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Chief Executive Officer`s Statement

Dear Shareholders,

For Aeroflot, 2016 was a year of breakthrough achievements across a number of areas. And it is particularly notable that these results were achieved despite a negative backdrop for the Russian air travel market as well as the economy as a whole.

The most important achievement of the year was completion of the formation of Aeroflot Group, which today is the largest aviation holding in Eastern Europe and serves key market segments. Aeroflot, our parent company and the Group’s premium carrier, was officially confirmed among the ranks of the elite of global aviation. The airline’s biggest breakthrough accomplishment in 2016 was achieving a Four Star quality and service ranking from British consultancy Skytrax, the leading benchmark for quality in our industry. The Aeroflot product was recognised as fully in line with the very best European carriers. And in 2016 the Aeroflot brand was named as the strongest brand of any airline globally according to Brand Finance, the world’s leading independent branded business valuation and strategy consultancy.

Our low-cost carrier, Pobeda, has completely changed the landscape for budget air travel in Russia. In 2016 Pobeda increased passenger traffic nearly 40% and took top place globally in a number of international rankings, including for growth rate among low-cost carriers, average passenger load factor and profit per aircraft. Pobeda’s greatest achievement, however, is that it has made air travel infinitely more accessible for the Russian population.

We fully rolled out our mid-tier subsidiary, Rossiya. Regional carrier Aurora is successfully serving the Russian Far East market. And we achieved new passenger traffic records. Aeroflot Group carried a total of 43.4 million passengers in 2016, a year-on-year increase of 10.3%. Aeroflot airline served 29.0 million passengers, representing year-on-year growth of 11.0%. These achievements were all despite the Russian air travel market shrinking by 4.1% on the year. Aeroflot Group revenue passenger kilometres increased by 14.8% and available seat kilometres increased by 10.3%. The passenger load factor increased by 3.2 percentage points (p.p.) to 81.5%, which had a positive effect on the Group’s profitability.

Our financial performance also set new records. Aeroflot Group’s revenue under IFRS increased by 19.4% versus 2015 to RUB 495.9 billion. EBITDAR totalled RUB 137.6 billion, an increase of 33.4%. The EBITDAR margin improved by 2.9 p.p. to 27.7%. EBITDA increased by a third to reach RUB 78.0 billion. Operating profit increased by 43.4% to 63.3% and net profit was RUB 38.8 billion versus a loss in 2015. Aeroflot’s share price rose 172.5% over the course of 2016. The company’s market capitalisation was RUB 170 billion, or USD 2.8 billion, as of 30 December 2016, higher than some of the large European airline groups.

Alongside strong operating performance, other key factors that drove financial success were strict cost control and improvements in efficiency of business processes as a result of implementation of digital technologies. These initiatives allow Aeroflot to offer some of the most competitive airfares of any airline globally. According to a ranking by Australia-based analytical agency Rome2rio, Aeroflot’s economy class fares were among the lowest globally in 2016, and we had the lowest fares among legacy carriers.

In 2016 Aeroflot placed fourth globally in a ranking of digitalisation at airlines carried out by consultancy Bain & Company, and Aeroflot’s website ranked as the number one online store in Russia. We have digitised nearly 100% of our business processes, we’re continuously improving our mobile apps as one of the most effective tools to engage with customers, and we launched a major initiative to leverage Big Data. All of Aeroflot’s wide-body aircraft are WiFi-enabled, with plans to expand that service to the entire fleet with the exception of regional jets.

Aeroflot’s fleet is state of the art. The average age of the airline’s aircraft is 4.2 years, making it the youngest of any carrier globally with a fleet of at least 100 aircraft. Our fleet strategy includes increasing the proportion of domestically manufactured aircraft by taking delivery of 50 Sukhoi Superjet 100s and 50 MC-21 aircraft.

All of these achievements are not just our success. They represent the success of our country. It’s irrefutable that Aeroflot Group has become a significant contributor to Russia’s socio-economic development, strengthening Russia’s position globally and indeed improving the quality of life for the Russian population.

With your support Aeroflot plans to reach new heights. We see potential to accelerate growth in the premium segment that Aeroflot airline operates in, particularly by boosting international transit traffic, as well as our low-cost carrier Pobeda.

I am confident that we have all the resources at our disposal – both material and immaterial – to continue to grow the company step by step in a way that benefits all shareholders, including our largest shareholder, the Russian state and the Russian people.

Vitaly Saveliev
Chief Executive Officer PJSC Aeroflot