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Edited Transcript of AFLT.MZ earnings conference call or presentation 29-Nov-19 12:00pm GMT

Nine Months 2019 Aeroflot-Rossiyskiye Avialinii PAO Earnings Call (IFRS)

Moscow Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Aeroflot-Rossiyskiye Avialinii PAO earnings conference call or presentation Friday, November 29, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrey Chikhanchin

Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board

* Andrey Napolnov

Public Joint Stock Company Aeroflot - Russian Airlines - Head of IR

* Andrey Panov

Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO for Strategy & Marketing

* Ivan Batanov

Public Joint Stock Company Aeroflot - Russian Airlines - Head of Revenue Management

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Conference Call Participants

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* Artem Yamschikov

Renaissance Capital, Research Division - Research Analyst

* Denis Vorchik

URALSIB Capital LLC, Research Division - Analyst

* Elena Jouronova

JP Morgan Chase & Co, Research Division - Research Analyst

* Igor Goncharov

Gazprombank (Joint Stock Company), Research Division - Senior Analyst

* Ivan Postevoy

VTB Capital, Research Division - Equities Analyst

* Matvey Tayts

Sova Capital Limited, Research Division - Research Analyst

* Maxim Nekrasov

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Dear, ladies and gentlemen, welcome to the conference call of Aeroflot Group. At our customer's request, this conference will be recorded. (Operator Instructions) May I now hand you over to Andrey Napolnov who will lead you through this conference. Please go ahead.

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Andrey Napolnov, Public Joint Stock Company Aeroflot - Russian Airlines - Head of IR [2]

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Good afternoon, ladies and gentlemen. Thank you for joining us on the call to discuss Q3 and 9 months financial results. Today, we have following speakers on the call: Deputy CFO, Commerce and Finance, Andrey Chikhanchin; Deputy CFO, Strategy, Service and Marketing, Andrey Panov; Director of Revenue Management Department and Network Planning, Ivan Batanov; and Head of IFRS, Artem Glaznev. I'd like to remind you that the press release and IFRS statements are available on the website.

And before we begin, again, I'll just draw your attention to the disclaimer statement in the beginning cover of the presentation regarding the actual results and the forward-looking statements, that actual results may differ materially from those expressed or implied in the statements made during the conference call.

So we'll begin the presentation now with the key highlights to be discussed in detail during the presentation.

First of all, operational growth has been quite strong during 9 months despite some expected deceleration that we have seen in Q3. Capacity increase of 12.4%, respectively, helped to boost passengers numbers to almost 11%, while keeping yields in the positive territory.

To discuss these operational trends, I'd like to pass the floor to Andrey Panov, our Deputy CFO, Strategy, Service and Marketing. Andrey?

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Andrey Panov, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO for Strategy & Marketing [3]

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Hello, everyone. So I'm on Slide #5. So Russian market continues its growth at the pace of 7.6% year-to-date, slowing down a bit in Q3 to 6%, which is still in line with our long-term projection of 7% -- 6% to 7% CAGR. However, I mean it's interesting to look at the structure of this growth.

If you look on the slide, you see it like in red, minus 2 million PAX which attributed to foreign carriers. So actually, it's 11% decline of foreign carrier traffic in 9 months of 2019. And this decline accelerated to 14% in Q3. It means that the overall growth which was posted by Russian carrier on international destinations in passenger is 17.5%. Growing competition from the Russian carriers had some implications for industry pricing trends. First of all, these carriers have lower CASK compared to foreign carriers, European ones in particular, and by definition, may offer better deals. At the same time, the growth was concentrated in the most popular markets and created overcapacity.

Overall, if we look in the future, I mean this strong growth of Russian Airlines in terms of passengers numbers probably imply that we will see higher numbers like at the end of this year.

Approach to domestic market continued to be quite rational, both in 9 months and Q3. Key growing players here have been Aeroflot Group. Aeroflot and Pobeda, in particular, and S7. Other carriers have been either reducing their domestic capacity in favor of international segments like Ural Airlines or [Blue] in nonscheduled segment and UTair.

Our domestic competitors have continued to develop both in Moscow and outside. We noted acceleration of S7 expansion in their hub in Novosibirsk. Number of seats offers increased over 30%, probably due with quite regional jets which they received, which outpaced [Domodedovo] in terms of number of seats added according to available databases.

Ural Airlines focused on Zhukovsky and Yekaterinburg airports. UTair returned to the growth mostly in nonscheduled segments, as (inaudible) already mentioned. On the back of these trends, we slightly increased our market share to 38.7%, based on fewer O&D markets in the (inaudible).

So let's go to the next slide.

That in the 9 months of 2019, in line with our strategic approach, we have seen growth in all our key brands. Pobeda led the group with 46% growth or 2.5 million PAX, that is in absolute terms. I will speak a bit later about it. 6% growth in Aeroflot was substantially supported by growth on international routes, including Europe to Asia transfer. While domestic network was not expanding in Q3, we posted slight decline in the traffic, mostly linked to load factor on the one hand, and at the same time, because of capacity adjustments.

Rossiya Airlines scheduled network that was moved to Sheremetyevo airport from Vnukovo have posted improved efficiency and connectivity to larger airport network, particularly in the long haul segment.

Next slide, about Pobeda. So Pobeda continues its remarkable growth on the back of capacity expansions. Like what will happen next year, we don't know because of markets. But this year, I mean you see that during the last 12 months, airline received aircraft, including 6 aircraft this year, bringing the total fleet to 30 planes. Passenger number grew by 46% and the total is 7.6 million PAX in the 9 months of 2019.

I believe that Q3 operationally was quite remarkable as we were able to maintain efficiency. Load factors stayed at amazing level, around 96.5%. It means growing yields. Positive yield that we have seen for Pobeda for 9 months is also quite important as the airline growth in less sizable market are closest to the growth in the initial stage of the development. When Pobeda enter (inaudible), they connect Moscow and other [nations]. All in all, network of the airline in summer season comprised over 100 routes, and over half of them are unique to our group.

So on the next slide, we speak about Aeroflot Airline domestic and international transit, also very important for us, and due to our strategy to increase the number of international transit. And in 9 months, it increased by 14% to [4.1 million]. Including Brazil Airlines, the number is 4.3 million. The pace of growth for 9 months was affected by Q3 and resulted in lower run rate compared to 20% year-to-year growth in the first half of the year because of a number of strategic factors, including the holidays, I mean different time of holidays in Israel and the agitation in Hong Kong. But still, the growth is in line with the plan.

Now we'll talk about network and schedule overview. And I pass the floor to our next speaker, Ivan Batanov.

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Ivan Batanov, Public Joint Stock Company Aeroflot - Russian Airlines - Head of Revenue Management [4]

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Thank you. Thank you, Andrey, and good afternoon, everyone.

So let's start with group network development. So development of the network according to the depth principle remains our full priority. However, as we have already quite sizable operations on key markets, we are increasing our focus on the new markets and new routes. Most of the recent addition to the network took place in winter '18 with minor expansion on summer '19, particularly on -- with Marseille and Palma de Mallorca. These additions, coupled with the new frequencies, allowed us to increase overall frequency for network carriers by 7%. As usual, domestic frequency drives this growth. Overall expansion of our route network is aimed at supporting passenger convenience and to extract more synergies from the existing network and support our international-to-international strength strategy.

Let's move to the next slide and have a look at the key results of our revenue management this year and the recent quarter.

1.4% increase on group over 9 months yield was driven by domestic segment, which was up by 6.9% while international yields have been slightly down by 2.6%. Q3 folds the trend we witnessed from the beginning of the year, improving domestic yields and some pressure on the international segment.

So let's summarize factors where we have determined Q3 yield dynamics.

First of all, on domestic yields. The increase on yields is quite positive development that helped to improve underlying financials on the domestic segment. Rational approach of the key players in the market to price and a limited capacity expansion as well as consumers' ability to digest the increase contributed to the growth.

I would like to highlight that the group has been able to increase the yields, while Pobeda continued its high growth in an (inaudible) budget seats [assisting] growths in RPK mix.

Soft performance of international yields is mainly attributable to overcapacity resulted from the quite abrupt inorganic increase in capacity by some players. On the one hand, we have seen positive inputs on the routes where foreign carriers have decreased capacity, but Russian carriers' decent increase in passengers in third quarter 2018, was too fast not to disrupt pricing. The capacity factor was complemented by inter-European pressure on the yields accelerated by currency factor, as ruble strengthened 6% versus euro in third quarter. In this environment, we were able to minimize decline in European yields, only at 3.7% in the third quarter, which is improvement versus 5% in the first half 2019.

On the positive side, we have been quite successful in the CIS region despite growing capacity and competition, and managed to increase yield by 3% in rubles. Among other factors, we have actually developed [into consumers], and last but not least, World Cup '18 affecting June and July, as we have already mentioned many times before.

Let's move to the next slide. And here, as a reminder, to illustrate the base effect we saw, the yield growth in '19 and 2018 by month. Here, you can see that once the base effect of the World Cup was over, particularly for June and July months, at (inaudible) yield, resumed the growth. At the same time, as I have mentioned, we need to keep in mind that post World Cup, we had the extra demand due to shift in timing of holidays taken by the Russians. Key contributors to the source yield -- soft yield dynamics were international yields.

On the back of 2018 increase, international yields in June were down by 12% and by 8% in July. In the following months, the yields have normalized and posted positive growth.

That's all for me. And I would like to pass the floor to Andrey Chikhanchin.

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [5]

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Ladies and gentlemen, good afternoon. Let's talk about fleet plan. Group fleet remained almost stable in the first 9 months of 2019, with Pobeda being the main driver, as usual, of additionals with 6 aircraft phased in the first 3 quarters. Aeroflot received 2 wide-body, Boeing 777 aircraft in 9 months 2019 and started to proceed of the competition Airbus history. Planes with first 3 aircraft scheduled to leave the fleet in fourth quarter of 2019.

Let's move to financial highlights, consolidation of financial results for 9 months and Q3. The first half of 2019 has been quite challenging with circa [3%] increase in fuel price, material and ruble depreciations, both versus dollar, about 10%, and versus euro, about 3%, which resulted in soft 6 months results. At the same time, despite competition headwinds, we have been successful at increasing the yields.

As we move through the third quarter of 2019, we have seen a number of changes in the macro trends. We see some jet price improvement at the group level. But at the same time, we believe that fuel remains elevated compared to historical numbers. It's the first one. And the second one, the ruble appreciated versus dollar and euro, 2% and 6%, respectively. And as a result, we see decreased pressure on the cost and high pressure on revenue.

Let's move to the next slide, revenue growth, the composition. The group's revenue grew by 12.4% during 9 months 2019 and amounted to RUB 524 billion. Led by expansion of scheduled operations, we generated additional revenue of RUB 52 billion. We have been able to realize positive currency effect of RUB 9 billion and RUB 8 billion of pricing due to increase in yields. Additional contribution to revenue was generated by ancillary revenue projects, reception of our passengers. So we discussed this -- we mentioned this ancillary projects earlier. It's upgrade to business and to first class and seat selections for lower booking classes, and so on.

Let's talk about operation costs. As I have mentioned, substantial growth of operation expenses in 9 months is mainly driven by 12% increase in capacity. Fuel remain one of the key contribution of OpEx growth, about RUB 14 billion, mainly due to volume growth as well as further ruble devaluation, notwithstanding the effects of the decrease in price in dollars.

FX trend is also an explanation to the key lines with FX component. In addition to the volume and FX factors, a number of key P&L lines have been affected by accounting and operation factors, such as aircraft and passenger servicing costs was additionally inflated by the further increases in third-party, handling service, replacing in-house service and higher fares in domestic region airports.

Lease, depreciation, maintenance and other lines have been affected by IFRS 16. Maintenance, that is left and P&L, increased by 45% in 9 months 2019 due to increase in third quarter 2019 as a result of internal upgrades of specific types of aircraft to maintain service standards and one-off costs that are related to additional expenses on redelivery checks as aircraft left the fleet ahead of schedule.

Staff costs were influenced by a release of the reserve for a long-term motivation program in Q4 2018, which created lower base for comparison in current year. Normalized growth was circa 7%.

In Q3, growth in ASK amounted to 8%, so a 10% increase in OpEx is mostly linked to volume factors, with additional inflows from the same factors as described for 9 months dynamics.

Going forward, group management remains -- and I apologize of strict control -- cost control measures as the fuel price in ruble is still elevated, and it's important to become ever more cost-efficient and other cost lines to protect their margins.

Group unit costs, moving to the unit cost analysis. We may conclude that CASK increased by 3% in 9 months and just 1.2% in the third quarter.

Third quarter and second quarter growth CASK are the lowest CASK growth achieved by the company in the recent 2 years. Around 50%, of course, are denominated in hard currencies, so mostly in those which gained about 6% in 9 months and lost about 2% in third quarter. On top of that, we have seen a continuation in growth of fares in regional airports and the increase in labor in 9 months. These are the minor factors.

Next slide is the EBITDA evolution. In 9 months, we generated RUB 142 billion EBITDA, which was up by 6.7%. Key drivers change in EBITDA was higher net volume overall and the price effect on revenue versus cost -- cost side, and positive net FX effect on revenue and cost side in amount of about RUB 3 billion.

Let's talk about Pobeda financial result. Active expansion of Pobeda in 9 months, an additional of 46% of ASK, did not deliver trough, which grew by an impressive 5.5% and 94.1% of the load factor. Operation growth of Pobeda allowed to increase EBITDA by 30 -- 69% in third quarter to RUB 9.5 billion. I would like to remind that the net income contains fixed valuation of lease portfolio in the amount of RUB 3.8 billion for 9 months, which means that Pobeda still have a very decent normalized profit.

Leverage and liquidity. Net debt as of 30th September 2019 decreased by 10%, presented on a comparable basis, on the back of revaluation of lease liabilities due to ruble appreciation during 9 months and growth in cash position. Our current cash position is about RUB 30 billion, which is lower versus September 2018. This year, we have to check an account that since January 2019, we prepay about RUB 21 billion for further deliveries of aircraft as we are nearing delivery of wide-body A350.

That is all. We're ready to answer to your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question we received is from Matvey Tayts, Sova Capital.

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Matvey Tayts, Sova Capital Limited, Research Division - Research Analyst [2]

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My question is with regard this cost line, aircraft maintenance. So in first half, we saw like 31% decrease year-on-year on this line. And for 9 months, it's already like only minus 25%, meaning like -- only minus 15% in third quarter. Are there any like one-offs in third quarter in this aircraft maintenance? Or this 25% decrease is sustainable for the full year? What's your view on this item? So I'm talking about this aircraft maintenance which is minus RUB 23.942 billion in your cost of goods sold structure.

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [3]

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Matvey, if I get you right, you are just referring to the restated statements for 2018. I mean it's not really -- I mean and maybe we can compare the numbers, but at the same time, it's better to like look at like-for-like numbers. There is some trends with capitalized maintenance. I think the proportion may change between the quarters because of the calendarization of maintenance procedures and so on.

In fact, we discussed these trends in details on IFRS 16 dedicated call. What is important, I think the -- what we commented that we're going to see the continuation of -- I mean like this trend that some of the maintenance will be capitalized and decrease the maintenance base. That is definitely what we see in our statements. And so basically, there is no change versus the call I'm referring to. But at the same time, the calendarization issue here is quite important, I believe.

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Operator [4]

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The next question we received is from Ivan Postevoy, VTB Capital.

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Ivan Postevoy, VTB Capital, Research Division - Equities Analyst [5]

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I have 2 type of questions. So first, should we expect another jump in maintenance costs in the fourth quarter due to some one-offs as it was in the third quarter?

The second one is, why did passenger services grew only 2% in the third quarter after 20% in the first and the second quarter? So the second type of question is, could you please tell us the schedule of aircraft deliveries in 2020? And the last one is, suppose that the Boeing MAX might be grounded until the summer of 2020, so how can you support its growth in that case?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [6]

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Let's start from the -- thank you for your questions. So let's start from the maintenance in the fourth quarter. As of now, we don't expect that maintenance will continue growth in the fourth quarter at elevated pace of Q4 due to the fact that we have less heavy checks planned and that's the one-offs related to repairs that have been reflected in the accounts. At the same time, I think normalized growth, maybe about 10%, 15% increase in maintenance CASK roughly in a reasonable expectation for Q4. So it's about maintenance.

The second question was about schedule for 2020. Fleet, we are not ready to -- we can give you an exact schedule of 2020, but according to our budget, when -- we will add about 31 extra planes for the 2020. It's a -- for whole group.

And the third question was about the MAX, Boeing MAX. So according to the information which we have, we hope that they come in the next year. So now we are not in position to find any special solution to remove these planes, but we already have some possibilities to move for planes from between the companies in the group. So I think that is one of the possible action that we can do.

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Ivan Postevoy, VTB Capital, Research Division - Equities Analyst [7]

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Yes. And also a question about the passenger services expenses which grew only 2% in the third quarter.

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [8]

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I think that -- yes, yes, please. Go ahead. About this line, I think that all airports write their tariffs in the first quarter -- in the first half of 2019. So in Q3, there was no any special line increasing in such line, so...

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Operator [9]

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The next question is from Igor Goncharov, Gazprombank.

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Igor Goncharov, Gazprombank (Joint Stock Company), Research Division - Senior Analyst [10]

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My question is on the compensation for the extraordinary fuel cost. I was just wondering if you expect to receive some compensation this year basically. If you disclose what approximate the amount you expect to receive as a compensation for extraordinary fuel costs. And how this amount would be treated in relation to the dividend, i.e. would it become a part of the dividend base? Or will it not be included into that?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [11]

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Okay. Thank you for the question. The jet subsidiary has been on the agenda for quite a while. So -- but according to the information which we have right now, we don't think that we can't receive because, today, we can say that today is December. So we are not sure that it's possible to receive for any part of this compensation in this year. So -- but we are waiting for the next year. And we hope that all the decisions which should be done, they will be done.

So -- and if you are talking about the exact figures. So according to our information, there was about RUB 23 billion for all markets, yes, for all players on the Russian market. So what will the shares for each company? So we will see the next year when we understand the methodology of such dividing,

so -- and if you are talking about dividends. So when we received the exact [sum] again, understand that the base of this compensation should -- is it subsidiary or something, other type of compensation. So we decide, is it possible to put to the net profit and to pay dividends from this amount. So let's see.

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Igor Goncharov, Gazprombank (Joint Stock Company), Research Division - Senior Analyst [12]

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Okay. And very helpful. Just to clarify, is it possible that you can book some of this compensation in your 2019 accounts even though you expected to receive -- you might receive it later? Can you book it upfront? Or if you don't receive in '19, is this money in 2019, there's going to be no reflection in the 2019 accounts?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [13]

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Still with -- as I've said -- mentioned earlier, we don't understand the base of this compensation. Should it be a subsidiary or subsidiary or something, other kind of instrument? And the one question is amount of this compensation so we can make any provision on any reserve for in our net profit or something like this. So we are -- we want to more -- want to carefully have more visibility, yes.

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Operator [14]

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(Operator Instructions) And the next question is from Elena Jouronova.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [15]

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It's Elena Jouronova from JPMorgan. I have a few clarification questions, please. Can you explain to me what can be the mechanism of that pure cost compensation that would actually not allow Aeroflot to consider that as part of the income statement?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [16]

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Look, we just don't know what we will get, I mean, honestly, and how we will get it, when we will get it. So I mean it's really hard to answer this question. We just don't know.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [17]

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I don't understand this, to be honest, because I really don't understand this. If you don't know the amount, that I can appreciate, but there must be a number of mechanisms available to actually bring that money onto your balance sheet or onto your income statement. And I'm pretty much sure there's no -- it's not like there's 20 different options to do it. So in what case -- how can this be structured so that Aeroflot actually cannot book it in the income statement? Can you give me an example, please, to understand?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [18]

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Received such compensation. We have never received such compensation, which I don't know what kind of mechanism will be chosen by government. I mean once again, there is 0 clarity on this. And with 0 clarity on the mechanism, it's hard to answer any question. Not like your question. Any question about what will be done with this compensation. But base case, of course, it's maybe for other expense or other income, so...

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [19]

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Okay. So there has been no precedent, and this is why we don't know. But then, as for the amount, again, RUB 23 billion in total. How -- what is the minimum amount you think you could get? And what is the maximum amount depending on the various options that are discussed?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [20]

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RUB 23 billion is the maximum, 0 is the minimum.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [21]

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Okay. Let's be a bit more realistic.

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [22]

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But I mean, honestly, like you have the same information as we have. I mean like all these discussions are in newspapers. I mean -- and honestly, like there are many mechanisms which was discussed. So exactly you, like as us, can estimate this. I mean but once again, we don't do this because we don't know actually how it will be done.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [23]

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And what is Aeroflot's share on the domestic airline market excluding international? Just the domestic flights. Can you remind us?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [24]

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It's about 40-plus-percent. We should check exactly, but it's about 40-plus-percent.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [25]

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Okay. Then I wanted to ask something about the fleet strategy. If I heard correctly, you're expecting to add 31 planes. But this does not include the planes that are phasing out. So the 31 new plane is net or is that gross before the phase out?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [26]

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It's a net effect with phase out and phase in.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [27]

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Okay. So this is higher than, I think, we've initially seen in your presentations. Where does the 31 claim come from? Can you break it down by what is the MC, the SSJ, if you have any, or is that Boeing? Is that narrow-body, wide-body? Can you give us some detail for updating the model, please?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [28]

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What we can open right now is phase in about 11 A350, which I mentioned early, and the phase-out of 9 -- or 4, excuse me, or 4 330 next year. So what else? The rest is narrow-bodies. Yes. It's a different mix and different companies, so.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [29]

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But how much is Boeing 737 MAX in this amount?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [30]

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Elena, we'll provide information on that after the call, if you don't mind. We definitely have MAX in the deliveries, as you can understand.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [31]

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Okay. That's fine. We can take it offline. And then, I'm sorry, I had 2 more questions. So I find it very hard to forecast your operating expenses excluding fuel costs. So growth was higher in Q3 than I thought it would be. Can you please tell us what you expect for the fourth quarter for growth in operating costs excluding fuel? We can talk about OpEx CASK, right, per ASK? And what are the expectations for 2020 when you're planning your budget for next year?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [32]

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Elena, regarding the CASK expectations. So definitely, the trends that you see in the 9 months is something like a very good way for the forecast. Definitely, as we stated, we had some currency headwinds in the first half of the year when dollar was up by 5%, or like in Q1, when dollar was up by 10%, which resulted in 3% CASK increase for the first 9 months.

But as you see from Q2 and in Q3 numbers, our CASK ex fuel has been like, well, more or less under control. And I think the -- like somewhere around mid-single digits, maybe slightly higher of nonfuel CASK resulting in a low single digit like 1, maybe 1.5% total CASK is relevant, so -- to have in the model for Q4.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [33]

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And what about 2020?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [34]

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Regarding 2020, we believe that we will provide more details on the next, I mean, call or Capital Markets Day that we're hosting in December. It's a little bit further later.

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Elena Jouronova, JP Morgan Chase & Co, Research Division - Research Analyst [35]

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Okay. Okay. And the final one for me. So what were the yield trends in October and so far in November?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [36]

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So regarding the yield trends, so definitely, as we stated at the call, we have seen some improvement in yield trends both for the World Cup and post the summer when we had some weak trends in demand, postponed of holidays because of the World Cup last year and so on and so on. At the same time, we -- you have seen the euro trends when ruble basically appreciated versus euro, and it contributed to the international segment's yield trend. Now however -- and again, yes, we believe that the trends that you see in Q3 with domestic yield increase and some pressure on international yield is something that's going to continue into Q4, on the one hand.

On the other hand, we believe that there may be some slight improvements here. For example, in October, we see that's -- like the yield for the group is around 2%, increasing 2%. It's a preliminary estimate, but that is something a little bit higher than you see in Q3.

Beginning of November, yes, there is some acceleration in the pace of growth. I mean it's a little bit ahead of our initial plan. It's very hard to say if it's going to be like for the full -- full November, and if we continue this pace in December, maybe because there are some like calendarization issues as always because a lot of holidays taken in the first half of November. But definitely, management team will target to -- like to continue this growth. And so we'll do everything possible to exploit all the market opportunities to achieve the best results for the quarter, which we're currently moving through.

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Operator [37]

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The next question we received is from Maxim Nekrasov, Goldman Sachs.

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Maxim Nekrasov, Goldman Sachs Group Inc., Research Division - Research Analyst [38]

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I have a few questions. My first question is on the revenues. And basically, what factors would drive a decline in other revenues? They were down like 5%, including revenues from agreements with other airlines. While in the second quarter, there was around 17% growth in these other revenues.

A second question is on yields as well. So I appreciate your comments regarding fourth quarter trends. But maybe you can provide some color on your expectations going into 2020, and basically, whether you expect yields to remain positive next year.

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [39]

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Maxim, so basically, as you see, the key line in other revenue is airline agreement that was down. And basically, you remember that it contains currency component, and the dollar trend was the key factor to affect this line.

For the year 2020, and the yields in the year 2020, that's a little bit early to comment. I would like to just like a little bit move on through Q4, just to give some like guidance on that. But definitely, and as usual, the revenue management team will try to exploit all opportunities provided by the market.

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Maxim Nekrasov, Goldman Sachs Group Inc., Research Division - Research Analyst [40]

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Okay. And then once again, regarding other revenues. Do you expect similar trends in the fourth quarter as in the third?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [41]

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Maxim, I think it's like, well, very efficient to look at the exchange rate, if you just model using the banks -- the house's review on the exchange rate and just like incorporate it into your model, you will get the answer, which we hope will be close to the analysis global report in the beginning of March.

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Operator [42]

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The next question received is from Denis Vorchik, URALSIB Bank.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [43]

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My question is regarding the development at Sheremetyevo Airport, where the third runway was launched in September and the airport has a plan to start reconstruction of the fourth runway in January next year. So in this regard, what's your strategy given the moving of flights from Vnukovo to Sheremetyevo? And in particular, do you expect that service expenses at the Sheremetyevo Airport will be growing going forward?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [44]

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Thank you for the question. No, we are not expecting for a growing of our costs in the Sheremetyevo. So only according to the inflation, as we understand. So -- and if you are talking about capacity because of a first runway, we'll be on course for a construction. They have the third one. So we've roughly discussed with Sheremetyevo, and we understand that their capacity will be the -- not less than we have for now from the 2 runways, which we have from before the third one was -- as it was opened.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [45]

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Okay. Just curious, what is the impression of the newly built runway launched a couple of months ago? Are you happy with this?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [46]

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So happy it's a new one. Why? There's -- yields are more capacity after the first runway will be in -- construction of runway will be finished in December. And it's also an independent runway, it helps to make more operations per hour, so.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [47]

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Okay. And then may I ask you, after the reconstruction of the fourth runway, which actually was -- which is now dependent on the second one, will these 2 runways will be independent after the reconstruction?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [48]

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It's a question for -- to the Sheremetyevo, of course. But as we know, no, they will still be dependent, without question.

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Operator [49]

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The next question we received is from Artem Yamschikov, Renaissance Capital.

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Artem Yamschikov, Renaissance Capital, Research Division - Research Analyst [50]

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Actually, most of my questions were answered. And I have 1 question regarding PDPs for the next year, if that could be a net inflow, outflow. And if possible, could you indicate any ballpark estimate for PDPs in 2020?

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Andrey Chikhanchin, Public Joint Stock Company Aeroflot - Russian Airlines - Deputy CEO of Commerce & Finance and Member of Management Board [51]

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Thank you for your questions. We are waiting net income of PDP because, as I mentioned earlier, we paid lots of PDPs for A350. And so in the next year, they will phase in. So yes, PDPs will be net income.

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Operator [52]

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We currently have no further questions. (Operator Instructions) We received no further questions. I hand back to the speaker.

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Andrey Napolnov, Public Joint Stock Company Aeroflot - Russian Airlines - Head of IR [53]

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Thank you for joining the call. I'd like to remind you that we'll host Capital Markets Day in London on December 12, 12. And if you're planning to attend and have not yet signed for the event, please let us know. And again, thank you, and have a good weekend.

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Operator [54]

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Ladies and gentlemen, thank you for your attendance. This call is now concluded, you may disconnect.