Just Like Cold Times: Russia and the West are revisiting the Cold War, and airlines on both sides are feeling the pain

The good news: the current trade war between Russia and the West will probably ease sooner or later—there’s just too much to lose for too many people. But Russia’s airlines are already feeling the pain.

This was actually supposed to be a breakout year for the development of Russia’s airline industry. Finally, Moscow took steps to enable Aeroflot to launch a low-fare unit, Dobrolet. Aeroflot’s rival Transaero began offering dedicated low-fare flights with higher seating densities. Foreign LCCs from Europe and the Middle East gained critical mass. The winter Olympics gave a jolt to inbound tourism. Fleets modernized. Oil money kept flowing in. In fact, during the first half of 2014, according to IATA’s latest traffic report, Russia’s domestic air traffic (measured by RPKs) was up a bullish 12% y/y. No other major domestic market—not even China’s—grew as quickly.

Russian aviation ministry statistics confirm the traffic boom. Updated through May, they show double-digit year-to-date RPK traffic growth for Aeroflot mainline, S7, UTair and Ural Airlines. Total industry passenger counts in Russia for the five month period, meanwhile, rose 10%, with domestic volumes up 16% and international volumes up 5%. Transaero even felt confident enough to sign a letter of intent, at the Farnborough Airshow last month, for 20 A330s, 12 of which are to be A330-NEOs. It also starts flying A380s next year, not to mention A321s, and has B747-8s and B787-8s on order too. Aeroflot, for its part, has a similarly ambitious book of orders, including B787s and A350s. So does UTair, with nearly 40 B737-800s and -900ERs.

But all of this masks major shocks to the industry this year, shocks that threaten to derail aviation development in a country that still lags behind on infrastructure, regulations, air service…

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