U.K"No other industry is regulated such a degree on an international level. The aviation industry to still dominated by flag carriers, which have historically been molded by the political concerns of national governments but now are under threat from the low cost carriers. At a time of high competition, particularly on most profitable routes, the difficulties faced by airlines are compounded by the high exposure this industry from outside control. Volatility in fuel prices, war, international tourism, industrial action and the impact of illness such as SARS and Avian flu are some of the risks.The end of Soviet Union brought sweeping changes to the ownership and management of the industry with privatization and entry of new private businesses in the airline and airport sector. Presently only four commercial airlines -Aeroflot, Sibir, Pulkovo and UT Air – carry more than one million passengers a year. Aeroflot dominates the international market whilst in the domestic market it faces competition from the others (Sibir is the leading Russian domestic passenger carrier). Aeroflot provides 37.7% of the total seats supplied in the overall Russian-EU market with Lufthansa the next nearest carrier with 12.6%. As part of the privatization process, many of Aeroflot regional divisions became independent airlines and now compete with their former parent. Aeroflot is an open, joint stock company. with state owns 51% shares. Aeroflot flies to 126 destinations in 70 countries of the world. Russia has currently 215 registered airlines (267 in 2000), including 55 state-owned carriers, a number which is expected to decrease in the years to come with increased competition, more stringent governmental licensing procedures and the enforcement of higher safety requirements. Based on 2005 data, Aeroflot’s share of the Russian airline market in terms of passengers carried would increase from 17% to about 35% on domestic routes and from 31% to 48% on international routes (i.e. from and to Russia). In terms of total passengers carried on both domestic and international routes, Aeroflot will control a 41% market share vs. 23% on a stand-alone basis, with a huge gap between it and its nearest competitors – Sibir (12%), UTAir (5%) located in the oil-rich Khantimansiisk region, and VIM Avia (5%), a recently established charter carrier operating a fleet solely composed of foreign-made aircraft. Domestic expansion, in addition to bringing returns to scale, should have the effect of establishing domestic feeder routes that would ultimately provide a basis for renewed growth in Aeroflot’s international business.
3. Standardization Vs. Adaptation:
As a principal objective of the Russian government is to develop domestic air transport through major restructuring in order to increase efficiency and quality of services. The state would pay for the new shares with its stakes in the largest state-owned airlines: 100% state-owned Pulkovo, GTK Rossiya and Dalavia, Krasair (51%), Vladivostokavia (51%) and Sibir (25%). Aeroflot would hence end up with stakes in all of its major competitors, while the state would increase its ownership in Aeroflot. Aeroflot management and the state since late 2004 and was initially suggested as a way to increase the company’s market capitalization. The larger free-float probably resulting in a higher market capitalization, the Russian flag carrier would also expand the scale of its operations on both international and domestic routes, which is important given