The Russian carrier shows an increasing desire to auction cargo capacity available in the holds of its passenger fleet on selected domestic air corridors.
The experiment proves valuable to the carrier’s bottom line. SU’s head of cargo Oleg Korolev doesn’t exclude providing this unique service on the international routes in high demand.
´Participation in the auction is possible for all legal entities possessing an official Russian tax number, be it forwarding agents, shippers or any other (officially registered) company eager to
send goods across Russia. All they have to do to gain access to the lower deck capacity of Aeroflot’s passenger fleet is to place a bid and wait for the outcome of the public auction. If no one
outbids a particular rate offer within 30 minutes Aeroflot automatically accepts the bid and guarantees the client the purchased capacity. The volumes offered by Aeroflot for a single bid differ
between 250 and 500 kilograms depending on the type of aircraft deployed on certain routes. Each bidding unit is limited to 250 kilograms on narrow-bodied aircraft respectively 500 kilograms on
Auctions limited to high traffic routes
When customers require more capacity to ensure the flight of heavier items they have to start bidding again for another 250, 500 or more and then wait to see what the outcome might be. As a consequence for taking part in two (or more) auctions means they have to pay different rates for basically the same shipments uploaded on a specific flight. Oleg states: "We auction our lower deck capacity only on routes with high market demand such as Moscow-Khabarovsk, Moscow-Vladivostok or Moscow-Sakhalin including each return flight."
It all starts with Aeroflot offering a base price for transport on certain days, routes and aircraft. This is done twice a year, "two months prior to the summer schedule and two months in advance of the winter itinerary," Oleg explains. Monthly updates round out the process, making the procedure transparent for the participants who are then informed by SU once an auction has begun.
Generating Extra Revenue
Once bids flow in they are listed in increasing order, going up by half a rouble per kilogram each time.
According to Mr Korolev the system, introduced in 2013, of auctioning his fleet’s cargo capacity has paid off extremely well. "This way we managed to increase our earnings substantially because we obtained rates that were well above the market average."
A more than surprising outcome because each of Aeroflot’s domestic competitors have access to the system as well as full visibility on the rate developments for selected routes and single flights. "They tried to undercut our prices by 10 percent or more, but this obviously didn’t motivate clients to change sides," he adds.
SU Cargo has taken the lead on domestic Russian routes
Currently, more than 50 companies continuously take part in the SU auction, and the numbers are steadily climbing, assures Oleg. He also claims that when you weigh the tonnage, Aeroflot is the number one carrier in the Russian market. Last year, "we carried a total of 25,000 tons within Russia, leaving our main competitors Transaero and UTAir far behind."
An astonishing development, since back in 2010 Aeroflot and Transaero were neck and neck in uplifted volumes. Since then the competitive gap has widened, as seen by this year’s first quarter results: "While we transported 30,000 in total, they (Transaero) just ended up with about 10,000 tons," Oleg says. He also states that the cargo business contributes 10 percent to Aeroflot Airlines’ total annual turnover, a figure that despite some fluctuations hasn’t changed much lately.
Asked about AirBridgeCargo Oleg assures that the constantly growing all-cargo airline is not in competition with Aeroflot. "They have a totally different business model, not comparable to ours." This is best illustrated by the customer base of both carriers, he explains. While ABC relies primarily on a limited number of globally-active forwarding agents to fill the main decks of their freighters, Aeroflot in contrast has a wide range of clients including hundreds of small and mid-sized companies, mostly interested in airlifting a manageable number of different consignments.
Sanctions hurt SU
Touching on the political rift between the West and Russia over the military conflict with Ukraine he admits that the sanctions imposed, by the EU in particular, has hurt his business. "Our EU volumes have been down 30 percent ever since." This applies, in particular to perishables like fruits or flowers flown in from Spain, Italy or The Netherlands that were sanctioned by Moscow as a countermeasure to economic hurdles imposed by Brussels and Washington. However, the products flown in by SU, mainly from Germany, that are exempt from sanctions like car parts, medicine or chemicals are still going well, Oleg confirms. The manager adds that the loss in traffic SU is suffering in parts of the EU is well compensated for by the increased cargo volume on routes to and from the Far East. Therefore, "tonnage-wise our overall balance is positive," he assures.
Furthermore, he points out that SU’s cargo sales activities were regionalized, by opening centers both domestically (Vladivostok, Khabarovsk and Novosibirsk) as well as abroad (Shanghai, Helsinki and London). No changes to report on from Frankfurt-Hahn. Aeroflot’s regional office in the Southwest of Germany remains in charge of coordinating the entire cargo sales effort in Europe.