Strategy Overview
MISSION
We work to ensure that our customers can quickly and comfortably travel great distances, and thus be mobile, meet more often, work successfully, and see the world in all its diversity.
We give our customers a choice through an extensive route network and different carriers operating within our Group, from low-cost to premium segment.
AEROFLOT GROUP’S STRATEGIC VISION
Aeroflot Group’s ultimate strategic goal is to strengthen leadership in the global airline industry by seizing opportunities in the Russian and international air transportation markets.
Aeroflot Group Development Strategy 2025 was approved by PJSC Aeroflot’s Board of Directors and defines the key focus areas and long-term growth targets.
To implement Aeroflot Group’s long-term strategy, the Company has developed a medium-term strategic plan defining the key growth areas, operational and financial targets supporting the strategic goals. The medium-term strategic plan is reviewed and updated on an annual basis.
In line with the medium-term development strategy and pursuant to the directives of the Russian Government, Aeroflot Group has developed and updates annually its Long-Term Development Programme, which covers management-related activities, goals, and KPIs. The Group’s consolidated IFRS budget and KPIs for the budget year are developed in line with the targets of the medium-term strategy of Aeroflot Group and its Long-Term Development Programme.
AEROFLOT GROUP’S LONG-TERM STRATEGIC GOALS
| 2025 GOALS | PROGRESS |
| Join theTop 5 European airlines by passenger traffic and revenue | Ranked 7th by passenger traffic and 5th by revenue1 |
| Join the Top 20 global players by passenger traffic and revenue | Ranked 20th by passenger traffic and 24th by revenue1 |
| Carry over 70 million passengers, including at least 30 million within Russia | 50.1 million passengers in total, including 27.6 million on domestic routes |
| Increase passenger traffic via the main hub in Moscow | Aeroflot’s share of transfer passengers (including domestic and international) is 42.9% |
| Ensure strong presence in the market | The Group is present in all price segments across all geographies |
| Sources: Airline Business, ATW, Flight Global, the Company’s estimates | 1 As at the publication date of this Annual Report – data for 2016. |
As at the end of the reporting period, Aeroflot Group achieved a number of its long-term strategic goals, e.g. joined the Top 20 global players. Analysis of Aeroflot Group’s growth trends and changes in external business environment suggests that the Group is well-positioned to achieve the goals set in its Strategy 2025. However, the Group’s performance against these goals may be affected by significant fluctuations of FX rates and the continued process of international market consolidation.
| KEY INITIATIVES AND WORK STREAMS WITHIN THE LONG-TERM STRATEGY | |||
Develop the multi-brand platform to strengthen the positioning and synergy across the Group |
Develop the route network through penetrating new markets and increasing the flight frequency |
Enhance the fleet to be operated across the route network and promising markets |
Develop the production capacity and auxiliary services |
| GROWTH SEGMENTS | |||
Develop the premium passenger segment through improving the passenger experience, flight schedule, and expanding the route network |
Develop the low-cost passenger segment, including through |
Promote transfer traffic via Sheremetyevo airport (including the international transit traffic) |
Support national and regional passenger service programmes sponsored by the Government |
| INNOVATION AND PERFORMANCE | |||
Improve the employee performance and labour productivity |
Sharpen the digital focus and drive innovation |
Boost the Group’s ancillary revenue |
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2018–2022MEDIUM-TERM |
up to 2025LONG-TERM |
| KEY AREAS | |
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| STRATEGIC GOALS | |
| A set of operational and financial targets for 2018–2022, in line with the Group’s long-term goals | Long-term passenger traffic and revenue targets benchmarked against global peers |
| THE DATE OF APPROVAL BY THE BOARD OF DIRECTORS | |
| 6 December 2017 | 13 July 2011 |
Impact of risks on the Group’s strategy
The key potential risks that may affect the Group’s development strategy are:
- risk of changes in the external business environment
- risk arising from infrastructure constraints
- macroeconomic risks.
To mitigate the key risks, the medium-term strategy of the Group provides for the following initiatives:
- development of the hub at Moscow Sheremetyevo airport to promote international transfer traffic and increase flexibility in aircraft additions and disposals
- availability of different capacity aircraft in the fleet
- growth planning and control at each of Aeroflot Group companies to maintain the Group’s effective presence in all market segments
- monitoring the progress of infrastructure development and new facilities construction at Moscow Sheremetyevo airport
- diversification of revenue streams by currency and geography.
Strategy implementation and adjustment results
The reporting period saw an upward trend in operational performance, in line with the Group’s strategy and consolidated budget. The Group considerably grew its business through successful expansion across all its business segments.
In 2017, Aeroflot Group continued to enhance its route network by frequency and connectivity, supported by consistent efforts to improve the hub at Moscow Sheremetyevo airport. Aeroflot focused on reducing CASK, optimising the fleet, and boosting its sales performance. Pobeda, Aeroflot’s low-cost carrier, is making good headway, having carried 4.6 million passengers in 2017.
Interim targets, including those set for passenger traffic, were revised upwards in 2017: in particular, Aeroflot Group plans to carry about 74 million passengers in 2022. According to our estimates, by this year, the Group’s fleet will comprise 409 aircraft. The fleet enhancement strategy provides for increasing the share of Russian aircraft through execution of contracts for 50 SSJ100s and 50 МС-21s.
Aeroflot Group’s progress in achieving 2025 strategic goals
| 2013 | 2014 | 2015 | 2016 | 2017 | 2025 | |
| Revenue, RUB billion | 291.0 | 319.8 | 415.2 | 495.9 | 532.9 | Top 5 and Top 20 |
| Passenger traffic, million PAX | 31.4 | 34.7 | 39.4 | 43.4 | 50.1 | Top 5 and Top 20 >70 mn |
| Domestic passenger traffic, million PAX | 14.0 | 17.6 | 23.4 | 25.2 | 27.6 | >30 mn |
| Aeroflot's share of transit traffic, % | 35.5 | 39.2 | 44.2 | 42.1 | 42.9 | 32.0 |
Aeroflot Group maintained a special focus on the development of its multi-brand offering to attract customers across all market segments. Each of the Group’s airlines targets a dedicated market segment, thereby minimising the internal competition.
Aeroflot airline focuses on addressing the needs of the premium passenger segment by offering best-in-class services, a high frequency route network with extensive flight geography, access to the route network of partners from the SkyTeam Alliance, convenient connecting flights for international transfer passengers, and a young aircraft fleet.
Rossiya and Aurora airlines target the mid-market price segment and operate regional and inter-regional flights. They focus on their target regions with higher price sensitivity by primarily offering their passengers flights from the base regions with lower flight frequencies. Rossiya airline also operates in the leisure (charter) segment.
Pobeda airline targets the low-cost segment. Domestic flights from Moscow to Russia’s regions, along with inter-regional flights within Russia, make up the bulk of the airline’s route network, building stronger ties between Russian regions. The airline also expands the international route network.
Aeroflot Group’s multi-brand platform
Positioning
Type of flights
Business model
Flight range
Aircraft fleet
Target group
Base airport
Share of international passengers in the airline’s passenger traffic
| Aeroflot Group’s multi-brand platform | |||||
|---|---|---|---|---|---|
Premium product  |
Regional and charter products in the mid-price segment 
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Low-cost product  |
Regional product for Far East  |
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| Scheduled flights | Scheduled and charter flights | Scheduled flights/td> | Scheduled flights/td> | ||
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| Unlimited< |
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Short- and medium-haul flights | Short- and medium-haul flights | ||
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Narrow-body aircraft /td> | ||
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| Moscow (Sheremetyevo) |
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~50%
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~35% |
~25% (Asia Pacific) |
~20% |
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Long-term development programme and progress report
Aeroflot Group’s Long-Term Development Programme (the LDP) was designed in accordance with Decree of the President of the Russian Federation No. Pr-3086 dated 27 December 2013, and approved by PJSC Aeroflot’s Board of Directors on 2 December 2014.
On 21 December 2017, PJSC Aeroflot’s Board of Directors approved Aeroflot Group’s LDP for 2018–2022 updated to reflect the key amendments to the Group’s strategy for 2018–2022, updates to LDP action plans and Aeroflot Group’s target KPIs for 2018–2022.
The LDP’s key goal is to ensure the Group’s long-term sustainable development, strengthen its competitive position, create and develop a competitive edge, and improve performance and financial stability.
The LDP details strategic areas for the Group’s development and includes a list of key initiatives and action plans aimed at the strategy implementation in the medium term. The LDP complements and expands the key strategic initiatives set out in Aeroflot Group’s Development Strategy to 2022.
| DEVELOPMENT PROGRAMME’S KEY OBJECTIVES ARE TO: | KEY INITIATIVES TO SUPPORT THE LONG-TERM DEVELOPMENT PROGRAMME PROGRESS IN 2017: |
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The 2017 progress on Aeroflot Group’s Long-Term Development Programme was audited by the Company’s external auditor, BDO Unicon.
The independent audit was followed by an opinion on the information prepared to reflect the progress on the Long-Term Development Programme’s initiatives from 1 January to 31 December 2017, on the actual 2017 KPI values, the progress against target KPIs as set out in the Long-Term Development Programme, and on the completeness and relevance of PJSC Aeroflot’s management clarifications on the discrepancies between the Group’s actual performance and the KPI targets stipulated by the Long-Term Development Programme, as presented in the Progress Report on Aeroflot Group’s Long-Term Development Programme and Achievement of Key Performance Indicators for 2017. The auditor’s opinion was issued on 30 March 2017 under No. 1658-BDO-18.
Overall, the planning and implementation of Aeroflot Group’s LDP initiatives are in line with the principles set out in the LDP Development Guidelines, the KPI Guidelines, and other directives and instructions of the Russian Government and the Federal Agency for State Property Management.
In 2017, the Regulations on Updating and Managing the Implementation of Aeroflot Group’s Long-Term Development Programme were approved to improve updating, reporting, and auditor communication processes.
Development programmes
The Group is implementing its strategy through a number of programmes designed to ensure long-term development and profitable growth.
Key programmes underpinning PJSC Aeroflot’s growth and development strategy:
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Management Incentive Programme