Moscow, 21 December 2017 A E R O F L O T G R O U P C A P I T A L M A R K E T S D AY 2017
Disclaimer This document has been prepared by PJSC Aeroflot (the Company ). By attending the meeting where the presentation is made, or by reading the presentation slides, you agree to the following. This document does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any securities of the Company in any jurisdiction, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision. No reliance may be placed for any purpose whatsoever on the information contained in this document or on assumptions made as to its completeness. No representation or warranty, express or implied, is given by the Company, its subsidiaries or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or opinions or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents. This document may include forward-looking statements. These forward-looking statements include matters that are not historical facts or statements regarding the Company s intentions, beliefs or current expectations concerning, among other things, the Company s results of operations, financial condition, liquidity, prospects, growth, strategies, and the market in which the Company operates. By their nature, forwarding-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that the Company s actual results of operations, financial condition and liquidity and the development of the market in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. The Company does not undertake any obligation to review or confirm expectations or estimates or to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation. 2
Agenda Time Content Speakers 9.30 10.00 Registration and Coffee Management Presentations 10.00 10.30 Market Update and Strategy Overview Giorgio Callegari (Deputy CEO for Strategy and Alliances) 10.30 10.50 Financial Overview Shamil Kurmashov (Deputy CEO for Commerce and Finance) 10.50 11.00 Coffee Break 11.00 11.20 Rossiya Airline Dmitry Saprykin (CEO of Rossiya Airlines) 11.20 11.40 Pobeda Airline Andrey Kalmykov (CEO of Pobeda Airlines) 11.40 13.00 Q&A Session 13.00 13.30 Lunch 3
AEROFLOT INTRODUCTION GIORGIO CALLEGARI DEPUTY CEO FOR STRATEGY AND ALLIANCES 4
2017 - Improvements Across the Board + 15.0 % + 16.0 % - 0.1 yrs - 0.4 % + 0.5 p.p. ~50.0 mn 43.4 mn ~130.0 bn 112.1 bn 4.2 yrs 4.1 yrs >30.0 22.9 22.8 81.5% ~82.0% gr gr // ASK ASK gr / ASK PAX RPK FLEET AGE¹ FUEL COMSUMPTION² PASSENGER LOAD FACTOR 2016 2017Е In 2017, Aeroflot has continued improving its performance and operational efficiency. ¹ For Aeroflot airline. Average age of Aeroflot Group s fleet decreased to 6.4 yrs in 2017 from 6.5 yrs in 2016. ² 2017 data for 9 months. 5
Recognized Level of Excellence Four Star Airline 2016 Best Airline in Eastern Europe 2011, 2013-2017 Strongest Brand in Russia and Strongest Airline Brand in the World 2017 Official carrier Five Star Global Airline Best Major Airline in Europe, Best Business Class globally, Best Airline in Russia 2017 Europe s Leading Airline Brand, Europe s Leading Airline Business Class Favourite International Airline in China, Flyer Award Ceremony 2017 Aeroflot s achievements are recognised globally by industry and passengers. 6
MARKET AND STRATEGY UPDATE GIORGIO CALLEGARI DEPUTY CEO FOR STRATEGY AND ALLIANCES
Passenger traffic, million pax Russian Market Development 2000 2017 Growth of Russian Market 2018 and Beyond High growth of Russian air transportation market in 2017 is the consequence of: Low base effect after significant competitor left the market in October 2015. Materialization of deferred demand for tourist carriages amid macroeconomic stabilization in Russia. Competition for market share on the growing market. +18% CAGR 25/16 4.2% 140+ CAGR 14/00 10.9% 69.3 108.6 CAGR 16/14-4.6% 103.4 98.9 116.7 Slower growth of Russian aviation market in 2018-2025 is the function of: Suspension of low base effect after market normalization. The need to grow fares in order to ensure economic efficiency of the sector. 41.8 25.6 2000 2005 2010 2014 2015 2016 2017E 2025F Note: The histogram depicts market of Russia, which excludes International-to-International transit traffic via Russian points and includes only domestic carriage by Russian-based companies and international carriage by Russian-based and foreign-based carriers. Russian air transportation market has a significant potential to grow in the coming years: CAGR for the period of 2016-2025 is estimated at 4.2%, which is faster than the pace of global market expansion. 8
Russian Passenger Transportation Market Dynamics (Air Transportation + Long-haul Rail) Air and Rail Carriage Volumes Dynamics Based on passenger traffic, y-o-y comparison Market 1 Shares of Air and Rail 9M 2017, y-o-y comparison in p.p. Increase in rail traffic to Russian holiday resorts Air transportation grows faster than long-haul rail segment from October 2016 18% 18% 18% 19% 24% 29% 23% 23% 19% 19% 54.6% +4.8 p.p. 45.4% 13% (4.8) p.p. 4% 10% 8% 6% 3% 1% 1% 1% 3% 1% 0% 4% 1% 0% Contribution to Market 1 Growth mln PAX (calculation includes only air transportation and long-haul rail markets) +11% (2%) (3%) (3%) (3%) 0% 11% (11%) (9%) (9%) Decreasing demand for international tourist travel Recovery of air transportation (low base effect) 158 175 Air traffic Rail traffic Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2016 1 Market on this slide represents passenger air transportation and long-haul rail markets 2017 9M 2016 Rail Air Transp. 9M 2017 Source: TCH, FAVT, Russian Railways Active expansion of passenger air transportation at the expense of long-haul rail segment. Share of air in total mix of passenger transportation exceeds 60% in September. 9
How Does the Russian Market Grow? Broad market recovery amid changes in Russian market Market Share 1 mln PAX mln PAX 9M 2017, % 3.6 3.6 15.9% 8.2 5.4 37.8% 4.5 4.9 0.8 0.5 1.1 21.5% 92.1 92.1 6.6% 6.2% 11.9% 75.8 75.8 Aeroflot Group S7 Group Utair Group Ural Airlines Other Russian Carriers carriers Foreign Carriers carriers 9M 2016 Domestic International Foreign carriers 9M 2017 9M 2016 Aeroflot S7 Group Utair Ural Other Group Airlines Russian carriers Foreign carriers 9M 2017 1 Market share calculated excluding International-to-International transit traffic via Russian points. In 9M 2017 passenger air transportation market in Russia shows a clear trend for recovery amid growth across all market segments and majority of carriers. 10
Identifying Sources of Future Aeroflot Group s Growth Aeroflot Group Traffic Growth Projected Sources of Growth PAX, mn Russian market International transit traffic CAGR: 9.4% ~74 1 ~24 mn incremental PAX +48% ~50 Aeroflot Aurora Rossiya Pobeda 43.4 Contribution of Growth by Segment PAX, mn 14 10 74 50 2016A 2017E 2018 2019 2020 2021 2022F 2017E International Domestic 2022F Aeroflot airline and Pobeda are expected to be the main drivers of Group s growth in 2017-2022. Aeroflot Group s market share 2 is not expected to exceed 50% by 2022. 1 Including International-to-International transit traffic via Aeroflot airline hub in SVO. 2 Market share calculated excluding International-to-International transit traffic via Russian points. 11
Multi-Brand Strategy 2017 OFFERING: Positioning Premium product Mid-price regional / charter product Low-cost product Product for far east Positioning Scheduled flights Network carrier with premium level of service Scheduled and charter flights Optimum relationship between quality and price Scheduled flights Low cost of carriage on modern aircraft Scheduled flights Regional carriage in the Far East Target group Business tourism Visiting friends and relatives Tourism Visiting friends and relatives Tourism Business tourism Tourism Visiting friends and relatives Visiting friends and relatives Tourism Business tourism Focus airport Moscow: Sheremetyevo Moscow: Vnukovo / Sheremetyevo Saint-Petersburg: Pulkovo Moscow: Vnukovo Vladivoskok Khabarovsk Yuzhno-Sakhalinsk Aircraft fleet Narrow-body aircraft Wide-body aircraft Narrow-body aircraft Wide-body aircraft Narrow-body aircraft Narrow-body aircraft Expected PAX in 2022 ~45 mln PAX ~12 mln PAX ~16 mln PAX ~2 mln PAX Strategic focus Growth of passenger traffic originating from Sheremetyevo airport in order to boost hub efficiency Increase in operational efficiency Development of Saint-Petersburg market Satisfying the demand for LCC carriage (Moscow and Russian regions excl. the Far East Medium-haul scheduled operating programs from the Far Eastern airports, social flights to local Far Eastern airports Simplified multi-brand product offering to capture customers in every market segment: from premium to low-cost. 12
Strengthening Position in International Connecting Traffic Key International Transit Markets Key Examples of SVO Competitive Position London - Bangkok Madrid - Shanghai NA WE EE NEA ME SWA SEA International Transit Traffic London Hong Kong New York - Delhi 10.5% 10.3% 10.6% 11.6% 11.8% 14.0% 13.1% 17.6% CAGR: 13.5% 7.9 1.2 1.5 1.9 2.4 2.7 3.6 3.7 2010 2011 2012 2013 2014 2015 2016 2022F International Transit Traffic (PAX mn) Share of International Transit in Aeroflot Airline PAX Source: Great Circle Mapper, www.gcmap.com Aeroflot gradually but consistently increases presence in key international markets. 13
Fleet Strategy PREMIUM PRODUCT MID-PRICE REGIONAL / CHARTER PRODUCT LOW-COST PRODUCT PRODUCT FOR FAR EAST Manufacturer Number of types Five aircraft types Four aircraft types One aircraft type Three aircraft types Narrow-body Airbus A320 (Family) Boeing 737 SSJ 100 Airbus A320 (Family) Boeing 737 Boeing 737 Airbus A319 DHC 8 DHC 6 Wide-body Airbus A330 Boeing 777 Boeing 747 Boeing 777 Strategic focus in fleet expansion Expansion of narrow-body fleet (>85% of new additions) Strengthening wide-body segment by adding a new type (A350) Maintaining narrow-body aircraft number (substituting additions) Expanding wide-body segment (addition of more Boeing 777) Accelerated growing of aircraft numbers Higher efficiency and maintaining utilization of single-type fleet Optimization of 50-70 seater aircraft numbers Higher utilization of existing fleet +36% +6% >3.5x (8)% Expected fleet expansion (annual average number of a/c 1 ) 202 276 62 66 13 45 24 22 2017E 2022F 2017E 2022F 2017E 2022F 2017E 2022F 1 Average calculated based on aircraft phase-in moment during the year Expansion of Aeroflot Group fleet in line with existing guidelines on network development and demand expectations to allow profitable growth of business 14
Exploring Additional Revenue Opportunities New Markets and Segments New routes in the markets of presence : Domestic routes: Belgorod, Salekhard, Khanty-Mansiysk International routes: Kostanay New markets: Portugal (Lisbon) Aeroflot airline opened service to 5 new destinations 4 new destinations were opened in 2016 (Alicante, Valencia, Lyon, Syktyvkar) New Products Pobeda addresses the LCC market segment that previously was underserved in Russia Pobeda has generated new revenue streams for the Group by untapping new market segment Ancillary Revenue + Partners, including under frequent flyer programme Third-party refueling services, ground handling and MRO Catering services onboard and Duty Free sales Hotel revenue Baggage fees Seat upgrades (Space + business) Other partnerships Europcar and DreamLines cruise operator RUB 12.5 bn ancillary revenue in 9M 2017 1 69.6% share of revenue from partners under frequent flyer programme in other (ancillary) revenue 2.4% ancillary revenue growth in 9M 2017 y-o-y LCC ancillary revenue in 9M 2017 RUB 1.3 bn Aeroflot Group strategy pursues opportunities for generating incremental revenue through new market and routes, as well as an ever-expanding range of value-added ancillary services. 1 Other revenue as reported in IFRS accounts (excluding the line with airline agreements, refuelling services and other revenue). This amount doesn't include income from various fees accounted as part of airline revenue. 15
Online Ancillary Revenue Aeroflot airline ancillary revenues offered online +30% 875 +257% 127 mn RUB 2018 plans Excess baggage fees opportunity to purchase on our web-site A la carte menu additional meals for economy class passengers Flight insurance / / Virtual Gift Certificate +258% 65 Medical insurance +110% 45 +210% 20 +11% +67% 18 Hotels Aeroexpress Europecar Guarantied price 16 +115% - 10 7 Cruises Other Seat selection seat selection for extra fees for some fares Insurance selling insurance for foreign passengers Profit Revenue Y-o-y change Aeroflot airline has achieved significant progress in ancillary revenue generated via online channels. Nest year we plan to increase profit from ancillary revenues offered via online channels by 60-70% Note: virtual certificate sales calculated net of refunds 16
th. tons per month minutes flights mm pax Infrastructure Expansion to Support Future Growth Sheremetyevo development program overview Key infrastructure objects to be launched in 2018 Sheremetyevo is set to become a prominent passenger and cargo hub and provide all necessary conditions for long-term cooperation with Aeroflot For this purpose, Sheremetyevo developed a long-term modernization program with the most important stage being the preparation of the airport for the FIFA World Cup 2018 Modernization program includes construction of the third runway, introduction of new passenger and cargo terminals as well as reconstruction of existing premises Evolution of key operating indicators (max. theoretical capacity) Terminal B Interterminal tunnel Runway 3 Sheremetyevo development plan Annual pax capacity 1 2017 34 2018 2026 66 80 Runway-3 Terminal C Warehouse Terminal B Fuel-filling Terminal C-2 Complex Cargo Terminals Flights per hour 1 50 70 90 Minimum transfer time 2 Cargo volumes 80 230 50 50 380 3 700 2018 2019 2021 2024 Runway-1 Runway-2 Terminal D Terminal E Terminal F Interterminal Tunnel Source: Sheremetyevo press-center, aviation explorer, public sources Note: 1 According to Airport Research Center; 2 Data for 2017 is presented on the basis of official Aeroflot estimates for minimum transfer time between international inbound flight to terminal F and outbound local flight from terminal D, time for 2018/2026 is presented on the basis of Sheremetyevo airport estimates for minimal transfer time from terminal B through interterminal tunnel; 3 New cargo terminal with capacity of handling up to 380 th. tons per month was launched in September 2017 17
Strengthening customer services with a focus on digitalisation and development of IT systems Business development priorities Digitalization Development of IT systems for production Data management Cyber-defences Agile and new work methods Airport services NDC (New Distribution Capability) direct distribution for agents Cloud-based technology management via shared pool of resources On-board services Service marketing HR and other Big Data and computer-aided training Development of commercial IT systems Corporate website Mobile services for customers Mobile applications for staff Airport automation Efficiency of business processes Aeroflot Group continues to implement new technologies and approaches strengthening its customer services and brand in the global market 18
NETWORK OVERVIEW GIORGIO CALLEGARI DEPUTY CEO FOR STRATEGY AND ALLIANCES
Aeroflot Group Network Development Strategy Relatively Stable Number of Destinations # of destinations due to Focus on Network Quality and Frequency Average scheduled flight frequency 1 with Further Improvements Possible Across Segments. Average scheduled flight frequency 1 CAGR: 5.7% 141 142 137 137 153 144 158 153 2.8% 13.1 55 12.1 in 12.4 11.8 Russia 11.5 11.1 11.2 9.8 9M 2017 98 abroad 6.8 2014 2015 2016 9M 2017 Summer schedule Winter schedule 2014 2015 2016 9M 2016 9M 2017 International Domestic Mid-haul Long-Haul Aeroflot Group continues to pursue a balanced approach to adding new destinations, with a focus on increasing frequencies on scheduled routes across all segments (international and domestic, long- and midhaul) to improve network quality. 1 Average weekly frequency per route for Aeroflot Group excl. Pobeda. 20
Aeroflot Airline Network Plans for 2018 Increased Frequencies (per Week) on the Following Routes: Operating Growth by Region PAX growth, y-o-y for Aeroflot airline Russia Europe CIS 20.6% Khanty-Mansiisk+7 Kaliningrad +4 Krasnoyarsk+7 Magnitogorsk +7 Novy Urengoy +7 Novosibirsk +7 Perm +5 Mineralnye Vody+7 Syktyvkar+7 Omsk +7 Athens +7 Barcelona +7 Budapest +7 Tenerife +1 Bologna +7 New routes: 3 new destinations with 7 flight frequency per each Total: +50 Astana+3 New routes: Kyzylorda +4 Total: +7 9.5% total growth 4.2% 5.1% 9.0% 9.1% 11.1% CIS Asia Americas Russia EuropeMiddle East Growth Contribution by Segment New routes: Saransk +14 Total: +79 Asia Bangkok +7 Male +1 Total: +8 Middle East Dubai +7 Antalya+7 Total: +14 Share of PAX growth, y-o-y International 54% Domestic 46% Aeroflot will continue focusing on frequencies with a selective approach to adding new destinations (3-8 per year): In 2017, Aeroflot launched services to Lisbon, Kostanay, Belgorod, Salekhard, Khanty-Mansiysk (5 new destinations). In 2018, Aeroflot plans to begin servicing Saransk (a World Cup host city) and up to 3 destinations in Europe and 1 in CIS (potential addition of Cairo). Increase in frequencies on key underserved markets with high transit potential. 21
World Cup Case Study: Brazil 2014 and Germany 2006 World Cup Air traffic evolution 1 Impact on economy Carriers operating data 12 June 13 July 2014 12 cities million PAX 100.4 95.6 2013 2014 480k of foreign World Cup guests $13bn injected in Brazil economy $2.3bn invested in airports 2013 2014 2015 PAX, million 66.7 67.8 67.8 change, % 3.1% 1.7% 0.0% PLF 80.8% 83.4% 83.1% change, p.p. 2.2 2.6 (0.3) 2013 2014 2015 PAX, million 36.6 40.1 38.0 change, % n/a 9.5% (2.0)% PLF 69.9% 76.9% 77.2% change, p.p. (0.3) 7.0 0.3 9 June 9 July 2006 12 cities 90.8 99.6 $400mm of additional tourism revenue 50k additional jobs created $2.6bn additional retail sales 2005 2006 2007 PAX, million 51.3 53.4 62.9 change, % 0.7% 4.2% 17.7% PLF 75.0% 75.2% 77.4% change, p.p. 1.0 0.2 2.2 2005 2006 World Cup had mixed effect on airlines in the hosting markets, with short-term increase in demand, but without any changes in strategic trends and company-specific factors. Source: World Bank, public sources, Economic Research Institute Foundation, Deutsche Welle Note: 1 Passengers carried in the country by the means of air travel; data presented under impact on economy are estimations of the third-party sources 28 22
Aeroflot and FIFA World Cup in Russia Routes to World Cup Locations sourced by: Aeroflot routes Saint Petersburg (4.5mm from Moscow) 38 68 from St. Pete: 27 from Moscow: 13 Moscow Kaliningrad (4.5mm from St.Pete) (1.2mm from Moscow) (380k from St. Pete) from St. Pete: from St. Pete: from Moscow: Rostov-on-Don (1.6mm from Moscow) (255k from St. Pete) * 68 42 10 14 Sochi (3.6mm from Moscow) (530k from St. Pete) Rossiya routes Nizhny Novgorod (520k from Moscow) (31k from St. Pete) Saransk from St. Pete: from Moscow: Kazan (1.2mm from Moscow) (135k from St. Pete) Samara (1.2mm from Moscow) (225k from St. Pete) Volgograd (830k from Moscow) (48k from St. Pete) 63 35 26 15 42 from St. Pete: from Moscow: 49 7 7 - routes per week X weekly # of flights in 2017 summer schedule (XXmm from ) - 2017E PAX (based on traffic flows on the leg, not a city-pair market) Ekaterinburg (1.9mm from Moscow) (270k from St. Pete) from St. Pete: from St. Pete: 42 13 56 7 Aeroflot Efforts 1 2 3 4 5 6 General preparation Establishment of specially-dedicated working group to coordinate preparation process and day-to-day routes allocation for World Cup 2018 Passengers Transportation of football fans, delegations and athletes Operations Reserve aircraft to be based in the main cities of the World Cup IT infrastructure Introduction of advanced IT solutions to automate processing of personal details of the World Cup guests Staff Additional training sessions for staff and increased headcount of english-speaking personnel in call centres and representative offices Spare parts Increased warehouse stock of replacement components to quickly repair aircraft and proceed with scheduled maintenance works if needed Note: Pobeda also operates services to some host cities, including intra-regional flights. For information 7 Other preparatory measures on Pobeda s flights please refer to the respective section of the presentation The 2018 World Championship is expected to result in traffic flow growth between city-pairs during the championship (mid-june mid-july 2018) yet there is still risk of substitution effect (passengers travelling for holidays and fans). Also necessity to host the event at the highest level will inccur additional expenses. 23
FINANCIAL OVERVIEW SHAMIL KURMASHOV DEPUTY CEO FOR COMMERCE AND FINANCE
Guidance Aeroflot Group operating targets 2017 and 2018 Indicator 9M 2017 YTD 2017 Updated Targets 2018 Target Passenger Traffic (PAX) Passenger Traffic (RPK) +16.8% +14%-15% +11%-12% +18.0% +15%-16% +9%-10% Capacity (ASK) +16.2% +14%-15% +9%-10% Passenger Load Factor (%) 83.7% > 82.0% 82.0%+ Aeroflot Group financial targets Indicator Short-mid term 2019 and beyond Revenue growth 2017: +7%+ yoy growth 2018: acceleration to 10-11%+ (ex FX), positive pricing effect Growth in line with operating expansion, company will target to achieve positive impact from yields (ex FX) Costs EBITDA margin Pressure from fuel price, cockpit wage indexation Selective investment in product improvement Normalized level of approx. 10% with possible up and down deviation based on the macro and market conditions Introduction of IFRS 16 (all lease recognized on BS, Operating lease cost migrates to depreciation and Interest) = EBITDA margin affected. Currently we are selecting the most efficient approach to standard application and analysing PL effects. 25
QUESTIONS AND ANSWERS SESSION
Aeroflot Group Capital Markets Day 2017 Dmitry Saprykin Chief Executive Officer Rossiya Airlines
Russia Airlines Regional Product for Savvy Passengers Business Highlights Airport Hubs and Fleet 1 Focus on the mid-price segment (optimal price & quality combination) 41 routes from LED 31 aircraft based at LED 2 Strong position in St. Petersburg - second largest market in Russia St. Petersburg (LED) Moscow (VKO) 14 routes from VKO 30 aircraft based at VKO 3 Diversified operations with secondary base at Moscow s Vnukovo airport Rostov (ROV) 2 routes from ROV - 4 Focus on regional flights with selective exposure to key international markets Base airport Other airports (with P-t-P flights) Based in LED Based in VKO 5 Strong positions in charter segment long-term partnership with Biblio Globus (Russia s largest tour operator) A320 Family 31 aircraft B737 15 aircraft B777 B747 6 aircraft 9 aircraft Aeroflot Group s regional business was reorganised in 2016, when Rossiya Airlines merged with Donavia and Orenair. Rossiya Airlines helps the Group capture all market segments and secures presence in the second largest domestic market St. Petersburg.
St. Petersburg Second Largest Market in Russia Pulkovo Largest Regional Airport million PAX 14.3 7.1 5.6 5.0 7.2 7.9 8.3 4.0 6.2 5.0 7.7 2014 2015 2016 9М 2016 9М 2017 Domestic CAGR: (3.6%) 13.5 13.3 International 10.2 +24.2% 12.6 High Market Seasonality 12M 2016, million PAX 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Domestic International Total Established Links to Cities in Russia and Abroad Strong Market Position with Prospects for Growth 9M 2017, by number of seats Foreign carriers 24.8% 35.6% 34.5% 29.9% Moscow Russian carriers 75.2% Other domestic regions International 9M 2017, number of seats St. Petersburg is Russia s largest regional market, with a large tourist component in the international segment, particularly in the summer season, and significant number of business passengers on domestic routes. Rossiya is the leading airline in one of the country s key markets. 2.3% 4.5% 24.8% 10.2% 5.5% 7.7% 31.7% 13.3% Rossiya Aeroflot S7 Group Ural airlines Utair Pobeda Other Russian carriers Foreign carriers
Rossiya Network Rossiya Airline s Network (Winter Schedule 2017/2018) Number of Scheduled Routes Murmansk 46 41 Saint-Petersburg Arkhangelsk Surgut Perm Yekaterinburg Kaliningrad Kazan Tyumen Moscow Ufa Omsk Hamburg Samara Chelyabinsk Novosibirsk Berlin Düsseldorf Prague Orenburg Astana Munich Rostov Paris Vienna Geneva Milan Simferopol Krasnodar Anapa Makhachkala Alma-Ata Nice Adler Mineralnye Rome Barcelona Istanbul Vody Tashkent Samarkand Larnaca Tel Aviv Syktyvkar Krasnoyarsk Magadan Petropavlovsk-Kamchatskiy Khabarovsk Yuzhno-Sakhalinsk Vladivostok 18 14 16 2 from St. Petersburg from Moscow from Russian regions Summer 2017 Winter 2017/2018 Rossiya Traffic Decomposition (9M 2017) St. Petersburg Moscow Regions Average Weekly Flight Frequency per Route 8.3 Scheduled 42.1% 20.4% 3.0% 65.5% 4.5 5.3 2.1 Charter 6.9% 20.3% 7.2% 34.5% Domestic Scheduled International Scheduled International Charter Rossiya Total Scheduled passenger throughput from St. Petersburg forms the majority of Rossiya s traffic; the airline s secondary base in Moscow contributes the same level of passenger numbers but with a higher proportion from the charter segment.
Operating Performance Passenger Traffic Passenger Capacity Passenger Load Factor million PAX billion ASK % +32.6% 9.0 +43.7% 26.6 +5.9 p.p. 92.0% 6.8 +66.2% 3.3 4.8 +18.5% 5.7 18.5 +64.9% 11.9 11.3 +30.2% 14.7 83.2% +1.9 p.p. 85.0% 86.1% 81.3% (1.9 p.p.) 79.4% 2.0 7.2 Total International Domestic 9M 2016 9M 2017 Total International Domestic 9M 2016 9M 2017 Total International Domestic 9M 2016 9M 2017 In 2017 Rossiya significantly grew its operational volumes as capacity increased and demand for international flights revived. High demand and the development of the charter segment supported high passenger load factor. Note: 2016 data presented pro-forma (incl. operational results of Donavia and Orenair).
Charter Segment Highlights Growing Volumes of Charter Segment Key partner Biblio-Globus PAX growth, million Revenue growth, RUB billion Network Fleet Results (9M 2017) Contract terms Length Popular international and Russian tourist routes 8 Boeing 737-800 narrow-bodies 7 Boeing 747-400 wide-bodies PAX: 3.1 million (>2.8x y-o-y), International + 73.1% Domestic + 26.9% RPK: 10.1 billion pkm (>2.9x year-on-year) PLF: 96.2% (+3.3 p.p. year-on-year) Charter partner pays the cost of providing commercial capacity on the aircraft to carry passengers, luggage and cargo on each flight (aircraft capacity price), which includes: - direct costs of flight operation; - payment for flight hours based on number of flight hours for the flight and cost of flight hour for the aircraft type Contract through 2018 Plan to extend to 2022 1.1 >2.8x 3.1 8.2 >2.6x 21.7 9M 2016 9M 2017 9M 2016 9M 2017 Top 5 Charter Routes by PAX thousand PAX 301.1 264.9 253.1 Total Share of Rossiya s PAX 35.4% 140.2 136.2 Leads to Structural Changes in Business Mix RPK, 9M 2016 RPK, 9M 2017 24,9% 44,6% Moscow Antalya Moscow Larnaca Moscow Sochi St. Petersburg Larnaca Moscow Phuket Scheduled Charter Charter segment has grown significantly, and has almost doubled its share of RPKs to 45%.
Fleet Composition and 2018 Development Plan Rossiya Airline s Fleet Breakdown Aircraft Type 31.12.2017 (expected) 31.12.2018 (plan) Change Airbus A319-100 26 23 (3) Airbus A320-200 5 6 1 Rossiya s Fleet by Type of Aircraft 23.0% Narrow-body Wide-body 77.0% Boeing 737-800 16 16 - Narrow-body 47 45 (2) Rossiya s Fleet by Type of Ownership Boeing 747-400 9 9 - Boeing 777-300 5 10 5 14.8% Finance lease Wide-body 14 19 5 Total fleet 61 64 3 85.2% Operating lease Rossiya s fleet consists of 61 airliners. The airline plans to add wide-bodies and take a number of narrow-bodies out of operation. Note: Excluding six An-148 aircraft which were subleased.
Focus for Rossiya in 2018 and Beyond 1 Further development of the route network in the scheduled and tourist segments, with tactical adjustments: Increase capacity on domestic routes Optimisation of a number of flights in the international segment (reopening of Egypt provides opportunities) 2 Regular passenger flights on available routes to the Far East and South of Russia Transfer of Boeing 777-300 wide-bodies used on flights to Far East to SVO (SU code) in late 2018-early 3 2019 depending on infrastructure availability to promote connecting synergies 4 Growth of the wide-body fleet, with five Boeing 777-300ERs added in 2018 Long-term targets: 5 Further increase of operational efficiency: increased flight time per aircraft, cost optimisation including by fleet renewal Development of St. Petersburg base, including long-haul operations and European network
Thank you for your attention!
Aeroflot Group Capital Markets Day 2017 Low Cost Carrier - Pobeda Andrey Kalmykov Chief Executive Officer Pobeda Airlines
Pobeda Russia s First Low-cost Carrier Network Overview > 80 routes in total (2017) 47 routes in Winter Schedule 2017/2018 33 domestic destinations 14 international destinations Fleet Overview 12 Boeing 737-800NG¹ 4 Aircraft delivered in 2017 < 3y Average age of the fleet 14 unique destinations (cities) for the Group Efficiency Metrics One of the Most fuel efficient LCCs among European airlines 25 minutes of airplane turnaround time 96.8% passenger load factor in 3Q 2017 6.0k PAX per employee² Key Highlights (9M 2017) Top 7 largest airline in Russia 18.7k Flights 3.3mln PAX RUB 16.0bn in revenues RUB 6.7bn in EBITDAR ¹ As of 30 September 2017; ² Based on 30.09.2017 LTM passenger traffic and average headcount over the period 2
Pobeda Recognized as One of the Most Efficient LCC in the Industry CASK (EUR cents) 3.0 3.6 1 5.8 2 3.1 3 3.7 4.1 4 Single class Yes Yes Yes Yes Yes Yes Aircraft utilization rate (hours) 13.1 (15+ in summer season) 10.4 10.9 13.5 12.1 up to 15.0 Fleet composition & average age (years) B737-800 Avg Age: <3.0 B737-800 Avg Age: 6.5 A319, A320 Avg Age: 7.1 A320, A321 Avg Age: 4.5 B737-800, A320Neo, A321Neo Avg Age: 5.9 A320 Family Avg Age: 3.0 Ancillary revenue (EUR per PAX) 5.9 14.0 1 13.5 2 29.3 3 10.1 3 NA Use of secondary airports All International Flights Half of Airports are Secondary Focused on Primary Airports Majority of Flights Majority of Flights Majority of Flights Source: Company data, public data 1 For 12 month ended 31 March 2017; 2 For 12 months ended 30 September 2017, financials are converted at GBP/ EUR exchange rate of 0.87; 3 For 6 months ended 30 September, 2017 ; 4 For 12 months ended 31 December 2016, financials are converted at AED / EUR exchange rate of 4.06. 3
Key Development Milestones First flight from Moscow to Volgograd in December Total fleet of 8 aircraft as of year-end Pobeda becomes Top-10 airline in Russia Seasonal flights to Sochi and Anapa are conducted from the regions Launch of international flight service Cumulative PAX of 3.1 mln Total fleet of 12 aircraft as of yearend PLF reaches historical high of 96.8% in Q3 2017 Active development of intra-regional flights as well as international flights from the regions Addition of 4 aircraft in Q4 2017 Cumulative PAX of c. 4.6 mln expected by the year-end Development of international network and intra-regional flights Pobeda enters St. Petersburg market Cumulative PAX exceeds 4 mln 4
Key Operational Highlights (1/2) Number of Flights Capacity & Load Factor 27.9% 81.2% 88.3% 87.6% 94.5% 32.4% 25,668 3,208 (5.2%) 7,606 3.9% 20,063 48 19,690 2,212 18,673 3,616 5,746 18 1,334 5,837 6,062 941 1,504 20,015 22,460 17,478 15,057 5,729 6,272 4,896 4,558 2015 2016 9M 2016 9M 2017 Domestic International Pobeda continuously focuses on increasing the number of flights of its fleet, driving capacity utilization and operational efficiency levels Source: Company data 2015 2016 9M 2016 9M 2017 Domestic Flights (ASK, mln) International Flights (ASK, mln) For 9M 2017, Pobeda s seat load factor reached 95%, one of the highest levels in the Russian airline space 5
Key Operational Highlights (2/2) Flight Hours Average Daily Flight Hours per Aircraft 31.4% 4.3% 9.2% 4.7% 41,017 53,892 41,165 42,949 11.3 1 12.3 12.5 13.1 2015 2016 9M 2016 9M 2017 2015 2016 9M 2016 9M 2017 Significant increase in the flight hours due to opening of new routes and efficient utilization of the fleet Source: Company data 1 Average number of aircraft calculated as number of a/c at the beginning of the period plus number of a/c at the end of the period divided by two For 9M 2017, daily utilization rate of Pobeda s fleet reached 13.1 hours (exceeding 15h during peaks) one of the highest levels in the industry 6
Key Financial Highlights (1/3) Revenue (RUB mln) Operating Expenses (RUB mln) 11,248 70.1% 19,131 1.8% 15,723 16,002 14,697 3.6% 11,585 7.5% 11,791 6.1% 10,516 1.8% 25.0% 10.0% 7.5% 10.3% 25.2% 12.1% 26.7% 21.0% 12.0% 22.7% 12.1% 12.9% 18.6% 23.8% 23.6% 28.2% 28.9% 30.4% 30.5% (0.4)% 2015 2016 9M 2016 9M 2017 Fuel Aircraft, Traffic and Passenger Servicing Staff Operating lease Maintenance Other Pobeda s Headcount, 30.09.2017 2015 2016 9M 2016 9M 2017 803 total headcount 67 employees per aircraft 6.0k PAX per employee¹ Ground Crew and Other 23% Cockpit Crew 27% Cabin Crew 50% Revenue growth was primarily driven by volume and increase in PLF as number of aircraft remained flat in 9M 2017 Source: Company data ¹ Based on 30.09.2017 LTM passenger traffic and average headcount over the period Growth in operating expenses was mainly attributed to growth of fuel costs, increase in maintenance expenses as well as aircraft and traffic servicing costs amid growing volumes of business 7
Key Financial Highlights (2/3) RASK (RUB) CASK (RUB) 28.5% 2.52 2.69 (2.0%) 2.64 2.02 1.93 1.94 0.12 0.07 1.80 0.03 0.20 0.14 0.20 0.13 1.96 0.51 0.48 0.48 0.41 0.24 0.23 0.22 0.25 0.37 0.44 0.43 0.46 0.57 0.56 0.55 0.59 2015 2016 9M 2016 9M 2017 RASK growth was slightly impacted by increasing competition on domestic routes and promotions aimed at increasing brand awareness Source: Company data 2015 2016 9M 2016 9M 2017 Fuel Aircraft, Traffic and Passenger Servicing Staff Operating lease Maintenance Other Pobeda has significant cost advantages over other Russian and Foreign carriers. Increase in CASK was mainly driven by higher maintenance as average age of the fleet increased to 3 years and higher fuel price 8
Key Financial Highlights (3/3) EBITDAR and EBITDA (RUB mln) Net Income (RUB mln) 23% NM 42% 23% 51% 33% 42% 26% NM 20% 28% 23% 8,122 8,021 6,703 3,747 4,339 3,619 4,442 5,214 4,230 2,587 (328) 2015 2016 9M 2016 9M 2017 EBITDAR, RUB mln EBITDA, RUB mln EBITDAR margin, % EBITDA margin, % (80) 2015 2016 9M 2016 9M 2017 NI margin, % Revenue growth was offset by the less favourable fuel cost environment, increased spending on maintenance and staff cost growing ahead of fleet expansion, resulting in pressures on margins compared to 9M 2016 results Source: Company data 9
2022F 2022F 2016 2016 Future Development Plans Over the Next Years We Plan To Increase Our Fleet Size Which Will Allow Us To Expand Our Route Network 1 Resulting in Strong PAX Growth Well Above the Market Current Destinations New Destinations Murmansk = 12 = 4.3mln +25% CAGR 4 Boeing 737-800NG to be delivered in 4Q 2017 29 Boeing 737-800NG to be delivered in 2018-2022 = 45 1 New destinations shown for 2018 Paderborn Bremen Memmingen Bordeaux Verona Bergamo Girona Reus Cologne Leipzig Nuremberg Pisa Bratislava Tivat Istanbul Minsk Alanya Paphos Saint Petersburg Perm Tyumen Moscow Cheboksary Nab. Chelny Ekaterinburg Kazan Nizhnekamsk Chelyabinsk Ufa Saransk Belgorod Penza Ulyanovsk Samara Volgograd Rostov Krasnodar Astrakhan Anapa Krasnodar Gelenzhik Nalchik Vladikavkaz Nazran Sochi Makhachkala Kutaisi Tbilisi Gyumri Larnaca Network Development Principles Surgut Novosibirsk Krasnoyarsk Low frequency (< 14 flights per week) Exploiting underserved and smaller markets, including inter-regional routes Expanding international flights to secondary airports Almaty +24% CAGR =c15.7mln 10
Pobeda s Peer Group Overview LTM, 30.09.2017, in millions EUR (if not indicated otherwise) Year of Incorporation 2014 1985 1995 2003 1990 2003 Passenger traffic (million passengers, LTM, 30.09.2017) 4.4 127.1 80.2 26.9 26.8 8.6 Revenue 298 6,942 5,794 1,799 1,294 912 Net Income 49 1,410 350 281 67 149 Market Capitalization, millions EUR (14.12.2017) n/a 19,393 6,454 4,028 710 1,315 Source: Bloomberg, Company data, public data Note: Peers data obtained from Bloomberg on 15.12.2017 (except for passenger traffic). Income (Loss) from Continuing Operations used to derive comparable Net income data after tax. Data annualized for the last twelve months preceding 30.09.2017 (9M 2017 + 4Q 2016). Pobeda s financials annualized for the last twelve months preceding 30.09.2017, data converted from RUB according to respective reporting periods average FX rates for periods used in the calculation (9M 2016, 12M 2016, 9M 2017). Passenger traffic data obtained from carriers websites. We aim at expansion of Pobeda s business, which will result in growing contribution of Company to the Group s operating and financial results and higher shareholder value 11
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