Thursday, June 19, 2008

Window on Eurasia: Rising Fuel Prices Cut Moscow Off from Russian Regions

Paul Goble

Vienna, June 19 – Dramatically higher prices for aviation fuel in Russia over the last several months have sent the cost of domestic air travel “through the roof,” with a domestic ticket from Moscow to Stavropol now costing more than an international one from the Russian capital to Turkey.
These price increases, which even exceed the prices rises in Western Europe and the United States, have combined with the other problems of domestic aviation in Russia to reduce travel between Moscow and that country’s far-flung regions, a development with potentially serious economic and political consequences over time.
An article in today’s “Novyye izvestiya” by Andrei Leonov and Oksana Prokhorova surveys the price increases, some of these other difficulties in Russian civil aviation, and the problems both are already creating for Russian officials, businessmen, tourists, and ordinary Russian citizens (
Since January, the cost of a roundtrip airline ticket between Moscow and Samara, one travel agency told the “Novyye izvestiya” journalists, has risen from 5,000 to 8,000 rubles (230 to 340 U.S. dollars), and for a business class ticket, the rate is now 12,000 rubles, more than a ticket to Paris.
The prices of tickets to other domestic destinations has gone up by approximately the same percentage, adding to the cost of doing business for many and reducing the willingness and ability of others to make trips that they had been doing as a routine matter until the last few months.
While prices for aviation fuel have increased throughout the world, they have risen more rapidly in the Russian Federation than almost anywhere else and now exceed the prices in many other countries. At the beginning of June the paper reported, aviation fuel cost 1200 U.S. dollars a ton in Western Europe, but 1500 U.S. dollars in Moscow airports.
And these fuel price increases have hit Russian airlines especially hard. Not only is there more competition in the West than in Russia, but fuel forms a far higher percentage of the cost of air travel in Russia than it does in the West (60 percent compared to 20 percent) because domestically produced planes are heavier and less fuel efficient.
But even if domestic lines bought new Western planes, something most of them are loathe to do, not only because of costs but because of political pressure from Moscow, that would not by itself resolve the many other problems of Russian civil aviation, a branch of the economy that has largely collapsed since the end of Soviet times.
In the 1980s, there were approximately 700 to 800 local airports that handled inter-city routes; now, there are only 90, and “40 to 45 percent” are not in good condition, with some like the one in Ivanovo forced to close for an extensive period of repairs, aviation experts told the Moscow paper.
For a country like the Russian Federation, with a completely inadequate highway system and a railway network that Prime Minister Vladimir Putin said this week will require 14 trillion rubles (600 billion U.S. dollars) over the next 17 years, any breakdown in air travel will have economic and political consequences (
At the very least, it seems likely to complicate Moscow’s announced plans to reduce the enormous differences in per capita GDP among the countries regions, which is now running at more than two orders of magnitude between the richest and poorest, officials said yesterday (
Indeed, it may prove to be the case that rising prices for air tickets may be a more powerful stimulus to decentralization of economic and even political power in that country than the demands of regional leaders like Tatarstan’s Mintimir Shaimiyev or the willingness of some Moscow officials to accede to them.
But just as rising prices for oil in the 1970s probably put off the demise of the Soviet Union for a decade or more and in recent years led many to proclaim Russia under Putin a brilliant economic success, so too rising prices for aviation fuel now could have an impact on that country, albeit a very different one than in the other two cases.

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