There has been a lot of speculation recently in the Russian airline industry about the future prospects for budget carriers. Recent examples of unsuccessful “low-cost” start-ups demonstrate that one of the principal reasons for the underdevelopment of this segment in Russia is insufficient legislation.
Both airlines and the Ministry of Transport (“Mintrans“) have recently put forward proposals aimed at creating true low-cost carriers in Russia which, if implemented, could reduce the cost of airline tickets by about 30%.
Below, we provide an overview of some of the most important initiatives.
SALE OF “NON–REFUNDABLE TICKETS”
Under current legislation, airline ticket must be refundable and passengers who cancel their reservation at least 24 hours before the flight are entitled to full reimbursement of the ticket price. If the cancellation occurs less than 24 hours in advance, a fee (which cannot exceed 25% of the ticket price) may be withheld.
The introduction of non-refundable tickets is considered key to reducing the cost of air fares as it would allow an airline to sell tickets at special rates on the specific condition that they were non-refundable.
A draft bill on this matter was tabled to the State Duma of the Russian Federation on July 15, 2013 and is now under consideration.
ALLOWING FOREIGN PILOTS TO FLY IN RUSSIA
Pursuant to Article 56 of the Air Code of the Russian Federation, only Russian citizens may serve on the air crew of a Russian commercial airliner.
As a consequence of there being a serious shortage of qualified air crew in Russia, commercial pilots command a very high salary.
Introduction of foreign pilots would create competition and should result in a drop in projected salary costs.
This would make a tangible contribution to reducing airline costs and, consequently, to lowering the price of air fares.
Legislation addressing foreign pilots was drafted back in February 2013. However, this bill has yet to be tabled to the State Duma of the Russian Federation.
ABOLITION OF MANDATORY FREE CARRIAGE OF BAGGAGE
As low-cost carriers in other countries often charge for checked baggage, Mintrans has drawn up a bill amending the Air Code of the Russian Federation to the effect that a ticket for air carriage is not required to include carriage of baggage at no additional cost.
In accordance with the current version of the Air Code, airlines are required to carry a minimum 10kg of baggage per passenger for free.
Since some passengers fly without checked baggage, the inclusion of the cost of checked baggage automatically increases the cost of the ticket for all passengers. Furthermore, the additional hull space may be used by the airline to carry commercial freight for extra revenue.
ABOLITION OF THE REQUIREMENT TO PROVIDE A HOT MEAL ON BOARD
Under existing Federal Aviation Rules, passengers must be provided with a hot meal for flights with a duration of more than three hours.
Mintrans has now proposed hot meals may be deemed a “premium service” available at additional cost.
The authority believes that this will also help bring down the cost of air travel.
It should be noted that the airlines themselves go beyond the above-mentioned initiatives, and propose some additional steps as well.
Thus, at a meeting of the Duma committees on transport and economic policy held on June 26, 2013, some of the additional measures proposed included the following:
- abolition of value-added tax on tickets for domestic flights;
- regulation of aviation fuel prices and refuelling services with the aim of equalizing the fuel costs at various airports around Russia; and
- additional state regulation of airport services fees.
However, these measures have not yet been reflected in the relevant laws, in view of which it would seem premature to expect any significant reduction in airline ticket prices (and, as a consequence, a development of the low-cost carrier segment in Russia) any time soon.