Volga-Dnepr Group / Press-center / Media Coverage

Fuel Price crisis fails to dampen An-124 demand

07/09/2008

"We are currently booked anywhere from four to six weeks ahead," Paul Furlonger, sales director for Ruslan International says. "This is unprecedented and it has been like that for the last nine months," Dennis Gliznoutsa, group commercial managing director for Volga-Dnepr agrees.

VOLGA-Dnepr recently unveiled annual revenues of US$767m for its An-124 and IL-76 operations, a rise of 62 per cent year-on-year.

But if you think that looks like a bit of a hefty rise, you would be right. Much of the increase was in fact made up of surging oil prices, which charter operators - unlike mainstream airlines - can simply pass on to customers in the rates that they quote.

Having said that, there is still some market growth. Dennis Gliznoutsa, group commercial managing director for Volga-Dnepr and vice-president sales for the Ruslan International sales and marketing joint venture that pools the An-124 capacity of Volga-Dnepr and Antonov Airlines, says the underlying rise in usage for the An-124s over the past year is around 7-10 per cent. Paul Furlonger, sales director for Ruslan International, who speaks for the Antonov Airlines side of the joint venture, puts growth a bit higher - up 15-20 per cent.

Whatever the figure, that there is growth at all, shows that a doubling in fuel costs has not put off customers for the fuel-hungry An-124. On the contrary, both sides of the joint venture report that they are booked solid.

"We are currently booked anywhere from four to six weeks ahead," Furlonger says. "This is unprecedented and it has been like that for the last nine months," Gliznoutsa agrees. "Whereas there used to be peaks and down periods, for the last eight to nine months it has all been peak."

One factor driving demand comes from the oil and gas industry itself. "With the high oil price, people are more willing to spend on airfreight for the exploration and development projects," says Furlonger. "Where previously they were hesitating whether to put money into oil and gas projects, now they are just going ahead."

However, in other business sectors demand also remains strong. Gliznoutsa reports several charters recently for industrial and power generation equipment all over the place, with quite a few operations of this type flying to Chile, Peru and Argentina.

Aerospace traffic - moving satellites and aero-engines, which accounts for around a third of Volga-Dnepr's traffic, is also continuing to show robust demand. Regionally, Gliznoutsa says demand to the US from Europe is very slow, but in the reverse direction it is quite strong -presumably due to the fall in the dollar against the euro. "But in general we are busy worldwide - including Japan and the Far East, Australasia," he says.

Flights to Afghanistan and Iraq in support of military and reconstruction efforts there, also remain a strong source of business for Antonov Airlines, according to Furlonger. "Sadly both those situations look like continuing for some time, although there are some positive signs in that we have been moving a good bit of power equipment recently," he says. "This indicates that where the fighting has subsided, some people at least think it safe to go ahead with infrastructure regeneration."

Gliznoutsa, however, says Volga-Dnepr's operations to the Middle East in support of the operations in Iraq and Afghanistan have slowed down, with demand now "steady, but not crazy".

One aircraft from each of the airlines is also based at Leipzig for the SALIS (Strategic Interim Airlife Solution) project for NATO. Both carriers report that this has been roughly operating at expected capacity, with only occassional requests for further aircraft under the programme.

Despite this rosy picture for An-124 operations, Furlonger is worried that the high fuel cost may soon start to affect demand. "I think we are approaching a point of resistance in the market," he says. "Sea freight costs are going up too, but we are getting to a point where the gap between sea and air is becoming too wide. I think we will soon reach a point where the gap is too much for many industries, though not for oil and gas."

Gliznoutsa also has some concerns, but says that where An-124 or IL-76 usage is part of a logistics chain, businesses are generally taking the higher price on the chin. "Our business has always been an emergency ambulance service. To be perfectly honest, I have not noticed a serious fall in the number of clients and charters," he says.

Worries about future demand means that neither carrier is so worried about an imminent shortage of An-124 capacity as they were last year. Furlonger, for example, reckons that while the An-124 has arguably been in short supply for the past half year, that may not be such a bad thing.

"With the fuel price rising so fast, and the potential that has to damp down demand in the future, it is probably a good thing that there is not too much more capacity," he says.

One thing that has changed with the high fuel price is the way that quotes are now structured for An-124 charters. Gliznoutsa says a clause now has to be built in to stipulate that the quote is based on that day's fuel price, and how it might change as a result of fuel price rises in the future. "That way, clients understand that the price increase is not because of the airline," he says.

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