UTair CEO Andrey Martirosov / M. Stulov / Vedomosti

UTair CEO Andrey Martirosov promised to open a fourth Moscow airport – for budget airlines. Aeroexpress could be launched from Vnukovo to Yermoolino (Kaluga Region), so the journey there would take about an hour and a half. Martirosov promises to seat business class and low-cost passengers in the same seats, and charge only for a different set of services, explains why helicopters are more profitable than airplanes, and admits that he is ready to buy the latest machines for the company, but he himself has not changed his mobile phone for ten years.

– That’s right, when discussing why tickets are expensive here and cheap abroad, I always give the example of VAT. When a person flies to London, he doesn’t pay any VAT, but he does pay it to Novosibirsk. Therefore, any Russian network carrier is beyond competition with the same Lufthansa . Lufthansa flies from Samara to Paris via Frankfurt, Aeroflot flies from Samara to Paris via Sheremetyevo. And it will pay VAT on the Samara – Sheremetyevo route, but Lufthansa doesn’t. In addition, when buying a ticket to Sochi, VAT is paid, but not to Antalya. VAT on domestic routes hits several sore points at once. This is the competitiveness of airlines, Russian territory as a transit zone, recreation and entertainment throughout Russia compared to the West. It is possible to provide for some alternative things. If the state does not want to lose income, it can be compensated by some fees that exist in dozens of countries. When performing an international transaction at airports, you can charge a tax of $5-10 per passenger. As a result, the costs will be evenly distributed among all market participants. The domestic transportation market needs to be stimulated; it has potential: now, for the first time in 90 years of civil aviation in Russia, international transportation has exceeded domestic transportation in terms of the number of passengers.

1990

Deputy Director of the Tazovsky branch of Tyumenaviatrans

1993

Deputy General Director of Tyumenaviatrans (after rebranding as UTair)

1995

Member of the Supervisory Board of Tyumenaviatrans

1996

appointed director of the airline "Surgutavia"

1999

CEO and Chairman of the Board of UTair. Also, since 2004, Chairman of the Board of the Russian Association of Air Transport Operators.

Thanks to the business travelers

In the USSR, more than 100 million passengers flew per year. By 1993-1994, this figure had fallen to 20-24 million, says Martirosov. But even this was several million business travelers who flew many times a year. Now demand is growing due to new supply, such as international tourism. Over the past 10 years, passenger traffic grew by an average of 15-20% per year, but this is coming to an end: Russia has overcome the gap with leading countries, GDP and consumption levels are growing at rates comparable to those in Europe, and the level of population mobility will also soon equal the indicators of the USSR era.

JSC "UTair Airlines"

Aviation holding company. The main shareholder is Non-State Pension Fund Surgutneftegaz (60.67%). Capitalization is 13.6 billion rubles. Financial indicators (IFRS, 2012): revenue - 79.6 billion rubles, net profit (excluding minority interest) - 69.6 million rubles. Passenger transportation (2012) - 9.4 million people. Aircraft fleet (as of May 21, 2013) - 236 aircraft, 351 helicopters. Founded in 1991. Headquartered in Surgut. Provides passenger and cargo air transportation, helicopter work, repair and maintenance of aircraft, training of aviation personnel, provides leasing and financial services. It unites more than 20 companies, including the air transportation and ticket sales agencies OOO Center for the Implementation of Transportation and Services (100%) and OOO West Siberian Agency of Air Communications (51%), the cargo carrier ZAO UTair-Cargo (100%), the non-profit partnership Personnel Training Center (100%), the leasing company OOO UTair-Leasing (99.51%), OAO Ust-Kut Airport (85.57%), and the aircraft maintenance and repair company OAO UTair-Engineering (55.81%).

– Why are you so actively promoting the low-cost airline project?

– We understand that people will increasingly value time, travel less and less by train for two or three days. The railway will not be constantly subsidized and compete with us on long-distance routes. It will demonstrate to the consumer increasingly realistic prices, which, in our opinion, are close to some air fares, if not higher. Its passengers are those people whom we can invite to travel by air. In our opinion, this is not an elite part of the public who are ready to pay any money for some kind of super-increased comfort on board or super-exquisite food. There is social demand for low-cost airlines. The airline is faced with the task of creating a product that would allow it to sell tickets at economically acceptable rates without losses. It is important to adjust the business model in order to spend less and save more.

– Are you talking about the project of the new Moscow airport in Yermolino?

– “Ermo-Lino” is only one independent part of this model. Look at what is happening with the largest airline groups, the informal leaders of which are British Airways, Air France, Lufthansa. They are making serious attempts to bring their model closer to a low-cost airline. To do this, you need to spend a lot of things: money, time, effort, energy, etc., because, firstly, they have a certain image – you wouldn’t go, for example, to a five-star hotel for cheap sandwiches. Therefore, people will treat a traditional carrier with some apprehension, even if it offers very cheap fares, and will continue to go to the website of “painted” airlines... Sometimes you can buy an Air France ticket cheaper than EasyJet. But nevertheless, everyone knows that the latter will always have cheap tickets. There is also a reputation problem – the risk of losing your premium passenger and not getting an “economy” passenger. Huge investments are needed in re-equipping the fleet to operate on a hybrid model. But despite all the restrictions, air groups are moving towards this model.

The companies are rapidly re-equipping their medium-haul fleet, which flies on routes up to 3-4 hours. They have already removed the fixed business class, installed seats like in "economy", with adjustable armrests, so that from two to three seats in a row can be made...

– A reasonable question: why is it that the privileged class still buys in Europe?

– Because you can quickly go through check-in, passport control, wait for your connection in the business lounge, and get a discount on ticket exchange and refund. Business class is now bought not by those who want to eat well on the plane or stretch out in a wide seat, but by those who value their time. An advanced passenger who values his time and money is now the trendsetter in aviation fashion. Many do not see or feel this yet, but nevertheless, the fact remains. How has the life of information flows, gadgets, communicators, etc. changed over the past three years? Just yesterday, you would plug in your headphones while flying on an airplane and listen to some music program, but today a modern person cannot do anything but laugh at a fixed music program on board. When you have all the music in the world in a gadget weighing 150 g, it will never occur to you to listen to what the airline has recorded for you on a fixed audio channel. The same will happen with video content. Even now, airlines offer not two or three movies, as before, but 20, 30, and even 100. But still, if you have a device that has all the movies in the world, why do you need this expensive entertainment system of the previous generation, which is heavy, difficult to maintain, consumes a huge amount of resources? Give a person a charger - this is much more necessary. These changes need to be foreseen now, so that later you do not have to spend millions and millions on re-equipping airplanes. Everyone knows the colossal marketing failure with on-board telephony. Airlines and telecommunications companies spent billions of dollars on people who are willing to pay $ 10-15 per minute of call during the flight, but there were few of them. Airlines were forced to remove the equipment from boards, because it is unnecessary money, unnecessary weight.

Therefore, trends and impulses should be followed. Compared to our colleagues and competitors in Russia, we have a very good situation. The fleet is being replaced naturally; practically within the next 5-7 years, we will completely replace our entire fleet. This year, we will have to decommission previous generation aircraft: Tu-154, Tu-134, ATR-42, ATR-72 of previous series. They will be replaced by Airbus 321 and Boeing 737-800. We will get the “right” aircraft – with thin seats and non-fixed business class.

– So, both low-cost and business class passengers can fly on the same plane?

- Yes, there will be a mixed model. Let me make a reservation, not on long-haul flights. There will be separate comfortable seats on them. On medium-haul routes, we will not have a difference between the seats of low-cost and business class passengers, the difference will be in the range of services. We will start using the first such planes in July.

VAT VS SOCHI

– How can we achieve cost reduction with VAT on domestic flights at 18% and high airport charges?

– Why was Ermoolino chosen as the fourth Moscow airport?

– Firstly, a railway line has already been laid there. All that remains is to make a small turnoff to the airport, a couple of kilometers. Secondly, it is absolutely obvious that it will be more and more difficult to get slots at Moscow airports, airports will try to offer more expensive slots, the economy class sector will simply start to be squeezed out of the Moscow air hub. Tourists are not ready to add $100, or maybe even more, to the cost of their trip. Therefore, as elsewhere in the world, it is necessary to actively use the infrastructure of state aviation. “Yermoolino” has a good location. It is a relatively conflict-free zone for air traffic only 70-80 km from “Vnukovo”. The Kiev highway, which is constantly being reconstructed, is nearby, and in the future “Big Moscow” will be nearby.

– How are the negotiations with Aeroexpress and Russian Railways going?

- Aeroexpress, in principle, does not object, because it is a profitable project for them. The region is very interested and is ready to participate in everything, Russian Railways is also showing goodwill. Even the government is interested in this - it is clear that both the airspace and the ground part in Moscow need to be relieved as much as possible. Every year the situation in the Moscow sky is becoming more and more tense. Our planes circle over Moscow waiting to land for 10 minutes, then half an hour, now it is up to an hour on particularly busy days.

– If they allow flights over Moscow at an altitude of 1,500 m, will this relieve the airspace?

- Of course, it will become easier, but the problem will not be solved. The capacity of the airspace can be increased by several tens of percent, but this will be a temporary solution.

– How much will be invested in the new airport?

– Construction of the apron and the airport terminal will cost around 6 billion rubles. The runways will be reconstructed at the expense of the state. Such an airport can serve about 6 million passengers. A pool of investors is currently being formed [although UTair itself could invest all the funds]. Unfortunately, the antimonopoly service is not favorable to attempts by airlines to invest in airport infrastructure. It is believed that if UTair alone invests money, it will not let anyone else near the airport. Perhaps there is some logic in this.

- Consultations are currently underway on the topic of merging the Moscow air hub. What do you think, should it be merged or is it better to keep three separate airports?

- There are different points of view. I am not speaking as an expert, but as a consumer of services. If the number of business entities decreases, then as a consumer I will receive fewer offers. From the point of view of mobilizing resources, implementing a common policy, unification is good. But airports compete, although not directly, but indirectly, and the very fact of this competition greatly increases the attractiveness of the Moscow air hub.

- But Moscow airports are too expensive. Foreign companies admit this.

– Do you think that if they are combined, they will become cheaper? Unlikely. And thank God that there are foreign users who can say this. Nobody believes us that services in Russia are very expensive. But there are objective reasons. The harsher the climate, the higher the costs. At least because you have to fight snow. Therefore, the further from the Gulf Stream, the more expensive the airports. There are also subjective factors: the airspace is oversaturated, and you have to fly a lot and for a long time over airports, competition in ground services is not very high, some things in airports are excessively monopolized.

GOLDEN HELICOPTERS

– Is it true that helicopters are much more profitable than air transportation?

- Yes. The profitability of helicopter transportation, depending on the project and the volume of the order, can be slightly lower than 10%, or it can be 40%. It depends on the type of work and the volume. In passenger transportation, the most outstanding achievement is a 5% profit, this is the dream of any company. Otherwise, everyone is dancing around zero.

In recent years, our helicopter business has been focused on servicing continental oil fields and participating in UN peacekeeping projects. We want to spend the next 20 years focused on offshore operations. That is why we have purchased our first Eurocopter 175. This is a 16-seat helicopter that should be ideal for these purposes.

– For housewives: what are offshore operations?

- Offshore operations are helicopter support for the activities of floating oil platforms. Now in many places oil is increasingly being extracted not only on the shelf, but also at ever greater depths. With the help of helicopters, shift teams are replaced, emergency and rescue operations are carried out. This is a very big business with serious prospects in the North Sea, the Gulf of Mexico and the coastal zone of Brazil. Therefore, we are thinking about establishing a special "daughter" for such projects.

– How much do you plan to invest?

– At a minimum, purchase 15 helicopters with a list price of 15 million euros each.

– Do you still plan to separate the helicopter business from the overall structure?

- Everything is heading in that direction. We are changing the business structure; two serious divisions have been created within the airline - "Helicopter Services" and "Passenger Airlines". In the end, the aircraft and helicopter business will be legally separated, but will remain within the framework of one corporation.

– Have you tried to control the helicopter yourself?

– Every business should be done professionally. If there is no such possibility, it is better not to violate safety rules.

MOOD FOR IPO

– Top managers did not rule out at a recent meeting with investors that you will conduct an IPO, possibly on foreign platforms.

- We are planning to increase capital. Now we are discussing how to do it: private placement, public placement, Russian, foreign platforms. For an IPO, the market must be formed, and investors must be in the mood.

– Are investors ready to invest in aviation in principle?

- There are different points of view. Some say: let's go ahead and place our listings tomorrow, others recommend waiting. But many experts are trying to make money on this - we need to understand their conflict of interests. We study all the pros and cons.

– How much do you plan to increase free float?

- So that there is a sufficient level of liquidity. Everything will depend [on] whose hands these shares end up in. We would like it to be a noticeable volume, 10-15% minimum. Now, officially, there is about 8% in free circulation, but in reality it is much less.

– What kind of investor would you be interested in?

- We would be interested in an investor who shares the company's current policy, its strategic plans. For now, we have no reason to complain. We are comfortable with the shareholder of NPF Surgutneftegaz, our business ideas are close to him. In principle, you don't look for good when things are already good. But the time has come when it is necessary to increase our own capital. Both bankers and analysts advise us to do so.

– Can your main shareholder finance the increase in authorized capital?

- We do not rule this out.

SURVEILLANCE ON SuperJet

- Until recently, UTair was the largest operator of domestic equipment. And it became the leader in orders for foreign aircraft and helicopters. Why?

– We have been and remain the largest buyer of domestic equipment. We recently completed our first project with Russian Helicopters for 40 Mi-171 helicopters, and the second contract is currently being implemented. We are also in the final stage of negotiations with UAC on the purchase of Sukhoi SuperJet aircraft. We purchase world-class products. If the domestic aviation industry does not have any products, we are forced to buy them abroad. After all, we must meet the growing demands of our consumers. If there is a machine that can fly in the highlands in the heat, carry up to 4 tons of cargo and passengers, be a universal and cargo machine at the same time, serve both the UN mission and our oil workers, then we buy our best helicopter, the Mi-171. We are always in pursuit of the best product. If we need a machine to transport oil workers to the drilling site, we buy a Eurocopter.

– Do you follow Aeroflot’s operation of SuperJet?

- We receive quite a large volume of information - not only from operators, but also from manufacturers. There is a feeling that UAC is working on its mistakes. They provide quite detailed information on what they do and how. In my opinion, the aircraft is interesting and has a future. We are satisfied with the conditions we received for their purchase. Service agreements are being polished.

10 YEARS WITH ONE MOBILE

– Your hobby is reading. When do you have time to read with your schedule?

– Reading books has long ceased to be a hobby, but a real need. Sleeping or eating cannot be a hobby. All my hobbies are from the past. I used to collect coins, and now, as my subordinates joke, I collect good people. I used to be fond of shooting, hunting, fishing – like any person living in the north. True, I have less and less time for this.

Passenger airlines are pure marketing, their offers are addressed to an undefined consumer. The helicopter business is a different matter, here a lot depends on customer relations. My job requires me to be well-read, to keep a huge amount of information in my head, to be in the center of events and to communicate with clients who understand many things and expect their interlocutor to be able to support any topic of conversation. And considering that your largest client is the UN, you must understand the intricacies of the political situation and geopolitics, even if worse than a professional diplomat, but better than an ordinary person.

– And how do you feel about the political situation in Russia, about the rallies?

– UTair operates in various countries, including exotic ones. After returning from them, the first thing you want to do when you get off the plane is kiss your native land. There is no homeowner who is happy with his housing and communal services company, and no voter who is happy with his elected government. I consider myself a patriot of my country, a person who can criticize the existing order, but just try to touch their country from outside!

A lot has changed in the last 20 years. And by and large, these changes are positive. I don't think we have a shortage of freedom and glasnost, because with three clicks on the keyboard you can get any set of opinions. Never before has a Russian been able to leave and return to the country so freely. Russia in many ways provides much more freedom than some developed countries.

- It seems you are not a fan of the latest innovations. How old is your Nokia 6310?

- I chose reliability. I've had it for ten years, if not more. I saw the first interview with Vedomosti (laughs). It's one of the best products. By the way, Nokia held a competition for the best device for it. The winner was the guy who suggested including a teaspoon in the package.

- And the book contains all the numbers?

– 600 numbers and 200 on the SIM card. But when you have the 600th or 700th number, the first 100 can be erased – proven. I have an iPad and other devices. But it performs all its functions as a Nokia phone. This is a sign of stability. Partners come, see my phone and understand that everything is stable in UTair.

– Do you have shares in UTair?

– Yes, it is written in the issuer’s report (about 0.12% of the airline’s authorized capital. – Vedomosti). When the market last fell, I doubled my share package. In addition, we are currently negotiating with shareholders about an option program for managers. I and the rest of the management team believe in the airline. That is why I bought shares when the market was good. And I will continue to do so with pleasure. In total, the workforce currently owns about 5% of the shares. These securities are not available in free circulation – they are held by former and current employees and they do not want to sell. They believe in us. And they are the most informed and interested investors.

Interview - Andrey Martirosov, CEO of UTair Airlines