the Mercy Miles project

Compliance with the key requirements of the Corporate Governance Code

RUB 38.8 billionnet income

81.4%passenger load factor

3.1 p.p.passenger load factor increase

4.2 yearsaverage age of Aeroflot airline fleet

6.5 yearsaverage age of Aeroflot Group fleet

72%Aeroflot airline’s Net Promoter Score

Support for Russian sports, culture, and cinema

40.4%free float

RUB 91 billiondecrease of net debt




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→07PJSC AEROFLOTAnnual Report 2016



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Operating and Financial Highlights

Passenger trafficMILLION PAX

RevenueRUB BILLION

Passenger turnoverBILLION RPK

EBITDA and EBITDA marginRUB BILLION AND %

Passenger load factor%

EBITDAR and EBITDAR marginRUB BILLION AND %

Available seat-kilometresBILLION ASK

Net profitRUB BILLION

New record set for passenger traffic, which reached 43.4 million passengers in 2016.

Strict cost control and effective pro-active revenue management resulted in increased profitability.

Rapid passenger turnover growth of 14.8% in 2016 outpaced global average growth of 5.9%.

Increased profitability was made possible by strict control of operating costs and effective revenue management.

In 2016 the Сompany has significantly enhanced its operational efficiency with passenger load factor reaching a record high of 81.5% as Aeroflot Group was adding capacity only backed by consumer demand for transportation.

In 2016 EBITDAR increased by 33.4% backed by expansion of Сompany and revenue growth exceeding operational expenses inflation and resulted in record EBITDAR margins of 27.7%.

Balanced expansion of capacity on domestic and international routes has enabled the company to support efficiency of operations.

In 2016, net profit amounted to RUB 38.8 billion, which reflects the profitable growth of the core business and the lack of one-off effects recorded in previous years.

2016 43.4

2015 39.4

2014 34.7

2013 31.4

2012

Passenger traffic

27.567.6%

14.3%

10.7%

13.4%

10.3%

Growth rate

2016 81.4%

2015 78.3%

2014 77.8%

2013 78.2%

2012


78.1%1.3 p.p.

0.1 p.p.

(0.4) p.p.

0.5 p.p.

3.1 p.p.

Passenger load factor change

2016 112.1

2015 97.6

2014 90.1

2013 85.3

2012

Passenger turnover

74.661.9%

14.3%

5.6%

8.4%

14.8%

Growth rate

2016 137.7

2015 124.7

2014 115.8

2013 109.1

2012


95.659.3%

14.1%

6.2%

7.7%

10.4%

Growth rate

2016 495.9

2015 415.2

2014 319.8

2013 291.0

2012

Revenue

253.060.1%

15.0%

9.9%

29.8%

19.4%

Growth rate

2016 137.6

2015 103.1

2014 48.7

2013 51.0

2012

EBITDAR

38.515.2%

17.5%

15.2%

24.8%

27.7%

EBITDAR margin

2016 78.0

2015 58.7

2014 24.8

2013 31.8

2012

EBITDA

20.98.2%

10.9%

7.8%

14.1%

15.7%

EBITDA margin

2016

2015

2014

2013

2012

Reported net profit/lossAdjusted net profit1

38.8

30.9

10.8

7.3

5.2

(6.5)

(17.1)

1 Adjusted net profit for 2014 and 2015 excludes result from derivatives, reserves, and other one-off effects.




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Investment Case

Aeroflot Group

― Leader of the Russian air transportation market

― Young and efficient aircraft fleet

― Business highly adaptable to macroeconomic environment

― Stable operational growth and improving financial results

Business diversification based on a multi-brand

strategyDiversification of the Group’s

activity by segment to maximise flexibility in any

economic environment

Standardised high-quality productEnsuring consistently high

product quality to attract and retain passengers

Efficient financial management and

consistent cost controlCost optimisation to ensure

competitive edge

Presence in attractive market segments

Expansion in profitable segments and in markets with the long-term potential

Balanced route network built around the hub at Sheremetyevo airport

Diversification of destinations to optimise presence in regions with different demand patterns

and network development to promote synergies

Integration of regional companies (Donavia and Orenair) to create a single regional carrier in the mid-market price segment, Rossiya airline.Further development of Pobeda airline. In 2016, Pobeda carried 4.3 million passengers.

The Group continued to improve route network quality: scheduled flights frequency grew by 4.8%, driving better flight connectivity. Route network expansion promotes transit traffic growth, including in the international transit segment: Aeroflot airline carried 3.7 million passengers in the segment.

RASK growth (+10.3%) outpacing CASK growth (+5.7%).

Flights to new destinations in Kazakhstan launched in 2015 (about 0.5 million passengers carried). The frequency of flights to London increased (from 21 to 35 flights per week).Aeroflot airline’s passenger traffic on international routes increased by 10.6%.

Aeroflot was awarded 4-Star Airlinestatus and recognised as the BestAirline in Eastern Europe for thefifth time by Skytrax World AirlineAwards.

2016 results




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Key Events

Developing a multi-brand platform

28 MarchThe new reorganised Rossiya airline, formed from the integration of the Group’s three regional carriers (Rossiya, Donavia, and Orenair), launched flight operations.

31 DecemberPobeda airline’s passenger traffic reached 4.3 million (+38.7% y-o-y).

FOR MORE DETAILS SEE THE STRATEGY SECTION ON PAGES 30-39

Enhancing IT infrastructure

29 MarchAeroflot launched its own online lost baggage tracking service based on the World Tracer international tracking system.

28 JuneAeroflot switched to the Aeroflot Bonus loyalty programme management system based on the innovative Oracle Siebel Loyalty Management platform.

18 AugustAeroflot airline and SAP completed the transition to the SAP HANA ERP platform to increase business process productivity.

19 SeptemberAeroflot and Technoserv IT company completed a new data centre based on Hewlett Packard Enterprise equipment. The project increased the capacity of the Company’s main data centre by 2.5 times.

FOR MORE DETAILS SEE THE INFORMATION TECHNOLOGY SECTION ON PAGES 89-92

Improving the fare system

28 JanuaryAeroflot airline reduced fares for its own and subsidiaries’ outbound flights under its commercial management by 10%.

1 NovemberAeroflot airline introduced an improved fare structure. The difference between fare categories was reduced significantly in the new flexible fare line, making extra services and privileges more affordable for passengers.

FOR MORE DETAILS SEE THE SALES AND DISTRIBUTION SECTION ON PAGES 76-78

Passenger service and new technologies

1 JulyAeroflot lifted the restriction on the use of mobile phones and tablets during take-off and landing.

19 JulyAeroflot started cooperation with TripAdvisor. As an electronic feedback platform for air passengers, TripAdvisor enables Aeroflot to improve customer feedback handling and customer service.

1 SeptemberAeroflot reduced the cost of the Internet on-board (in-flight Wi-Fi) service and introduced a time-based rate. Internet connection is available on-board all the airline’s wide-body aircraft.

6 OctoberAeroflot provided access to Apple Pay for its passengers.

FOR MORE DETAILS SEE THE INFORMATION TECHNOLOGY SECTION ON PAGES 89-92

Developing corporate governance, investor relations and increasing transparency

31 MarchAeroflot launched an updated version of its website for shareholders and investors. The completely new IR section will offer information and resources for the investment community in a modern, convenient, and user-friendly format.

8 JulyAeroflot was assigned a 7+ corporate governance rating by the Russian Institute of Directors, based on the monitoring results.

18 OctoberAeroflot held the Capital Markets Day, a meeting between the Company’s top managers and leading Russian and foreign investors and analysts.

FOR MORE DETAILS SEE THE CORPORATE GOVERNANCE SECTION ON PAGES 134-166

Increasing social mobility 11 January and 28 SeptemberAeroflot’s CEO Vitaly Saveliev. They discussed the airline’s results and future plans, the situation in the air transportation market, including Transaero crisis resolution, the low-cost carrier development, and the flat fare programme aimed at improving transport connection with Russia’s remote regions and increasing mobility across Russia.

FOR MORE DETAILS SEE THE CORPORATE SOCIAL RESPONSIBILITY SECTION ON PAGES 98-115

Supporting sports

24 MayAeroflot acted as the official carrier of Russia’s national basketball teams. 28 JulyAeroflot’s SU7150 special flight delivered Russia’s Olympic team from Moscow's Sheremetyevo airport to Rio de Janeiro (Brazil), that hosted 2016 Summer Olympic Games.

FOR MORE DETAILS SEE THE CORPORATE SOCIAL RESPONSIBILITY SECTION ON PAGES 98-115

Events after the reporting period

7 February and 18 April 2017The Aeroflot brand was recognised as the world’s most powerful brand in the airlines industry and the strongest brand in Russia by Brand Finance.

8 February 2017Aeroflot won East Capital’s Best Growth Award.

7 March 2017Fitch Ratings international agency affirmed Aeroflot’s rating at ‘B+’, Outlook Stable.

10 April 2017 Aeroflot was recognised as the Best Airline in Europe by users of ТripAdvisor, the world’s largest travel website.

11 April 2017. Aeroflot was recognised as the most popular foreign airline in China at the annual Flyer Award Ceremony 2017.

Route network development

1 JuneAeroflot launched scheduled flights to Valencia and Alicante (Spain) and to Lyon (France).

30 OctoberAeroflot launched domestic flights on the new domestic route from Moscow to Syktyvkar.

FOR MORE DETAILS SEE THE ROUTE NETWORK SECTION ON PAGES 51-66

Continuous fleet upgrade

25 AugustPJSC Aeroflot and United Aircraft Corporation announced the completion of the firm contract for the delivery of 30 Sukhoi Superjet 100 aircraft. In 2017 and 2018, the Company expects to receive 20 more SSJ100 aircraft.

23 SeptemberDuring the year, the Company worked to accept aircraft previously operated by Transaero: a total of 12 Boeing 747 and Boeing 777 were accepted, as well as 6 Airbus A320Family aircraft from the bid book.

FOR MORE DETAILS SEE THE AIRCRAFT FLEET SECTION ON PAGES 67-75




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― Aeroflot airline was awarded four stars (out of five) by Skytrax (a global consulting company considered the world’s most influential assessor of airline and airport service quality) for its high-quality service. Aeroflot airline was recognised as the Best Airline in Eastern Europe by Skytrax World Airline Awards for the fifth time.

― For the fourth time in a row, Aeroflot won the Condé Nast Traveller Readers’ Choice Award as the Best Russian Airline.

― Aeroflot won the Readers’ Choice prize at Air Transport News Awards 2016. The airline’s CEO Vitaly Saveliev was named Leader of the Year.

― Aeroflot Group companies won in a number of categories of the Wings of Russia national airline award. Aeroflot was recognized as the Russian Airline of the Year — People’s Choice and won in the International Carriage category.

― Aeroflot won the Best.ru/Company of the Year national business award in the Transport category.

― Aeroflot airline’s in-flight entertainment system interface won silver at the International Design Awards in the Multimedia / Interface Design category.

― Aeroflot won the prestigious travel award, Business Traveller Russia and CIS, in the Best European Airline, Best Business Class on Medium-Haul Flights, and Best Airline in Russia and CIS categories.

― Aeroflot won the prestigious SAP Value Award in the IT sector, in the Expanding Horizons category, for the transition to a new level of business transformation.

― Aeroflot received the independent award Innovation Time 2016 in the Transport and Mechanical Engineering category.

― Once again, Aeroflot won the prestigious international Randstad Award as the most attractive Russian employer in the Transport and Logistics category.

Industry Recognition and AwardsAwards

Ratings ― Aeroflot received the top rating (seven out of seven stars) as the safest airline in the world. The rating is compiled by Airlineratings.com, an independent rating website, on a regular basis.

― In the rating compiled by the international analytical portal anna.aero, Aeroflot Group was rated among top 20 global carriers by the number of new destinations, and among top 3 by new routes with the most frequent flights. Pobeda airline was rated No. 7 globally by the number of new routes launched.

― According to Routehappy, a search engine for comfortable flights, Aeroflot is among the top 10 airlines globally in terms of on-board Wi-Fi Internet access for passengers on long-haul flights.

― Aeroflot was rated eighth in the Top 10 Airlines in the World 2016 rating compiled by TripAdvisor based on passenger reviews.

― Aeroflot came second among the world’s best airlines and remains the best air carrier in Russia according to National Geographic Traveler.

― The low-cost carrier Pobeda was rated the third best Russian airline by National Geographic.




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