History Background of “Aeroflot”
The date of foundation of "Aeroflot" is 9 February 1923. On this day, Council of Labor and Defense of the Russian Soviet Federative Socialistic Republic issued a decree "On the organization of the Civil Aviation" and "On the assignment of technical supervision of the airlines to the General Directorate of the fleet." The first air transport enterprise and the actual progenitor of "Aeroflot" Russian society has become "Dobrolyot". Later in 1932, “Dobrolyot” turned to the General Directorate of the Civil Air Fleet and got an official name "Aeroflot". Since then, the concept of "general aviation" and "Aeroflot" in the Soviet Union were essentially equivalent since no other carriers in the country existed. Initially, the first aircraft fleet in Russia consisted of a converted German "Fokker". Then from 1935 up to the early 90's, "Aeroflot" exploited aircraft only of domestic production, introducing the latest developments of the leading Soviet design bureaus “Ilyushin” and “Tupolev”. In 1976, Aeroflot was the first airline in the world that carried more than 100 million passengers a year. In the early 1990s after the collapse of the Soviet Union, the former Soviet republics and regions of Russia have created their own airlines. As a result, the world's largest airline collapsed into more than 300 individual airlines. In the same years, restructuration of Aeroflot processed. Thus, in June 1991, Industrial Commercial Association "Aeroflot – Soviet Airlines" appeared. On 28 July, 1992, this association transformed into an open joint stock company "Aeroflot – Russian International Airlines". Nowadays, the airline's fleet of aircraft consists of: Airbus A330, Airbus A321, Airbus A320, Airbus A319, Boeing 767, and IL-96. In 2011, Aeroflot signed contracts to purchase sixteen Boeing aircrafts B777, the deal is due to begin in 2013. Since June 2011, "Aeroflot" has received the Russian regional aircraft of a new generation “Sukhoi” SuperJet-100. In total, in 2020 the Group "Aeroflot" will acquire 126 modern aircrafts of Russian production.
Corporate philosophy has not been written from scratch as it existed in separate documents and in the representation of employees in unformatted form. However, the emergence of such a document, which clearly stated aims, principles, and values of the company, was a landmark event. Under the wide discussion of all the company units, corporate philosophy was adopted and provided by the Board of the company. Corporate philosophy, however, led to the existence of the new slogan "Sincerely Yours, Aeroflot" and to a new standard of service in business class. Standard got features of the traditions of hospitality, personal attention to the passenger, the modern form of stewards, and a new color style of planes. “Aeroflot's 90-strong fleet now includes new Airbus and Boeing planes liveried in smart navy blue and silver. Cramped seating has been upgraded, meals improved and, refreshingly, staff taught to smile” (From Russia, 2006). One task was to develop and adopt a corporate philosophy, the other was to ensure that it postulates employees and becomes a part of their own "I". To promote corporate philosophy, the developed program paid particular attention to the so-called units of the "first line." It is those employees who in the course of their work have direct contact with passengers and essentially ensure the quality of the final product of the company. The Department of Public Affairs and the Department of Marketing and Human Resources turned to be main divisions-conductors of Aeroflot. The first step here was the holding of training "Service-oriented brand" for the team. Next, using the materials of training, Department of Marketing prepared abstracts and presentation for the introductory seminar on corporate philosophy. The chair of the working group carried out a series of similar seminars for managers and middle managers. The presented corporate philosophy invoked great insight and response of staff of the complex on-board service. The Department of Marketing and Public Relations Department produced and distributed the book of the employee "Aeroflot" with principles of corporate philosophy in details. The book, which was designed in a modern and easily comprehensible style, raised a number of controversial opinions, but it has played a positive role. The key to the development and improvement of profitability is the correct construction of airline fleet and allocation of funds. Immediately after the change of leadership, ten of new Boeing 737 aircrafts and two of wide-body Boeing 777 were taken on lease for 6 years. It became possible to reduce the losses of old aircraft and raise the image of the company. The next step was the charge-off of obsolete aircrafts. Nowadays, the airline has 120 aircrafts on its balance, most of which are aircrafts of the A320, A330, B767, and new Russian aircraft SSJ-100. The fleet constantly updates new equipment, which corresponds to the level of international standards. “Three years later, led by director Valery Okulov, Aeroflot RIA launched an aggressive campaign to bring the airline up to world standards. It invested in Western-made aircraft, including 10 new Boeing 737's, two Boeing 767's, two Boeing 777's, and 10 Airbus A-310's” (Ferguson, 1999). Aeroflot operates flights to 52 countries, including six CIS countries (Armenia, Azerbaijan, Belarus, Kyrgyzstan, Ukraine, and Uzbekistan). In 2011, the airline carried more than 14.17 million passengers, an increase of 25.6% compared to the previous year. Aeroflot is the leading employer and taxpayer in the air industry (in 2007, the budgets of all levels of the company have paid in taxes to 10.3 billion rubles). The company employs about 14.5 thousand people, including about two thousand flight specialists.
Staff is a key asset of the company. Main tasks of Aeroflot personnel management are to provide employees with attractive professional development opportunities, competitive wages, and social protection of employees. The company attracts the best staff with the potential for professional growth. No less important is the alignment of the system performance, providing a measure of the contribution of each unit and individual to the strategic goals of the company, and linking wages to the implementation strategy. Due to the expansion of fleet payroll, number of employees of JSC "Aeroflot" for the year increased by 7% to more than 15 thousand people.
Depending on the resources available in each region, the company forms marketing objectives and strategy (sales, advertising business, etc.). In terms of sales, the management indicates possible ways to organize the sale of air transportation through agents, in the office of the airline's own point of sale, which allocated a quota of seats for each distribution point, etc. Tariff policy reflects and highlights the use of various types of tariffs, discounts, and benefits in some categories of passengers, depending on the season and the form of transport. Action plan to improve the service includes the introduction of new services at the airport and on board for passengers of different classes and creation of additional services (car rental, souvenir shop, hotel reservations, etc.). In terms of sales promotion, there are specified forms and methods of advertising company, methods of motivating agents of the company, participation in business meetings ("public relations"), sponsorship of the company, etc. The marketing plan also includes recommendations for the compilation of effective scheduling (network airlines, the number of flights, frequency, distribution of aircraft by airlines, etc.
Operations. Operational Philosophies. Markets Served
The advantages of air transport over other delivery methods are obvious. This is the maximum speed, which is particularly important for perishable goods, animals, or heat-loving plants. In addition, there are a number of settlements, to which another mode of transport to travel or problematic or for very long. Therefore, the volume of cargo by air, including transport services across Aeroflot is increasing every year. "Aeroflot - Russian International Airlines" is the largest Russian airline carrier air cargo. Air merchant navy is considered the most expensive type of transportation. However, in reality most airlines fares proper transportation is not too high, given the speed of delivery and the vast distances that are covered in that time. However, the total cost of shipping usually includes payment of a number of related services. In order to estimate the real cost of delivery specified cargo need to build on some basic factors. The main point in determining the cost of transportation of any object is the distance between the point of departure and destination. Transcontinental transport priori cannot be cheaper than flights within Europe. Aeroflot cargo flights to dozens of countries, with the cost of shipment are determined separately for each direction.Weight of the load is a major limiting factor in freight aircraft. Differentiated tariff for the transportation of the object is calculated from the interval, which gets its mass:
- from 0 to 44.9 kg.
- from 45 to 99.9 kg.
- from 100 to 299.9 kg.
- from 300 to 499.9 kg.
- from 500 to 1000 kg.
A third important factor that influences the price of shipping this product is dimensions. Since the share of different transport facilities may differ, in some cases, tariff is based on the determination of the mass of the goods shall be adjusted by the volume occupied by them. The cost of transporting heavy or bulk items is calculated individually. In addition to the payment of proper transportation, freight costs through Aeroflot includes:
- loading and unloading services at airports
- cargo insurance - insurance depends on the amount of the insured value of the object
- carrier services on registration of transport and customs documents,
- promote the carrier's certification for the transported goods
Other ancillary operations, such as the transfer of funds to the sender, packaging and mounting kit, ability to check the location and condition of the goods in real-time or store goods in stock airport. Currently Aeroflot carries on its cargo and passenger flights of more than 90 tons of cargo a year. Schedule of JSC "Aeroflot" provides performance weekly cargo flights on the routes:
- to Europe: 4 flights of IL-76. 3 flights DC-10-30F;
- to Japan: 4 flights of IL-76. 3 flights DC-10-30F;
- to the UAE: 7 flights of IL-76: China: 3 flights of IL-76;
- to South Korea: 4 flights of IL-76.
In addition to these flights, Aeroflot has 4.3 additional weekly flights to deliver fresh fish to Japan. Charter flights JSC "Aeroflot" deliver loads in almost any available point of the world of aviation. IL-76TD of cargo capacity up to 50 tons carries the largest volume of traffic. Aeroflot uses 12 IL-76TD. Freighter DC-10-30F operates on long-haul routes. Aeroflot plans to upgrade the fleet of freight aircraft with modern aircrafts, both Russian and foreign production (ILl-96T. DC-10-30F). The company has significant opportunities to deliver cargo on passenger flights to more than 143 points in the World using Boeing-767, Boeing-777, Boiig-737, A-310, Il-96-300, Il-86, Il-62, Tu-154, Tu-134. These aircrafts, depending on the type, can transport up to 15 tons of cargo. Aeroflot has a license from the Federal Aviation Service of Russia on the Transport of Dangerous Goods. Currently, the company takes steps to become licensed customs carrier. The airline provides the automated control system of freight "SITA SUPER CARGO." The terminals will be equipped with this system as a representation of "Aeroflot" abroad and company’s service on the territory of Russia as well. ACS is provided with the best international experince in this field. To organize the delivery of any goods one can apply to the sales department of freight traffic of Aeroflot or via cargo agents Aeroflot. They provide commercial clientele following services:
- reservation and design of transportation documents;
- handling and storage of cargo, including hazardous, valuable, perishable, and others;
- freight forwarding, to ensure guaranteed delivery of goods to destinations in Russia and CIS countries;
- deconsolidation (consolidation) of cargo;
- customs clearance of export and import goods;
- delivery of cargo "door to door".
Aeroflot Overseas Cargo Sales are located in more than 100 countries. Representation is completely knowledgeable about the possibilities of the airline’s cargo transportation and ensures their delivery to Aeroflot through a network to sales agents traffic. Development strategy of cargo business is aimed at enhancing regular services on cargo planes between Asia and Europe as well as at revitalization of the Russian market with a focus on transportation of import and export cargo on passenger aircraft. Development of integrated services for the delivery of goods "door to door" by expanding partnerships with freight forwarders and express freight transport increase. Aeroflot stopped using obsolete Il-76. To increase the volume of traffic the company will gradually replace the DC-10 aircraft to the larger capacity aircraft with subsequent expansion of freight aircraft to 6 units. The strategic goal of Aeroflot in the field of economic efficiency is to enlarge passenger revenue rate, bring it to the average level of the Association of European airlines by optimizing the route network, attracting high-yield passengers, and improving the quality of the product. Aeroflot also plans to increase revenues from other activities, expanding the range of services to other airlines. These are, in particular, the training of aviation personnel, maintenance, and ground handling of aircraft. Main levers to reduce costs is to optimize the fleet through using fuel-efficient aircraft and minimizing the number of types of vessels in service, increasing productivity to the average level of the Association of European airlines, introducing effective mechanisms for controlling costs and incentive scheme aimed at optimizing operations and cost savings .
Business Relationships. Principle Customers. Partners, Alliances, Pacts
"Aeroflot – Russian Airlines" operates in a highly competitive market for the profit of its shareholders, the main of which is the state. Founder, Government of the Russian Federation, has a 51% stake. 49% stake is owned by legal entities and individuals, including employees of the company. Aeroflot airline has two subsidiaries – "Aeroflot-Nord" (Arkhangelsk) and "Aeroflot-Don" (Rostov-on-Don). The company is implementing a project to create a similar company in the Far East. Freight transport is carried by a subsidiary company "Aeroflot-Cargo". Aeroflot is the first Russian airline, which entered a global airline alliance. In April 2006, the company became the 10th full member of the international alliance “SkyTeam”. Thus, Aeroflot provides its clients with access to the brand new route network, which now has 841 points in 162 countries. The company has cooperating agreements with 33 foreign and domestic airlines. “Aeroflot’s frequent flier program is known as Aeroflot Bonus. Since Aeroflot is a member of the SkyTeam alliance, Aeroflot Bonus passengers may earn miles on flights operated by Aeroflot’s SkyTeam partners, including Delta Air Lines, China Airlines, and Saudia. Likewise, miles earned on Aeroflot may be redeemed for award travel on other SkyTeam partner airlines” (Aeroflot, n.d.).
Aeroflot is especially focused on new information technology as a powerful tool to improve the quality of customer service and cost efficiency. Turning to the software of “Sabre”, the company is developing a project online sales, has introduced a web booking, ticket payment by credit card through the on-line payments from its own site. Since 2006, Aeroflot has used an electronic ticket and introduced the service check-in points installed in the base airport of Sheremetyevo-1 and 2.
Aeroflot follows the high standards of international safety (safety factor is 99.936%). One incident falls on the 7840 flight hours, the figure the company has twice as good as the average for the domestic industry. As a result, the audit of the operating safety of the International Air Transport Association (IOSA – IATA Operational Safety Audit) registered the first Russian carrier to IOSA in 2007. The company received the certificate in accordance with the new, stricter regulation version. In March of 2008, Aeroflot passed the certification of the quality management system (QMS) requirements of the standard ISO 9001:2000. The Russian carrier has the biggest in Eastern Europe modern Mission Control Center (MCC) and the Centre for training of aviation personnel, including eight local and foreign trainers: 4 complex, 3 treatment, and 1 rescue.
Aeroflot in Future
General goal of "Aeroflot" 2015 are:
- to increase the share of JSC "Aeroflot" in total scheduled passenger airlines in Russia by number of passengers up to 30-35% while ensuring cost-effectiveness of activities;
- to become customer-centric company and the leader of the Russian air carriers in terms of customer loyalty (the company of choice for passengers).
To realize its strategic objectives, the company defines the following priorities in its main strategies in the market:
- growth strategy (expanding its presence in the market), which is realized through organic, marketing, growth, and acquisition of airlines;
- marketing strategy, the best ratio of value and price for the selected customer segments (balance industry parity in cost and quality differentiation);
- strategy of competitive advantage, the use of the network model with the formation of transport hub at Sheremetyevo Airport, regional hubs in Russia, and in other target markets with a wide network of international transport.
Key success factors of "Aeroflot" in 2015 are:
- focusing on the production lines on O & D (origin and destination);
- more effort to retain existing passengers;
- increased competition for high-yield passengers;
- the highest level of safety in Russia;
- full hub at Sheremetyevo, effective connections and bandwidth;
- the leading position in the market share of the regular Russian civil aviation;
- cost-effective and adequate network of fleet;
- additional customer value through product and brand.
Aeroflot intends to strength its leading position in the Russian civil aviation, primarily by expanding its presence in the domestic market and the traffic between Russia and the CIS countries. This implies both an increase in frequencies on existing routes as well as access to new areas. In the international development of the company's passenger traffic due to the expansion of cooperation with partners of the alliance Sky Team, it means attracting transit traffic passengers traveling from Russian regions overseas and from Asia to Europe, America, and back, and increasing the share of Aeroflot passenger higher classes. Aeroflot builds its route network with a focus on business passengers. This involves direct routes, a high frequency of flights (at least 5-7 times a week on the route), and convenience for business schedule. Basic principles for the development of route network is the concentration on the most profitable segments of the market, increased network connectivity, expansion of cooperation with Russian and foreign airlines (code-sharing, interlining) in order to increase the number of destinations and frequencies offered to passengers. “Aeroflot currently has about 200 interline agreements with Russian and foreign airlines” (Aeroflot Airline Information, n.d.).
Aeroflot's development strategy provides the optimization of the fleet type-size range in accordance with the route network while reducing the number of types of families to be used in passenger aircraft from ten to four in order to cut costs, and transition to modern fuel-efficient and more comfortable types of aircraft. Traffic capacity of Aeroflot, according to the growing demand for air travel, is to be provided by maintaining a high level of serviceability of the existing fleet, acquiring new aircraft, and developing partnerships with other airlines. Over the past two years, the company has significantly increased its fleet serviceability. The task is to maintain good condition of at least 80% of Russian aircraft and at least 90% of foreign aircraft. A necessary condition for the preservation and strengthening of the market position of Aeroflot is the creation of the airport "Sheremetyevo" international hub node that can produce "connect" waves seamless connections and high quality customer service. Aeroflot plans to enter service in spring 2009 its own ultra-modern terminal "Sheremetyevo-3", which will transfer all its and its partners’ flights in the alliance SkyTeam. The new terminal with a capacity of 9 million to 12 million passengers a year will provide service at the level of leading airports in the world, which means seamless connections, flight connections, and attraction of transit traffic. Basic elements of airline products are safety and reliance. Aeroflot intends to make every effort to maintain the safety rating on the highest level in the industry as well as indicators in the world's leading airlines for punctuality, flight regularity, and safety of baggage. In the next 2-3 years, Aeroflot intends to improve the quality of customer service. The company plans to move to two-class aircrafts usage with an improved business class. The new service concept tested in a number of pilot areas will be extended to all flights. There is expected to take place a special training of flight attendants and other staff in contact with customers to make significant changes to the menu, expand the range of entertainment on board. The development of the company's brand is of the strategic importance. Rebranding program is designed to reinforce visually positive changes taking place in the company and make the external appearance of Aeroflot's new, more modern and attractive features. The new image of the company will be based on core values, such as attention to people, safety, and nature of the Russian Aeroflot. The company plans to develop a loyalty program "Aeroflot-Bonus", integrating it with similar programs of other airlines as well as companies operating in the banking, hotel, and tourism business.
Aeroflot Today. Summary
“Today, Aeroflot is an airline with an excellent safety record, operational reliability, and a reputation for industry-leading customer service. Through its hub at Sheremetyevo Airport in Moscow, Aeroflot operates flights to over one hundred twenty destinations in more than fifty countries under its current schedule” (Aeroflot, n.d.). Aeroflot is the only Russian carrier, which has entered the European top five best in the long-haul flights. The company is placed second in Europe for the quality of food on board long-haul flights (with duration of more than six hours) and honorable fifth place in the ranking of European carriers providing the best on-board menu on short-haul route.
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