KAMCHATKA-ALASKA FLIGHTS CANCELLED FOR 2009

UNCLAS VLADIVOSTOK 000041 SIPDIS E.O. 12958: N/A TAGS: ECON ECIN PREL PGOV RS SUBJECT: KAMCHATKA-ALASKA FLIGHTS CANCELLED FOR 2009 ¶1. Russian air carrier Vladivostok Avia has announced that it will not fly direct trans-Pacific flight service between Petropavlovsk-Kamchatskiy and Anchorage, Alaska this summer. The carrier operated the route for over two months in 2008 with 13 flights between July 7 and September 15, apparently just breaking even for the year. Flights were scheduled this year between July 21 and September 20, but low bookings have cancelled the flights. The company hopes to reinstate the flights in 2010 depending on the economic situation in the region. End summary. US-FAR EAST FLIGHTS IN THE 1990'S ¶2. In the 1990s, there Russian and American air services linked the two countries. The 1998 Russian financial crisis hurt business across the board and the flights were suspended. The American carrier was extremely dissatisfied with the business arrangement when the flights were suspended. Since then, air travel between the U.S. and the Far East has been possible only via Japan, Korea, China, or Moscow. These flights are long and often overbooked. 2008 FLIGHTS ¶3. The start-up of direct passenger air travel was a long-awaited event, and seen as a harbinger of stronger business and cultural relations between the Russian Far East and the Western States of the U.S. Weekly regular flights were launched in July 2008, though earlier the airline planned to start operating in April and to have two flights a week from Vladivostok to Anchorage and onward to Seattle. EXPECTATIONS NOT FULFILLED ¶4. (SBU) Aleksander Alekseyev, Vladivostok Avia Public Affairs officer, told Econ FSN that the company completed 13 round-trip flights between July 7 and September 15, carrying 532 passengers from Anchorage to Petropavlovsk and 549 passengers back to Alaska, which was about 40 percent of expected flight efficiency. Several flights had 8 to 15 passengers onboard. The average was 40 passengers in a Tupolev-154 craft with a passenger capacity of 145. The company expected that the new route would be popular among vacationers not only from Russia but also from Japan, Korea, China, Singapore, Thailand, and other countries that lack direct air links to Alaska. Unfortunately, due to a weak advertising campaign and rather high airfare (45,000 rubles or about 1,600USD for a round-trip Vladivostok-Anchorage via Petropavlovsk-Kamchatskiy), Vladivostok Avia could not compete with other Asian Pacific air carriers, which operate transpacific flights to the U.S. ¶5. Alekseyev explained the company's decision with the ongoing economic crisis, which is followed by steadily growing fuel prices, high currency exchange rates, problems with loans from local banks, and resulting higher airfare. Alekseyev hopes that the carrier will reinstate the service in summer 2010. All required permissions for the flights have reportedly been obtained from the U.S. Department of Transportation. AIRLINE CONSOLIDATION ¶6. By the end of 2008, Vladivostok Avia remained the only large and sustainable air carrier in the Russian Far East. In early 2009, Russian President Dmitriy Medvedev passed a 52 per cent controlling stake of Vladavia, along with 100 per cent stakes of two other air carriers, Sakhalinskiye Aviatrassy and the now bankrupt Dalavia, to Rostehnologii headed by close Putin associate Sergey Chemezov. The merger should be completed by May 1, 2009. The Far East airlines will consolidate with Domodedovskie Avialinii, KrasAir and Samara of Western Russia into Air Union, a new alliance of air carriers, a potential rival to Aeroflot. ¶7. It is not clear whether Vladavia will profit from the consolidation, but the reinstatement of trans-Pacific flights to the U.S. will depend on the new Air Union alliance and regional economic health on both sides of the ocean. Anecdotally, hunters and fishermen from Alaska raved about the sportsmen opportunities in the Russian Far East. There are quite a few bear trophies in Alaska now thanks to last year's flights. ARMBRUSTER