The prices for tickets by Russian airlines have increased for 20-30% since the beginning of the year. It’s no wonder, as a ton of kerosene in Russia costs $1570, while in the USA it is $1300 and in Europe $1270. This oddity was noted not only by experts but also by Prime Minister Vladimir Putin, who threatened with dismissal to the heads of the Federal Antimonopoly Service (FAS), unless they manage to settle the situation in the market of aviation fuel. And the deputy prime minister Sergei Ivanov has commissioned recently that the Federal Service for Tariffs began to “set the limits for servicing by filling facilities”.     

A couple of weeks ago a scandal occurred where OAO Russkaya Neftyanaya Group (RNG) appealed to the Court of Arbitration with a request of recognizing OAO Domodedovskie Airlines to be a bankrupt, affirming that the air carrier owed them 150 million rubles. At that moment the media began to discuss the topic of probability of closing down many our airline companies in relation to their incapability to pay for the expensive fuel. However, soon things quieted down after Domodedovskie Airlines published an official report stating that their debt is 101 million rubles, which is no critical or significant amount for recognizing bankruptcy. In their statement, they also noted that the petroleum companies are carrying out aggressive policy endangering the air transportation market in Russia.       

RNG refused to give comments on the situation. According to Irina Dannenberg, the spokesperson for Aeroflot, the airline companies find themselves trapped with the situation about fuel prices. She said “The situation is terrible. One may not deny that the passengers might begin to refuse to fly.” Mrs. Dannenberg does not also deny that the number of the air companies might be reduced. However, the expert from Argus Media, Mikhail Perfilov, does not agree to that: “If the number of the companies became less, then the prices would go down. If the prices were too high, people would stop buying tickets, and the prices would go down again. But the prices do not fall.” And yet our prices continue to grow while in Europe they went down for several percent in May.   

As an option of finding solution to the problem, Vladimir Putin has suggested taking away the function of selling fuel in the airports from the fuel-filling complexes, and leaving them only the function of storage and filling the aircraft. According to Mikhail Perfilov, unlikely the other oil products there is no real market of aviation fuel in Russia. This is because many fuel filling complexes belong to people whose names are not voiced aloud. “There’s nothing to do about that” says the expert from Argus Media. “One may, of course, create a free market, but in that case the people who hold the positions they hold, all of them would lose their source of easy money. All previous attempts failed of making up something. In principle, it is possible to allow construction of alternative fuel filling complexes in Moscow, but that would be equal to permission of building a hotel that is not controlled by the Moscow government”.    

So the airline companies have to deal with the situation on their own. Some introduce the fuel fees, some restrict the consuming of fuel, some give up or reduce the number of far distant flights. A number of European companies are already applying the speed reduction of 10 km an hour and lessening the weight of aircraft through giving up built-in bridges and taking less quantity of water on board. The Brussels airlines are calling the EU to well coordinated policy in the field of air transportation, as the existing system always makes the aircraft zigzag when they are airborne in the air space of another country.       

“At the end of the day, this is the business by airline companies” makes a stress Mikhail Perfilov. “Why would the state interfere? There are states that prefer subsidizing everything from their own pocket, but there the airline companies belong to the sheikhs along with the oil extracting industry, and the economies in those countries are arranged in their own way. As for all the market economies, such situations are regulated with the market.” As for the countries where the airlines belong to the state and through that fact find themselves having hard times, there the heads of states try to sell the companies to private hands. Such is the situation of the Italian national Alitalia Company who received a credit of 300 million euros from the government, despite the fact its daily losses are about 1 million euro a day.  

It’s clear that the fuel price depends on the oil price. However, many get perplexed when comparing home and European prices. They wonder how it comes that the country exporting oil has the fuel more expensive than the countries importing its oil. However, the expert from Argus Media believes such comparison to be illogical: “We should not forget that the companies selling oil here (not extracting it), they also buy this oil for same money like it is done somewhere in Spain or France. This is the market situation, and we are not the Emirates. If there were monopoly for oil in Russia, and a single company was engaged in extracting, processing and selling the oil not giving an account to anyone, then we could ask a question of why we have such prices. And we, for example, have the Moscow oil processing plant where there are three stockholders, and each of them buys the oil in the market. So our prices are comparable to everywhere. Besides, we export oil. If Russia consumed herself all her oil, we would have different pricing. And now any supplier has a choice of going for export or going for home processing plant”.      

However, our prices are even higher than those in Europe, which is difficult to be explained by the law of market regulation alone. Mikhail Perfilov has to admit that, reminding there is a certain system of mediators in Russia for oil products, and those people are not going to lose their profits.   

As for FAS, it has published a report on the job done about its activisation in the fuel market, on their official website. FAS has started several criminal cases about violations of the anti-monopolist legislation and has exposed some facts of counter-competitor actions by some oil and fuel companies. However, as FAS admits “the taken measures did not lead to stabilization of the situation and to significant reduction of prices”. 

The day before yesterday FAS took a decision of starting cases against all the large oil companies in Russia: OAO Lukoil, OAO Gazprom neft, OAO TNK BP Holding, OAO NK Rosneft and OAO Surgutneftegaz on the signs of abusing their dominating position in the market and violation of Article 43 of the Federal Law “On Providing For Competition”. The above mentioned companies are accused of “establishing monopoly high price in the wholesale markets of aviation kerosene and diesel fuel in Russia”. Gazprom neft and TNK BP are suspected of establishing ungrounded tariffs for same product, also of making discriminative conditions for buyers in the wholesale market of aviation kerosene.   

“It often happens that the state tries to do better with its one hand and spoils the situation with its other hand” comments Mikhail Perfilov. “Those hands are struggling on the level of the Kremlin and the Russian White House, which results in no effect. No one has said so far what we want from the market and what exactly market we are going to build. They are going to build a stock exchange in Petersburg. What are they supposed to be based on, when there is no spot market? They mean we are going to make an organized spot market with this exchange. That’s a risky option, as it might happen that no one comes there to trade in fuels, for example. There is no strategy.”      

Yes, there is really the lack of strategy and the lack of understanding the problem by officials, and accordingly the ways of solving it. Or maybe on the contrary there is clear understanding of the interests by the fuel mediators which are dearer to officials than the airline companies and the passengers.