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Skies to Open for Domestic Airlines

    Tuesday, November. 25, 2003
    The Moscow Times
    After years of pestering by domestic carriers, the State Civil Aviation Service said Monday that it would finally move to fully liberalize the airline industry by ending its discriminative quota system for domestic passenger flights. "We are ready to liberalize the market and increase competition, which will reflect positively on the passenger," Stanislav Ovcharenko, head of licensing at the agency, known as CSGA, said by telephone.
    Russia abolished quotas for some routes last summer, but 15 of the most lucrative, including those connecting Moscow with Krasnoyarsk, Novosibirsk, Murmansk, Khabarovsk and the resort town of Mineralniye Vody are still in place -- until summer, Ovcharenko said.
    Ovcharenko said booming passenger traffic was a major factor behind the move, which falls in line with the national transportation development strategy through 2025 that President Vladimir Putin approved last month.
    Russian airlines carried 25.2 million passengers in the first 10 months of the year, up 10 percent over the same period last year, keeping the industry on pace for its fourth straight year of healthy growth. In September alone, traffic jumped 17 percent on the year, the highest rate ever for the industry.
    Ovcharenko cautioned, however, that the new rules will not mean completely open skies, as only financially stable companies will be allowed to expand their number of destinations. Russia currently has more than 200 airlines, a number the government would like to slash to a few dozen.
    Reaction to the news was mixed.
    Top carrier Aeroflot hailed the decision because it would expand its network and spur industry consolidation.
    "Aeroflot management has long argued for lifting the system of quotas. ... It will lead to considerable changes on the market, it will help airline consolidation," said deputy CEO Lev Koshlyakov.
    Once quotas are lifted, Aeroflot will be able to add more flights to and from key destinations like Chelyabinsk. It would also allow the airline to begin servicing the Siberian city of Krasnoyarsk, a major hub that is currently monopolized by KrasAir.
    Full liberalization of the industry would also help Aeroflot achieve its goal of doubling its domestic market share to 25 percent by 2010, Koshlyakov said.
    Aeroflot rival Sibir, however, called the move only a half step toward full liberalization.
    Local airports, especially those controlled by regional carriers like KrasAir, will still be able to restrict access to their facilities, said Sibir spokesman Mikhail Koshman.
    "They will just say that they only have one tow truck and cannot service two flights at a time," he said.
    By abolishing the quota system, the government is also essentially forcing the industry to modernize.
    Boris Rybak, general director of airline consultancy Infomost, said that easier access to new routes will mean existing planes will fly more hours, requiring more frequent fleet upgrades.
    "Since Russian industry is not ready to supply new aircraft in the required numbers, the government will be forced to lift import duties on foreign craft sooner, rather than later," he said.
    Ovcharenko agreed: "Existing aircraft will meet demand for only two more years.
    "New aircraft will be needed, and unless the domestic aircraft industry has some kind of breakthrough, import duties will have to be lifted."

    Lyuba Pronina
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