leadership - aeroflotar2016.aeroflot.com/aeroflot/annual/2016/gb/english/pdf/chapter2.pdf ·...

43PJSC AEROFLOTAnnual Report 2016


Company Profile Strategic ReportBusiness OverviewCorporate Social ResponsibilityFinancial ReviewCorporate GovernanceAppendixes

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ГЛАВА 3



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LeadershipAeroflot Group is Russia’s leading airline and one of the largest European and global carriers. Despite challenging conditions in the Russian market, the Group increased passenger traffic and seat load factor through balanced expansion of its route network and fleet of aircraft. Aeroflot’s leadership in service quality is affirmed by top scores in global industry ratings and results of independent audits. In 2016, Aeroflot was awarded 4-Star Airline status by SkyTrax and was named Best Airline in Eastern Europe at the World Airline Awards for the fifth time.

BUSINESS OVERVIEW


Operating Results 44

Route Network 51

Aircraft Fleet 67

Sales and Distribution 76

Aircraft Maintenance and Repair Stations 79

Flight Safety and Aviation Security 82

Customer Service and Brand Management 84

Information Technology and Innovation 89

Procurement 93




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Operating Results

In 2016, Aeroflot Group significantly improved its operational performance on key metrics, despite an overall decline in the Russian air transportation market.

During the year, Aeroflot Group carried a total of 43.4 million passengers (up 10.3% y-o-y) making 331,853 scheduled and charter flights. The Group’s turnover

grew 14.8% to 112.1 billion revenue passenger-kilometres (RPK). On the back of 10.4% capacity growth to 137.7 billion available seat-kilometres (ASK) passenger load factor increased by 3.1 p.p. to 81.4%.

Aeroflot Group’s operational performance by region (scheduled and charter flights)

Region

Passenger traffic, million PAX

Passenger turnover, billion RPK

Available seat-kilometres, billion ASK

Passenger load factor, %

2015 2016 change, % 2015 2016 change, % 2015 2016 change, % 2015 2016 change, p.p.

Russia 23.3 24.7 6.0 44.6 47.9 7.4 56.1 57.5 2.4 79.5 83.4 3.9

Europe 7.9 9.0 13.9 17.5 20.1 14.9 23.6 26.5 12.4 74.0 75.6 1.6

Asia 2.7 3.1 14.5 17.5 19.8 13.1 22.3 24.8 11.4 78.7 79.9 1.2

CIS 2.5 2.4 (4.4) 4.7 5.4 14.6 6.1 6.6 8.2 77.7 82.2 4.5

Middle East 1.6 1.5 (7.7) 4.7 4.6 (2.4) 6.2 6.0 (4.5) 76.0 77.7 1.7

Americas 0.8 0.9 15.2 6.8 7.9 16.0 8.2 9.3 12.7 82.5 84.9 2.4

Scheduled flights 38.9 41.7 7.1 95.9 105.7 10.3 122.6 130.6 6.6 78.2 80.9 2.7

Charter flights 0.5 1.8 245.2 1.7 6.4 265.1 2.2 7.0 223.8 80.8 91.1 10.3

Total flights 39.4 43.4 10.3 97.6 112.1 14.8 124.7 137.7 10.4 78.3 81.4 3.1

Aeroflot Group’s passenger trafficMILLION PAX

Aeroflot Group’s passenger turnover and passenger load factorBILLION RPK AND %

Aeroflot Group

2012 2013 2014 2015 2016

18.316.017.117.416.0

25.123.4

17.614.0

11.5

43.439.4

34.731.4

27.5

2012 2013 2014 2015 2016

81.4%

63.452.955.156.150.3

48.744.735.029.224.3

112.197.690.185.3

74.6

78.3%77.8%78.2%78.1%

International flightsDomestic flights


Passenger load factor

Aeroflot Group’s operational results

Item 2012 2013 2014 2015 2016

TOTAL FLIGHTSPassenger traffic, million PAX 27.5 31.4 34.7 39.4 43.4change, % 67.6 14.3 10.7 13.4 10.3Passenger turnover, billion RPK 74.6 85.3 90.1 97.6 112.1change, % 61.9 14.3 5.6 8.4 14.8Available seat-kilometres, billion ASK 95.6 109.1 115.8 124.7 137.7change, % 59.3 14.1 6.2 7.7 10.4Passenger load factor, % 78.1 78.2 77.8 78.3 81.4change, p.p. 1.3 0.1 (0.4) 0.5 3.1Cargo and mail, thousand tonnes 223.8 204.6 166.3 156.3 205.8change, % 32.8 (8.6) (18.7) (6.0) 31.6Flights, thousand 241.8 264.9 286.7 323.8 331.9change, % 18.1 9.5 8.2 13.0 2.5Stage length, km 2,716 2,717 2,593 2,479 2,581change, % (3.4) 0.0 (4.5) (4.4) 4.1DOMESTIC FLIGHTSPassenger traffic, million PAX 11.5 14.0 17.6 23.4 25.1change, % 65.3 21.6 26.0 32.5 7.6Passenger turnover, billion RPK 24.3 29.2 35.0 44.7 48.7change, % 57.0 19.8 19.9 27.8 8.9Available seat-kilometres, billion ASK 31.7 37.6 43.6 56.3 58.3change, % 59.2 18.2 16.2 29.0 3.7Passenger load factor, % 76.7 77.7 80.2 79.4 83.5change, p.p. (1.0) 1.0 2.5 (0.8) 4.1Cargo and mail, thousand tonnes 70.7 82.8 82.0 79.1 107.8change, % 50.4 17.1 (0.9) (3.4) 36.2Flights, thousand 112.7 127.8 151.0 195.0 196.0change, % 19.2 13.4 18.2 29.2 0.5Stage length, km 2,115 2,083 1,982 1,912 1,935change, % (5.0) (1.5) (4.8) (3.5) 1.2INTERNATIONAL FLIGHTSPassenger traffic, million PAX 16.0 17.4 17.1 16.0 18.3change, % 69.3 8.9 (1.7) (6.2) 14.1Passenger turnover, billion RPK 50.3 56.1 55.1 52.9 63.4change, % 64.4 11.6 (1.8) (3.9) 19.8Available seat-kilometres, billion ASK 63.9 71.5 72.2 68.5 79.4change, % 59.4 12.0 1.0 (5.2) 15.8Passenger load factor, % 78.7 78.4 76.3 77.3 80.0change, p.p. 2.4 (0.3) (2.1) 1.0 2.7Cargo and mail, thousand tonnes 153.1 121.8 84.3 77.2 98.0change, % 26.1 (20.5) (30.8) (8.5) 27.0Flights, thousand 129.1 137.1 135.7 128.8 135.9change, % 17.1 6.2 (1.0) (5.1) 5.5Stage length, km 3,150 3,226 3,223 3,304 3,468change, % (2.9) 2.4 (0.1) 2.5 5.0




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Domestic flightsIn the reporting year, Aeroflot Group’s total domestic passenger traffic (including scheduled and charter flights) increased by 7.6% y-o-y to 25.1 million passengers. Domestic flights accounted for 57.9% of the total carried passengers.

Domestic passenger turnover grew 8.9% to 48.7 billion RPK, with capacity growing by 3.7% to 58.3 billion ASK. The passenger load factor was 83.5%, up 4.1 p.p. y-o-y.

Such performance improvements were associated with persistently strong demand for domestic services (including domestic tourism), which allowed the Group to increase its flight frequency on the most popular routes and to launch new routes. A 40.8% share of total growth in domestic passenger traffic of the Group was driven by Pobeda airline.

International flightsIn the reporting year, Aeroflot Group’s international passenger traffic increased by 14.1% y-o-y to 18.3 million passengers. International flights accounted for 42.1% of the total carried passengers.

Passenger turnover grew 19.8% to 63.4 billion RPK, with capacity growing by 15.8% to 79.4 billion ASK. The passenger load factor was 80.0%, up 2.7 p.p. y-o-y.

Macroeconomic stabilisation, higher flight frequency, the launch of new flights based on obtained permits to operate to international destinations, the development of Pobeda’s international network, and the re-launch of Rossiya’s charter programme had a positive effect on the performance in the international segment.

Aeroflot Group’s 2016 passenger traffic breakdown by airline

Aeroflot Group’s 2016 passenger traffic breakdown by destination

Operating Results (continued)

Scheduled passenger traffic on European routes (the Group’s second largest business segment) grew by 13.9% to 9.0 million passengers, driven by the higher frequency of flights to most popular destinations based on obtained permits (London, Rome, Milan), and by the newly launched flights to new destinations (Valencia, Alicante, Lyon). Another factor contributing to the passenger traffic growth on European routes was the reduction in the frequencies of services operated by foreign carriers to Russia.

Aeroflot Group continued to focus on Asian destinations, where the number of passengers carried on scheduled flights grew by 14.5% to 3.1 million passengers. Another major contributing factor was stronger passenger traffic from destinations in China, driven, among other factors, by the higher frequency of flights to Beijing.

In 2016, traffic to the CIS and the Middle East was impacted by the ban on flights to Ukraine, suspension of flights to Egypt and reduced frequency of flights to Turkey (due to overall declines in demand and restrictions on charter flights) in Q4 2015. The number of passengers carried on scheduled flights within the CIS decreased by 4.4%. At the same time, the results of operations in the CIS region were supported by the launch of new flights to six destinations in Kazakhstan and higher demand for leisure flights to Georgia, Azerbaijan, and Armenia. Scheduled passenger traffic in the Middle East decreased by 7.7% to 1.5 million passengers. The higher frequency of flights to Tel-Aviv (a market with significant potential for leisure and transit traffic) helped partially offset the decline in passenger traffic to Istanbul and Antalya.

The number of passengers carried on scheduled flights to North and Central America increased by 15.2% to 0.9 million passengers, due to increased frequency of flights to Cuba and a higher demand for flights to the USA, driven, among other things, by transit passenger traffic.

Aeroflot airline’s passenger traffic MILLION PAX

2012 2013 2014 2015 2016

14.913.412.512.3

10.7

14.112.7

11.18.6

7.0

29.026.1

23.620.9

17.7



AeroflotRossiya

PobedaAurora

42.1%

57.9%66.7%

3.2%

20.2%

9.9%

Aeroflot AirlineIn 2016, Aeroflot airline carried a total of 29.0 million passengers, up 11.0% y-o-y. The airline’s passenger turnover grew 11.6% to 82.7 billion RPK, with capacity growing by 8.9% to 101.8 billion ASK. The passenger load factor was 81.3%, up 2.0 p.p. y-o-y.

Domestic flightsIn 2016, the total number of passengers carried by Aeroflot airline on domestic routes increased by 11.4% y-o-y to 14.1 million. Passenger turnover grew 7.4% to 29.4 billion RPK, with capacity growing by 3.3% to 34.4 billion ASK. The passenger load factor increased by 3.2 p.p. to 85.4%. Domestic flights accounted for 48.7% of Aeroflot airline’s total passenger traffic.




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International flightsIn 2016, the total number of passengers carried by Aeroflot airline on international routes increased by 10.6% y-o-y to 14.9 million. Passenger turnover grew 14.0% to 53.3 billion RPK, with capacity growing by 11.9% to 67.4 billion ASK. The passenger load factor increased by 1.5 p.p. to 79.2%. International flights accounted for 51.3% of Aeroflot airline’s total passenger traffic.

Aeroflot airline’s operating results by region are explained by the factors affecting the Group’s overall performance mentioned above.


Aeroflot airline’s operating performance by region (scheduled and charter flights)

Region

Passenger traffic, million PAX

Passenger turnover, billion RPK

Available seat-kilometres, billion ASK

Passenger load factor, %

2015 2016 change, % 2015 2016 change, % 2015 2016 change, % 2015 2016 change, p.p.

Russia 12.7 14.1 11.3 27.3 29.4 7.4 33.3 34.4 3.3 82.2 85.4 3.2

Europe 7.0 7.7 10.5 15.4 17.3 11.8 20.9 22.9 9.6 74.0 75.4 1.4

Asia 2.5 2.8 12.8 17.2 19.3 12.7 21.6 24.1 11.4 79.3 80.2 0.9

CIS 1.9 2.1 14.1 3.3 4.7 39.8 4.2 5.7 33.9 79.0 82.5 3.5

Middle East 1.4 1.4 (0.3) 4.0 4.1 3.5 5.2 5.4 3.1 77.1 77.4 0.3

Americas 0.8 0.9 15.7 6.8 7.9 16.0 8.2 9.3 12.7 82.5 84.9 2.4

Scheduled flights 26.1 29.0 11.0 74.1 82.7 11.6 93.4 101.7 8.8 79.3 81.3 2.0

Charter flights 0.01 0.01 – 0.01 0.03 – 0.03 0.08 – – – –

Total flights 26.1 29.0 11.0 74.1 82.7 11.6 93.5 101.8 8.9 79.3 81.3 2.0

Subsidiaries’ passenger traffic1 MILLION PAX

Subsidiary AirlinesIn the reporting year, the total passenger traffic of subsidiary airlines (Rossiya, Pobeda, Aurora) was 14.5 million passengers, accounting for 33.3% of the total number of passengers carried by Aeroflot Group in 2016.

The growth in subsidiaries’ passenger traffic is primarily driven by the development of Pobeda airline. Subsidiaries are focused on domestic routes, which account for 76.4% of their total passenger traffic. The share of international traffic is 23.6%, with more than half of it generated by Rossiya airline.

Aeroflot airline’s 2016 passenger traffic breakdown by destination


51.3%48.7%

Subsidiaries’ 2016 passenger traffic breakdown1

RossiyaPobedaAurora

42.7%

18.1%

3.3%2.2%26.4%

7.3%

23.6%

76.4%

1 Data on Rossiya airline for 2016 includes flights of Orenair and Donavia prior to their integration into Rossiya airline.

2012 2013 2014 2015 2016

8.8

4.8

3.03.1

4.2

4.3

2.8

5.24.6

3.21.01.4 1.4

1.41.71.10.1

1.51.1 1.4

3.1

14.513.311.1

10.59.8

RossiyaOrenairDonavia

AuroraPobeda

Aeroflot airline’s passenger turnover and passenger load factorBILLION RPK AND %

2012 2013 2014 2015 2016

81.3%

53.346.842.740.634.9

29.427.324.419.6

15.6

82.774.1

67.160.250.5

79.3%78.2%78.8%

77.9%


Passenger load factor




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Route Network Development StrategyAeroflot Group implements a strategy of balanced route network development based on a multi-brand model ensuring maximum coverage of the air transportation market and the Group’s presence in various price segments across different regions. The route network management strategy relies on increasing frequency of flights to most popular destinations and improving flight connections by adopting a wave system structure in flight schedules at its main hub, Moscow Sheremetyevo airport, which enhances customer experience. Flights to new destinations are launched based on the analysis of demand, competition, and potential efficiency of new routes, both in terms of direct passenger traffic and contribution to the route network synergy. Aeroflot Group pays particular attention to making socially important destinations accessible for its customers.

Aeroflot Group Route Network Development1 In 2016, Aeroflot Group’s network comprised 326 scheduled routes to 51 countries, including 47 unique routes operated by the low-cost carrier Pobeda. Excluding the low-cost segment, the Group’s airlines operated scheduled flights on 279 routes.

Regional developments imply a growth in the number of both scheduled (up 13.8% to 140) and charter (up 7.1% to 60) domestic routes. The number of international scheduled routes declined during the year by 13.1% to 139, with charter routes down by 10.8% to 116. The decline was due to the optimisation of route networks carried out by the subsidiaries in 2015, and the launch of Rossiya airline, a new integrated carrier.

In 2016, the total number of routes decreased by 6.5% to 377, primarily at the expense of charter segment driven by lower demand for tourist flights.

1 Due to the separate status of the low-cost segment, the data on Aeroflot Group’s route network presented in this section of the Annual Report includes the routes of Aeroflot airline and subsidiaries excluding Pobeda, unless otherwise stated.

Number of Aeroflot Group’s routes

2015 2016 Change, %

Sch. Chart. Total Sch. Chart. Total Sch. Chart. Total

International 160 130 260 139 116 214 (13.1) (10.8) (17.7)

Domestic 123 56 143 140 60 163 13.8 7.1 14.0

Medium-haul 249 170 356 253 161 341 1.6 (5.3) (4.2)

Long-haul 34 16 47 26 15 36 (23.5) (6.3) (23.4)

TOTAL 283 186 403 279 176 377 (1.4) (5.4) (6.5)

Route Network

44,8%

44,8%

50,3%

50,3%

27,0%

27,0%

Cargo and Mail OperationsAeroflot Group does not have dedicated cargo fleet and exploits belly cargo model for cargo and mail transportation. In 2016, Aeroflot Group carried 205.8 thousand tonnes of cargo and mail, up 31.6% y-o-y.

In the reporting period, the cargo/mail tonne-kilometres (TKM) increased by 16.5% to 11.0 billion, while the revenue load factor went up by 3.0 p.p. to 65.7%.

The growth in cargo and mail operations is associated with the expansion of the wide-body aircraft fleet, including Transaero’s Boeing 747 and Boeing 777 aircraft added to the Group’s fleet.

In 2016, Aeroflot airline carried 175.5 thousand tonnes of cargo and mail, up 29.9% y-o-y. The cargo/mail tonne-kilometres increased by 13.2% to 8.3 billion, while the revenue load factor grew by 2.7 p.p. y-o-y to 65.0%.



Aeroflot Group’s revenue tonne-kilometres and revenue load factorBILLION TKM AND %

Aeroflot airline’s revenue tonne-kilometres and revenue load factorBILLION TKM AND %

Aeroflot Group’s cargo and mail operations THOUSAND TONNES

Aeroflot airline’s cargo and mail operationsTHOUSAND TONNES

2012 2013 2014 2015 2016

98.077.184.3

121.8153.1

107.8

79.282.0

82.870.7

205.8

156.3166.3

204.6223.8

2012 2013 2014 2015 2016

96.174.681.5

118.0147.7

79.4

60.563.858.5

46.2175.5

135.1145.3

176.5193.9

2012 2013 2014 2015 2016

65.7%

6.25.15.35.75.4

4.84.33.53.02.5

11.09.58.88.7

7.9

62.7%63.8%64.7%65.2%

2012 2013 2014 2015 2016

65.0%

5.34.64.24.34.1

3.02.72.52.01.6

8.37.36.76.3

5.7

62.3%63.1%64.4%63.8%



Revenue load factor

Revenue load factor





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Average weekly frequency of Aeroflot Group’s flights

Airline Destination Destination

Aeroflot Moscow AlicanteMoscow LyonMoscow SyktyvkarMoscow ValenciaKazan Frankfurt

Rossiya Anapa KrasnoyarskSochi Nizhny NovgorodSochi KrasnoyarskSochi OrenburgSochi TyumenNizhny Novgorod SimferopolSt Petersburg HeraklionSt Petersburg RiminiMoscow GoaMoscow PaphosMoscow RiminiOmsk SimferopolYekaterinburg Anapa

Aurora Amgu KavalerovoBlagoveshchensk NeryungriDalnegorsk KavalerovoKhabarovsk ShakhterskKhabarovsk NeryungriKhabarovsk NoglikiYuzhno-Sakhalinsk BlagoveshchenskYuzhno-Sakhalinsk Petropavlovsk-KamchatskyVladivostok BlagoveshchenskVladivostok Preobrazheniye

Aeroflot Group’s scheduled routes (2016 vs 2015)

Aeroflot Group’s scheduled flights by region (2016 vs 2015)

During 2016, Aeroflot Group’s airlines launched scheduled flights to 28 new destinations, including 19 domestic and 9 international

Destination Destination

Krasnodar SochiKrasnodar YerevanMineralnye Vody YerevanMineralnye Vody TashkentRostov-on-Don YerevanRostov-on-Don IstanbulRostov-on-Don TashkentSt Petersburg UrgenchKrasnodar Yekaterinburg

At the same time, in 2016, nine scheduled routes were discontinued as part of the network restructuring effort prompted by the launch of Rossiya airline.

Own flights of subsidiary airlines

Route Network (continued)

Russia 1.5%

Asia 20.9%

Middle East 0.9%

TOTAL 1.8%

Americas 8.5%

Europe 5.7%

CIS (18.6%)

Domestic 13.8%

Long-haul (23.5%)

TOTAL (1.4%)

International (13.1%)

Medium-haul 1.6%

Scheduled flights Internationalscheduled flights

Domesticscheduled flights

Long-haulscheduled flights

Medium-haulscheduled flights

Charter flights

+4.8%

+10.1%

+11.0%

+23.6%

+9.5%

>2.0x

11.8 12.4

9.110.0

13.515.0

6.47.9

11.812.9

0.81.6

2015 2016




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In 2016, the number of Aeroflot Group’s scheduled flights grew 1.8% y-o-y. Asia and North America reported the highest growth (+20.9% and +8.5%, respectively), driven by higher demand on these routes and weaker competition. The number of scheduled flights to Europe grew by 5.7% in response to additional market opportunities in the region. The number of flights to the Middle East in 2016 was almost flat year-on-year, due to the falling demand for certain leisure destinations. The decline in number of flights to CIS countries was mainly due to the network optimisation efforts by subsidiaries, and discontinued services to Kiev and Odessa in Ukraine since late 2015.

In 2016, Aeroflot Group continued increasing the frequency of service to the most popular and lucrative destinations. The average weekly frequency of scheduled flights grew by 4.8% y-o-y (from 11.8 to 12.4). This figure has grown 10.1% (from 9.1 to 10.0) for

international scheduled destinations and 11.0% (from 13.5 to 15.0) for domestic flights.

In planning its flight schedule, Aeroflot Group focuses on: ― improving the accessibility of Russia’s regions; ― improving customer experience of direct (non-stop) flights;

― optimising targeted connections on intercontinental (Asia – Europe, North America – Middle East), and interregional routes (Far East / Urals – Centre / South);

― maintaining and further developing the hub structure at Sheremetyevo airport;

― growing the market share on existing routes (large markets) and launching new destinations in prospective markets with high transfer traffic potential.

Aeroflot Airline’s Route Network Development

Number of Aeroflot airline’s routes

2015 2016 Change, %

Sch. Chart. Total Sch. Chart. Total Sch. Chart. Total

International 87 12 92 87 20 99 – 66.7 7.6

Domestic 46 9 48 46 13 48 – 44.4 –

Medium-haul 107 21 114 108 30 119 0.9 42.9 4.4

Long-haul 26 – 26 25 3 28 (3.8) – 7.7

TOTAL 133 21 140 133 33 147 – 57.1 5.0

Average weekly frequency of Aeroflot airline’s flights

Aeroflot airline’s scheduled flights by region (2016 vs 2015)


Russia

Asia

Middle East

TOTAL

Americas

Europe

CIS

6.6%

16.3%

(1.0%)

6.0%

8.5%

6.9%

(2.3%)

+0.4%

+0.4%

+1.0%

+7.1%

(0.8%)

+7.5%

16.1 16.2

12.4 12.5

22.9 23.1

6.9 7.4

18.4 18.3

0.40 0.43

Scheduled flights Internationalscheduled flights

Domesticscheduled flights

Long-haulscheduled flights

Medium-haulscheduled flights

Charter flights

2015 2016

In 2016, Aeroflot airline’s route network covered 133 scheduled routes to 50 countries. The number of both domestic and international scheduled routes stayed flat year-on-year. The total number of routes serviced by Aeroflot airline (including charter) grew 5.0% y-o-y to 147.

Aeroflot continued expanding its network by launching five new scheduled routes, including four international (from Moscow to Alicante, Valencia, and Lyon, and from Kazan to Frankfurt) and one domestic (from Moscow to Syktyvkar).

In 2016, the total number of Aeroflot airline’s scheduled flights grew by 6.0% y-o-y due to the increase in capacity on the most popular routes and the changes in the route network mentioned above. This growth was mainly driven by an increase in flights on domestic and European routes by 6.6% and 6.9%, respectively. It was also supported by a 16.3% increase in flights to Asian countries. The result saw the connectivity ratio for Aeroflot airline’s own flights improve from 16.0 in 2015 to 19.1 in 2016.

The average weekly frequency of scheduled flights grew by 0.4%, from 16.1 to 16.2 flights per route per week.




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Aeroflot Airline's Route Network

Yerevan

BishkekAlmaty

Bangkok

Hanoi

Seoul

Shanghai

Ho Chi Minh City

Ulan Bator

Abakan

Krasnoyarsk

Barnaul

NovosibirskKemerovo

Tomsk

Novokuznetsk

Magadan

ChelyabinskUfa

NizhnekamskEkaterinburg

Syktyvkar

Ulyanovsk

TyumenPerm

Nizhnevartovsk

Omsk

Surgut

Novy Urengoy

NizhnyNovgorod

Irkutsk

Yakutsk

Khabarovsk

Vladivostok

Petropavlovsk-Kamchatsky

Yuzhno-Sakhalinsk

Gelendzhik

Krasnodar

MineralnyeVody

Delhi

Male

GuangzhouHong Kong

Tokyo

Bejing

Phuket

TashkentShymkent

Samarkand

Aktau

Atyrau

AktobeOrenburg

Rostov-on-Don

Samara

Stavropol

Saratov

Volgograd

VoronezhMagnitogorsk

KazanSaint Petersburg

MOSCOW

Arkhangelsk

Murmansk

Astrakhan

KaragandaAstana

Chisinau

Anapa

AdlerSochi Tbilisi

Minsk

Kaliningrad

Baku

Dubai

Tel Aviv

Havana

Miami

Washington

Los Angeles

New York

BeirutTegeran

MOSCOW

Malaga

Tenerife

Alicante

AmsterdamHannover

Hamburg

Kazan

Berlin Warsaw

Copenhagen

Oslo Helsinki

DusseldorfLondon

Lyon

Dresden

Stockholm

Riga

Vilnus

Tallinn

Athens

SofiaSplit

TivatIstanbul

Heraklion Larnaca

Antalya

BarcelonaMadrid

Valencia

Belgrad

Thessaloniki

BolognaNice

Milan

ZurichVenice

FrankfurtStuttgart

Rome

Brussels

Budapest

Zagreb

Prague

Bucharest

Paris

Geneva

MunichVienna

133

50 countries

scheduled routes of Aeroflot airline's route network

geography of Aeroflot airline's route network

29.0 millionpassengers carried by Aeroflot airline in 2016




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Rossiya and Aurora Airlines' Route Network

MOSCOW

Saint Petersburg

Chelyabinsk

Nizhny Novgorod

Ufa

EkaterinburgKrasnoyarsk

KhabarovskBlagoveshchensk

Irkutsk

Magadan

Petropavlovsk-Kamchatsky

Yuzhno-Sakhalinsk

Vladivostok

Dalian

Harbin

Beijing

Yakutsk

Seoul

Tokyo

Sapporo

Hong Kong

AnapaSimferopol

Rostov-on-Don

Gelendzhik

Barcelona

Paris

Rome

Dusseldorf

BurgasVarna

Almaty

Astana

Arhangelsk

Murmansk

AdlerSochi

Krasnodar

Volgograd

Mineralnye Vody

Makhachkala

Samara

Kazan

Syktyvkar

Perm

Prague

Orenburg

Larnaca

Tel Aviv

BakuYerevan

HamburgBerlin

Munich

Geneva

Vienna

MilanRimini

TivatNice

Omsk

Tyumen

Samarkand

Tashkent

Surgut

Novosibirsk

Kaliningrad

146

19 countries

scheduled routes of subsidiary airlines route network

geography of subsidiary airlines route network

10.2 millionpassengers carried Rossiya and Aurora airlines in 2016

Note. Route network and key figures excluding Pobeda LLC.





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VLADIVOSTOK

KHABAROVSK

YUZHNO-SAKHALINSK

Okha

Neryungri

Nogliki

DalnegorskKavalerovo

Preobrazheniye

PlastunTerney

Yedinka

AmguSvetlaya

KurilskYuzhno-Kurilsk

Shakhtersk

Dalnerechensk

New services launched during 2016

Subsidiary Airlines’ Route Network Development

Rossiya airlineIn response to recent market shifts and pursuant to the relevant resolution by its Board of Directors, PJSC Aeroflot has established Rossiya airline, an integrated regional carrier, to consolidate the operations of JSC Rossiya Airline, JSC Orenair, and JSC Donavia. The new carrier started its operations on 28 March 2016.

The route network of the integrated carrier has been overhauled to improve operational and financial efficiency and to account for the addition of the long-haul aircraft previously operated by Transaero.

In 2016, Rossiya airline operated scheduled services on 112 routes (68 domestic and 44 international), including 85 routes under commercial management of PJSC Aeroflot.

Plans for the carrier’s network expansion provide for further development of the regional Northwestern transport hub at Pulkovo airport (Saint Petersburg), and for services from Moscow’s Vnukovo airport. Flights from Vnukovo cover destinations in Russia’s Far East and targeted domestic connection airports, as well as Nice and Paris (Orly) in France.

Aurora airlineAurora is focused on securing transport accessibility and accommodating the demand for flights in the Russian Far East and to major cities in Siberia: Irkutsk, Krasnoyarsk, Novosibirsk, and Yakutsk. Aurora also operates international services from Khabarovsk, Vladivostok, and Yuzhno-Sakhalinsk to the Republic of Korea, China, and Japan.

In 2016, Aurora airline operated scheduled services on 51 routes in 4 countries (38 domestic and 13 international routes).

In the reporting year, the airline strengthened its position in the region’s international air transportation market. Aurora remains the only carrier operating flights from Vladivostok and Yuzhno-Sakhalinsk to Harbin, China, from Vladivostok to Busan in the Republic of Korea and Dalian in China, and from Khabarovsk to Krasnoyarsk.

To attract transit passengers and offer them a smooth travel experience, the airline increased flight frequency on the routes connecting the major hubs in Khabarovsk and Vladivostok, and also adjusted certain flight schedules. The frequencies of services from Khabarovsk and Vladivostok to Seoul, the Republic of Korea, and Petropavlovsk-Kamchatsky, and from Vladivostok to Beijing, China, have been increased in response to surging demand.

In 2016, Aurora also enhanced its offering across a number of destinations through a codeshare agreement with S7 Airlines, which came into force during the reporting year. The agreement covers flights from Vladivostok to Hong Kong, Beijing, Tokyo, and Yuzhno-Sakhalinsk; and from Khabarovsk to Beijing. Dash-8 Q400 aircraft were partially involved to support the turnover of Airbus A319 aircraft and to improve passenger load factors on short-haul flights.

Aeroflot Group continues to integrate Aurora’s own domestic local routes into the Group’s network to improve travel experience and accessibility for passengers flying to/from destinations in the Russian

Far East from/to other domestic and international destinations.

Local routes network of Aurora airline's 2016


Note. A local route means a route between a major city (regional capital) and a smaller district centre within the same region.




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MOSCOW

AnapaSochi

Saint PetersburgYaroslavl

Astrakhan

GyumriNaku

Tbilisi

LarnacaPaphos

NazranNazran

Bergamo(Milan)

Bratislava

Cologne

Kaliningrad

Memmingen

GironaPisa Tivat

ChelyabinskUfa

Magnitogorsk

KazanEkaterinburg

Novosibirsk

Almaty

Nizhnevartovsk

Cheboksary

Naberezhnye ChelnyNizhnekamsk

NizhnyNovgorod

Nalchik Vladikavkaz

Rostov-on-Don

Samara

Volgograd

Kirov

Syktyvkar

Perm Tyumen

Surgut

BelgorodVoronezh

GelendzikKrasnodar

Seasonal routesfrom Sochi and Anapa

Pobeda airline's route network in 2016


Transit Passenger TrafficThe extensive route network of Aeroflot Group not only provides passengers with the benefits of flying point-to-point, but also offers travelling options with connections at Moscow’s Sheremetyevo airport, its main hub, and in base airports of regional airlines. From the business perspective, transit passenger traffic falls into three groups: domestic transit, transit between Russia and other countries, and international transit. The bulk of the Group’s transit passenger traffic is handled by Aeroflot airline, which takes advantage of Russia’s beneficial geographical position to pick up transit passenger traffic between Europe and Asia and from other transit markets.

In 2016, total transit traffic on Aeroflot airline’s flights rose 5.5% y-o-y to c. 12.0 million passengers. Passengers in transit accounted for 42.1% of Aeroflot airline’s total passenger traffic in 2016 (44.2% in 2015). The share of transit passenger traffic declined as a result of higher demand for point-to-point flights. In 2016, with an increase in the overall passenger traffic and a higher passenger load factor, there was a shift in passenger traffic towards direct flights, indicating improved network efficiency across Aeroflot Group.

The increase in the transit passenger traffic was mainly driven by the growth in transit passenger traffic between Russia and other countries, reaching 16.9% of Aeroflot airline’s total passenger traffic. The share of international transit traffic was 13.1%. Although the share of this segment declined year-on-year, its passenger traffic grew 3.5% in absolute terms. International transit has the highest impact, since it provides the company with an opportunity to capture more value from international markets and global passenger flows.

Aeroflot continued its focus on boosting Moscow’s profile as an attractive transit hub by increasing the frequencies of services, maintaining a wave system structure in flight schedule and improving connectivity. Tactical moves made by Aeroflot in 2016 to enhance its value proposition for transit passengers include changes in the flight schedule from Moscow to Cuba (morning departure from Sheremetyevo and morning arrival, which has fundamentally changed the connection pattern by providing convenient connections to all flights of the European morning arrival wave, as well as Delhi and destinations in

Pobeda airlineIn 2016, Pobeda airline operated flights on 72 routes, including seasonal routes from Russian regions to the Black Sea resorts in Sochi and Anapa. During the year, Pobeda operated 47 unique routes which have not been serviced by any other airline within the Group.

In the reporting period, Pobeda was rapidly expanding its network, launching not only direct flights between Moscow and other Russian regions, but also interregional routes that directly connect large regional centres, specifically Yekaterinburg with Krasnoyarsk and Novosibirsk, Saint Petersburg with Yekaterinburg, Makhachkala, and Krasnodar, etc. Its schedule not only aims to boost direct passenger traffic, e.g. between Novosibirsk and Yekaterinburg, Yekaterinburg and Saint Petersburg, but also

intends to offer an attractive alternative to transit passengers who need to travel between Novosibirsk and Saint Petersburg.

The company continued to add new international destinations. In addition to the flights to Milan (Bergamo) and Bratislava launched in 2015, new destinations were added in 2016 including Cologne, Memmingen, Girona, Larnaca, Paphos, Tivat, Pisa, and Gyumri. A number of international flights include an option of a group transfer to city centre, including Milan, Florence, Zurich, Barcelona, Yerevan, and others).

Pobeda has also launched services on Rostov – Baku, Rostov – Tbilisi, and Samara – Almaty routes.

Aeroflot airline’s key international transit routes in 2016

Delhi

Bangkok

Shanghai

Hanoi

SeoulTokyo

MOSCOW

Yerevan

Tel Aviv

New York Los Angeles BarcelonaMadrid

BerlinPrague




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China). Additionally, in 2016 Aeroflot added a second daily flight from Moscow to Delhi and back to ensure two-way connections for all popular routes that might include this flight (Europe and Americas). During the year, Aeroflot introduced 14 additional weekly flights to London (two additional daily flights) to improve the route’s connectivity with the Asian market. The company continues expanding its network in Kazakhstan, a market with a strong potential for transfer traffic. Aeroflot is also consistent in its efforts to increase the frequencies and capacity on high-margin routes with a high share of transfer traffic (Spain, Israel, France, Italy, Vietnam, India, and Thailand).

Aeroflot airline’s key international transit routes in 2016 included New York – Tel Aviv, Yerevan – Los Angeles, Bangkok – Tel Aviv, Hanoi – Prague, Shanghai – Tel Aviv, Berlin – Hanoi, Delhi – Tel Aviv, Barcelona – Seoul, Barcelona – Tokyo, and Madrid – Seoul.

Share of transit passengers in Aeroflot airline’s total passenger traffic

2012 2013 2014 2015 2016

16.9%16.7%

11.8%11.6%

15.0%

12.1%

14.0%

16.7%16.0%

10.6%

7.1%7.9%

10.7%13.5%

13.1%

42.1%44.2%

39.2%35.5%32.7%

Russia – Other CountriesInternational

Domestic

Aurora airline ― Four new permits to operate international scheduled passenger services from Vladivostok to Jiamusi and Yanji; and from Khabarovsk to Sanya and Jiamusi;

― One additional permit to increase the frequency of international scheduled passenger service from Yuzhno-Sakhalinsk to Sapporo.

There have also been certain changes within the Group. With the Group’s regional airlines now integrated into Rossiya airline, all operating permits held by Donavia (for 16 routes) and Orenair (for 41 routes) were transferred to the consolidated carrier, with effect from 27 March 2016. Aeroflot airline’s permit to operate a scheduled service between Moscow and Karlovy Vary was transferred to Pobeda airline. Rossiya airline’s permit to operate scheduled flights between Moscow and Rimini (one weekly frequency) was transferred to Pobeda airline as part of the effort to reallocate the flight frequencies between the services operated between Moscow and Rimini and between Moscow and Bergamo.

Permits were renewed for Aeroflot airline (for 20 routes) and Rossiya airline (for 17 routes) to operate services on Transaero’s routes until the end of the IATA Winter 16/17 Season, with an extension option (a total of 36 routes). In order to streamline the use of operating permits held by Aeroflot airline and Rossiya airline, a number of permits inherited from Transaero have been waived.

With support from the Russian Ministry of Transport, a number of scheduled designations were secured from the Russian Ministry of Foreign Affairs on the following routes: ― Aeroflot: Kazan – Frankfurt am Main; ― Rossiya: Krasnodar – Yerevan, Mineralnye Vody – Yerevan, Mineralnye Vody – Tashkent, Moscow – Varadero, Rostov-on-Don – Yerevan, Rostov-on-Don – Istanbul, Rostov-on-Don – Tashkent, Rostov-on-Don – Tel Aviv, Saint Petersburg – Beijing, Sochi – Yerevan, and Sochi – Istanbul;

― Aurora: Vladivostok – Sapporo, Khabarovsk – Niigata, Vladivostok – Jiamusi, and Khabarovsk – Jiamusi;

― Pobeda: Rostov-on-Don – Baku, and Rostov-on-Don – Tbilisi.

International CooperationCodeshare agreements

Aeroflot actively cooperates with other carriers under codeshare agreements. These arrangements enable the Group to build its presence in promising markets, gain a foothold in the markets where restrictions apply, expand the route network coverage, and more efficiently use own fleet.

In 2016, the number of marketing flights operated by Aeroflot airline grew from 299 to 320. Agreements for joint free-sale flight operation signed with S7, Finnair and Cubana de Aviacion, and with Aurora Airlines, a subsidiary of Aeroflot (codeshare flights on a free-sale basis) entered into force. Joint flights with Air Malta were resumed on the Malta – Moscow – Malta route.


Obtaining approvals and operating permits to increase the frequencies of services and launch new flightsIn 2016, the Federal Air Transport Agency issued the following operating permits to companies of Aeroflot Group that are under commercial management of PJSC Aeroflot.

Aeroflot airline ― Four new permits to operate international scheduled passenger services from Moscow to Lisbon, Kyzylorda, and Kostanay, and from Kazan to Frankfurt am Main;

― Ten additional permits to increase the frequencies of international scheduled passenger services from Moscow to Aktobe, Bologna, Vienna, Yerevan, Chisinau, Lyon, Malaga, Paris, and Beijing;

― Three new permits to operate international

non-scheduled (charter) passenger services from Moscow to Grenoble, Chambery and Varadero.

Rossiya airline ― One new permit to operate international scheduled passenger service from Moscow to Yerevan;

― Three additional permits to increase the frequencies of international scheduled passenger services from Moscow to Tenerife and from Saint Petersburg to Baku and Urgench;

― One new permit to operate international non-scheduled (charter) passenger service from Moscow to Punta Cana.




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Aircraft FleetFleet Development StrategyAeroflot Group operates a balanced in terms of aircraft types and modifications fleet and keeps on enhancing it in line with its multi-brand strategy. Over the last years, the Group has invested much effort in optimisation and upgrade of the fleet to improve the efficiency of the Group’s operations and cost control. In 2012–2016, the types of aircraft in operation reduced from 14 to 8.

As a result of active fleet upgrades from 2012 to 2016, the average age of aircraft in operation dropped from 8.8 to 6.5 years for Aeroflot Group and from 5.2 to 4.2 years for Aeroflot airline (as at the year-end). Aeroflot airline’s fleet is one of the youngest in the world.

Aeroflot Group’s aircraft fleet was built and is grown in line with specific business models and route networks of each airline.

Aeroflot Group’s aircraft fleet evolution

Note. Data exclude aircraft that were out of operation by the Group’s airlines and/or subleased to third parties (Mi-8, Yak-40, Tu-154 in 2012; An-148 and An-24 in 2016).

Narrow-body (regional)

Narrow-body (medium-haul)

Wide-body (long-haul)

20162012SSJ100An-148An-12An-24DHC-8-200/300

SSJ100DHC-8-200/300/402 DHC-6-400

Airbus A319/320/321Boeing 737 (Classic)Boeing 737 (NG)

Airbus A319/320/321Boeing 737 (NG)

Airbus A330Boeing 767Boeing 777Il-96Tu-204MD-11F

Airbus A330Boeing 747Boeing 777

14types

8types

In 2016, Aeroflot had 29 codeshare agreements with foreign and Russian airlines, including: ― 19 agreements under which Aeroflot airline acted both as a partner operator and a marketing operator: Air France, KLM, Alitalia, Finnair, Czech Airlines, LOT-Polish Airlines, Bulgaria Air, Korean Air, Air Serbia, MIAT, airBaltic, Air Europa, Garuda Indonesia, Icelandair, Kenya Airways, Saudi Arabian Airlines, China Eastern Airlines, China Southern Airlines, and Siberia Airlines PJSC;

― Four agreements under which Aeroflot airline acted as a partner operator only: Cubana de Aviacion, Iran Air, Tarom, and Middle East Airlines;

― Five agreements under which Aeroflot airline acted only as a marketing operator, selling partner flights under its code: Adria Airways, Air Malta, Bangkok Airways, Royal Air Maroc, and Aurora airline (codeshare flights on a free-sale basis);

― Two agreements with Aeroflot Group’s airlines under commercial management arrangements for operation of joint flights: with Rossiya and Aurora.

Commercial management of the flights operated by subsidiary airlines under codeshare agreements enables Aeroflot to implement its model of integrated centralised management in such strategic areas as sales, revenue management, route network and fleet planning.

Interline agreementsAs at the end of 2016, Aeroflot airline had interline agreements with 145 carriers, including two subsidiary airlines, five other Russian carriers, and six airlines based in the CIS.

Membership in the SkyTeam AllianceIn 2016, SkyTeam Alliance had 20 members, including Aeroflot, Aerolineas Argentinas, Aeromexico, Air Europa, Air France, KLM, Alitalia, China Airlines, China Eastern, China Southern, Czech Airlines, Delta Air Lines, Kenya Airways, Korean Air, Middle East Airlines, Saudi Arabian Airlines, TAROM, Vietnam Airlines, Xiamen Airlines, and Garuda Indonesia.

Membership of the SkyTeam Alliance enables Aeroflot to expand its route network while offering its customers access to the global alliance’s unique product, and providing Aeroflot Bonus members with an opportunity to enjoy the privileges on the flights of other members of the SkyTeam Alliance.

In 2016, the Alliance’s aggregate route network comprised 1,062 destinations in 177 countries. SkyTeam’s members were making a total of 17,343 flights on a daily basis.

In 2016, under SkyTeam-based cooperative arrangements, Aeroflot serviced 810 thousand passengers and 331 thousand tonnes of cargoes, sold 386 flight segments as part of SkyTeam’s fare products, and issued 6,825 tickets under three corporate contracts. Over 538 million bonus miles were awarded to participants of Aeroflot Bonus programme on flights operated by SkyTeam partners.





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Aeroflot Group’s aircraft fleet

Type of aircraft As at

31 December 2015

Change during 2016

As at 31 December 2016 Owned

Operating lease

Finance leasePhased in Phased out

An-148 6 - - 6 - - 6

An-24 1 - - 1 1 - -

DHC 6-400 2 - - 2 - 2 -

DHC 8-200 2 - - 2 - 2 -

DHC 8-300 4 - - 4 1 3 -

DHC 8-402 3 2 - 5 5 - -

SSJ100 24 6 - 30 - 30 -

Narrow-body (regional) 42 8 - 50 7 37 6

Airbus А319 40 1 (5) 36 - 27 9

Airbus А320 70 9 (4) 75 - 75 -

Airbus А321 26 12 (6) 32 - 17 15

Boeing 737-500 3 - (3) - - - -

Boeing 737-800 42 9 (2) 49 - 49 -

Narrow-body (medium-haul) 181 31 (20) 192 - 168 24

Airbus A330-200 5 - - 5 - 5 -

Airbus A330-300 17 - - 17 - 9 8

Boeing 767 1 - (1) - - - -

Boeing 777-200ER 3 - (2) 1 - 1 -

Boeing 777-300ER 13 7 - 20 - 10 10

Boeing 747-400 - 7 - 7 - 7 -

Wide-body 39 14 (3) 50 - 32 18

TOTAL 262 53 (23) 292 7 237 48

Aeroflot Group’s Aircraft FleetAs at 31 December 2016, Aeroflot Group had 292 aircraft: 50 regional aircraft (including Bombardier DHC-8 and Viking DHC-6 turboprops, SSJ100 jets, as well as An-148 and An-24 aircraft that were out of operation and subleased), 192 narrow-body aircraft for medium-haul flights (Airbus А320 Family and Boeing 737 Family), and 50 wide-body long-haul aircraft (Airbus А330s, Boeing 767s and Boeing 777s).

In 2016, following the active route network expansion and the launch of new routes and flights, the Group focused on expanding its aircraft fleet. During the year, 53 aircraft were added to the Group’s fleet. The Group together with lessors conducted pre-delivery checks in order to phase-in 12 aircraft previously operated by Transaero (seven Boeing 747 and five Boeing 777 aircraft), and also phased in five Airbus A321s ordered by Transaero. Following expiry of the lease period in 2016 and in line with the Group’s fleet optimisation, 23 airliners were phased out. Thus, in 2016, the net increase in Aeroflot Group’s fleet amounted to 30 aircraft.

Note. As at 31 December 2016, six An-148s, one An-24, two DHC 8-Q402 and one Boeing 737 were out of operation. More information please find at page 202.

1 Including subleased aircraft.

Aircraft Fleet (continued)

Aeroflot airline’s fleet comprises several types of aircraft produced by major manufacturers and focuses on addressing the needs of both the premium and mass-market segments. Aircraft offer two to three travel classes to serve passengers in flight.

Rossiya airline operates Airbus and Boeing narrow-body aircraft primarily on scheduled routes, while its Boeing wide-body aircraft are operated primarily on leisure markets (to destinations served by the charter programme and resorts of the Black Sea) and flights to the cities in the Far East.

Aurora airline operates Airbus A319 narrow-body aircraft on scheduled routes and turboprops for local flights.

The aircraft fleet of the low-cost carrier Pobeda comprises one aircraft type, Boeing 737-800, with a single-class cabin configuration.

Aeroflot Group’s fleet as at the year-end1NUMBER OF AIRCRAFT

Aeroflot Group’s aircraft fleet by type

Average age of aircraft fleet in operationYEARS

2012 2013 2014 2015 2016

189170

155143128

10392106

96105

292262261

239233

2012 2013 2014 2015 2016

4.2

6.56.47.07.7

8.8

4.44.15.25.2

Aeroflot airlineAirline subsidiaries

Aeroflot GroupAeroflot airline

Airline Manufacturer Types

Models

Narrow-body Wide-body

― Airbus ― Boeing ― UAC

5 ― Airbus A320 (Family) ― Boeing 737 NG ― SSJ100

― Airbus A330 ― Boeing 777

― Airbus ― Boeing

4 ― Airbus A320 (Family) ― Boeing 737 NG

― Boeing 747 ― Boeing 777

― Viking ― Bombardier ― Airbus

3 ― DHC-6-400 ― DHC-8-200/300/402 ― Airbus A319

― Boeing 1 ― Boeing 737 NG




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Wide-body LONG-HAUL

Narrow-body MEDIUM-HAUL

Narrow-body REGIONAL OUT OF OPERATION IN 2016

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Airbus A330-300 17 aircraftLength, m 65.7Wingspan, m 60.5Seating capacity, seats 296–302Maximum take-off weight, kg 250,000Engines RR TRENT 772BFlight range, km 9,500

Boeing 737-800 49 aircraftLength, m 39.5Wingspan, m 35.8Seating capacity, seats 158–189Maximum take-off weight, kg 79,015Engines CFM 56-7B x 2Flight range, km 4,500

SSJ100 30 aircraftLength, m 29.9Wingspan, m 27.8Seating capacity, seats 87Maximum take-off weight, kg 45,880Engines Power Jet SaM146Flight range, km 2,400

Boeing 747-400 7 aircraftLength, m 70.7Wingspan, m 64.4Seating capacity, seats 447–522Maximum take-off weight, kg 385,553–396,893Engines CF6-80C2, PW4056 Flight range, km 13,400

Airbus А319 36 aircraftLength, m 33.8Wingspan, m 34.1Seating capacity, seats 116–138Maximum take-off weight, kg 70,000Engines CFM 56-5A/5BFlight range, km 3,500–6,800

DHC 8-200 2 aircraftLength, m 22.2Wingspan, m 25.9Seating capacity, seats 37Maximum take-off weight, kg 16,466Engines PW123 CFlight range, km 1,713

Boeing 777-300ER 20 aircraftLength, m 73.86Wingspan, m 64.8Seating capacity, seats 402Maximum take-off weight, kg 317,515Engines GE 90-115BLFlight range, km 11,200

Airbus А321 32 aircraftLength, m 44.5Wingspan, m 34.1Seating capacity, seats 170Maximum take-off weight, kg 89,000Engines CFM 56-5BFlight range, km 3,800

DHC 8-402 5 aircraftLength, m 32.8Wingspan, m 28.4Seating capacity, seats 70Maximum take-off weight, kg 29,574Engines PW150AFlight range, km 2,532

Airbus A330-200 5 aircraftLength, m 54.9Wingspan, m 47.6Seating capacity, seats 241Maximum take-off weight, kg 186,800Engines CF6-80C2Flight range, km 10,000–10,700

DHC 6-400 2 aircraftLength, m 15.8Wingspan, m 19.8Seating capacity, seats 19Maximum take-off weight, kg 5,670Engines PT6A-27Flight range, km 1,800

Boeing 777-200ER 1 aircraftLength, m 63.73Wingspan, m 60.93Seating capacity, seats 364Maximum take-off weight, kg 297,556Engines PW 4090Flight range, km 14,305

Airbus А320 75 aircraftLength, m 37.6Wingspan, m 34.1Seating capacity, seats 140–180Maximum take-off weight, kg 75,500–77,000Engines CFM 56-5A/5BFlight range, km 4,000–5,500

DHC 8-300 4 aircraftLength, m 25.7Wingspan, m 27.4Seating capacity, seats 50Maximum take-off weight, kg 18,997Engines PW123Flight range, km 1,550

Аn-148 6 aircraftLength, m 29.1Wingspan, m 28.9Seating capacity, seats 75Maximum take-off weight, kg 42,500Engines D-438-148Flight range, km 3,500

Аn-24 1 aircraftLength, m 23.5Wingspan, m 29.2Seating capacity, seats 40Maximum take-off weight, kg 21 800Engines AI-24Flight range, km 990





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Aeroflot Airline’s Aircraft FleetAs at 31 December 2016, Aeroflot airline had 189 aircraft including 30 regional narrow-body aircraft, 122 narrow-body medium-haul aircraft, and 37 wide-body aircraft.

In 2016, the Company’s fleet was expanded to include new SSJ100, Airbus A320, Airbus A321, Boeing 737-800, and Boeing 777-300ER aircraft. Airbus A319 aircraft were phased out. The net fleet increase amounted to 19 aircraft.

Subsidiaries’ Aircraft Fleet Subsidiaries’ aircraft fleet composition was transformed as a result of the set-up of the united regional carrier Rossiya Airlines and the arrival of

ex-Transaero aircraft from leasing companies. Aurora airline continued to enhance its fleet to operate local flights. Pobeda airline’s fleet remained unchanged.

Aeroflot airline’s fleet by type of ownershipAeroflot airline’s fleet by type of aircraft

15.9%19.6%

64.5%

17.5%

82.5%

Narrow-body (regional)Narrow-body (medium-haul)Wide-body

Finance leaseOperating lease

Aeroflot airline’s aircraft fleet

Type of aircraftAs at

31 December 2015As at

31 December 2016 Change

SSJ100 24 30 6

DHC 8-400 3 - (3)

Narrow-body (regional) 27 30 3

Airbus A319 5 - (5)

Airbus A320 63 70 7

Airbus A321 26 32 6

Boeing 737 14 20 6

Narrow-body (medium-haul) 108 122 14

Airbus A330 22 22 -

Boeing 777 13 15 2

Wide-body 35 37 2

TOTAL 170 189 19

Note. DHC 8-400 regional aircraft were purchased in 2015 and recorded as an asset of PJSC Aeroflot prior to being transferred to Aurora airline in 2016.

Note. For data comparability purposes, Rossiya airline’s fleet in 2015 also includes the aircraft of Donavia and Orenair airlines. Six aircraft owned by Rossiya were out of operation and were (are being) leased out.

Subsidiaries’ aircraft fleet

Type of aircraftAs at

31 December 2015As at

31 December 2016 Change

An-148 6 6 -

Airbus A319 26 26 -

Airbus A320 7 5 (2)

Boeing 767 1 - (1)

Boeing 737 16 17 1

Boeing 747 - 7 7

Boeing 777 3 6 3

Rossiya airline 59 67 8

An-24 1 1 -

Airbus A319 9 10 1

Boeing 737 3 - (3)

DHC (6 and 8) 8 13 5

Aurora airline 21 24 3

Boeing 737 12 12 -

Pobeda airline 12 12 -

TOTAL 92 103 11


Aeroflot Group’s fleet by type of ownershipAeroflot Group’s fleet by type of aircraft

17.1%17.1%

65.8%

2.4%

16.4%

81.2%

Narrow-body (regional)Narrow-body (medium-haul)Wide-body

Finance leaseOwnedOperating lease




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Flight Hours Despite the dramatic fleet expansion (+30 aircraft), Aeroflot Group throughout the year maintained high fleet utilisation rates. In 2016, Aeroflot Group’s flight hours increased by 6.1% y-o-y to 911.8 thousand hours. Aeroflot airline posted a 7.5% increase in flight hours to 639.5 thousand following the expansion of its operations.

In 2016, Aeroflot Group’s flight hours per aircraft in operation per day averaged 9.4, down 1.1% y-o-y.

Immaterial decline was driven by substantial fleet enhancement in 2H 2016, which requires certain time to ramp-up utilisation. Aeroflot airline’s average flight hours per aircraft in operation per day was 9.9 hours and was affected by increased share of narrow-body aircraft.

Flight hoursTHOUSAND HOURS

Average flight hours per aircraft in operation per day

Specific fuel consumption in Aeroflot Group

Specific fuel consumption in Aeroflot airline

2012 2013 2014 2015 2016

639.5594.9554.7509.1460.7

272.3264.7260.7267.2

259.9

911.8859.6815.4776.3720.6

2012 2013 2014 2015 2016

9.4

9.9

10.310.510.5

10.8

9.59.39.4

9.1

2012 2013 2014 2015 2016

22.9

286.4

304.5308.2

312.6315.0

23.123.5

24.8

26.1

2012 2013 2014 2015 2016

23.2

286.3

299.2301.6

307.0308.4

23.323.6

25.5

26.9

Aeroflot airlineAirline subsidiaries

Aeroflot airlineAeroflot Group

g/TKM g/ASK g/TKM g/ASK

Note. The number of aircraft in operation in the reporting year is calculated as the average of the number of aircraft as at the start and the end of the period.

Fuel Efficiency High fuel efficiency is an important benefit of the young aircraft fleet. Fuel costs account for a major part of an airline’s expenses. Their share in Aeroflot Group’s 2016 operating costs amounted to 23.5%. New airliners feature various technical solutions, which enable a reduction in fuel and other operating costs, including optimisation of maintenance costs.

Specifically, since 2014 Aeroflot has been operating the most advanced Airbus A320 family aircraft equipped with sharklets that reduce lift-induced drag and improve aero-dynamics at the wingtips. As a result aircraft deliver a 3%–4% reduction in fuel consumption (according to Airbus), increased flight range, and improved takeoff performance. As at the end of 2016, 38 aircraft in the Group’s fleet were equipped with sharklets.

Operating a young aircraft fleet also helps reduce the environmental footprint and slash harmful CO2 and NOx emissions to the atmosphere. For more details on the fleet fuel efficiency see the Environmental Impact and Performance section.

In 2016, specific fuel consumption across Aeroflot Group decreased by 18.1 grammes (or 5.9%) y-o-y to 286.4 grammes per tonne-kilometre (TKM). Specific fuel consumption at Aeroflot airline decreased by 12.9 grammes (or 4.3%) to 286.3 g/TKM. Moderate improvement is also posted on a gramme per available seat-kilometre (ASK) basis.





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Sales in RussiaIn Russia, sales are carried out through authorised agents (under direct agency agreements), neutral sales systems (Transport Clearing House (TCH) and BSP Russia), own sales offices, Aeroflot airline’s website, and the call centre.

In 2016, the share of neutral agents in the total sales grew up to 71.7% y-o-y. Streamlined agency fee costs and a partial migration of sales online drove sales through authorised agents down to 16.7%. Sales through own sales offices accounted for 11.6%.

In 2016, we launched a new incentive programme for agents in Russia, which helped cut our agency fee costs in Russia by more than two times.

Split by region, Moscow (60.3%), St Petersburg and the Russian Far East accounted for the largest share in Aeroflot Group’s sales in 2016.

Breakdown of Aeroflot’s revenue

Breakdown of Aeroflot’s domestic revenue (excluding Moscow)

Sales and Distribution

In the report period (2016), the Group continued to streamline the structure and increase efficiency of its ticket sales. Growth in online sales is a common trend in the airline industry, driven by more accessible and easy-to-use web apps and the growing number of digital devices (laptops, tablets, and smartphones).

In 2016, online sales grew to 29.2% of Aeroflot Group’s revenue, while agents accounted for the largest share (63.3%). Sales offices and the call centre accounted for 6.3% and 1.2%, respectively.

Aeroflot sells tickets in Russia and abroad through a variety of channels, including the official Aeroflot website where passengers can buy tickets both for Aeroflot airline’s flights and the flights of its subsidiaries under commercial management. To ensure a uniform offering of online services, subsidiary websites have been deep-linked with Aeroflot airline’s platform for online sales. Pobeda airline sells tickets independently through their own website and online booking systems.

Note. In this section of the Annual Report the Aeroflot's sales include revenue of Aeroflot airline and subsidiary flights under 100% commercial management.

Sales in RussiaInternational Sales

Aeroflot website sales1Call centre

St. PetersburgVladivostokKhabarovskYuzhno-Sakhalinsk

KaliningradNovosibirskOther cities

29.9%

5.4%4.6%4.2%

12.2%

7.5%

36.2%

Aeroflot’s sales by channel

Authorised agents Aeroflot website sales1

Own sales officesCall centre

2015 2016

63.3%

24.0% 29.2%

67.1%

7.5%1.4%

6.3%1.2%

2015 2016

39.3%

29.8% 30.3%

44.8%

24.0%

1.4%

29.2%

1.2%

Aeroflot’s domestic sales by channel

BSP / THCAuthorised agentsOwn sales offices

2015 2016

71.6%

24.1% 16.8%

64.4%

11.5% 11.6%

1 Internet sales and sales via the call centre are effected both in Russia and abroad.

International SalesInternational ticket sales of the Aeroflot Group are carried out through the network of agents within BSP and ARC settlement systems, authorised agents (under direct agency agreements), sales offices, Aeroflot airline’s website, and the call centre.

In 2016, sales through the network of agents in neutral sales system (BSP, ARC, TCH) accounted for 87.3%. Sales through authorised agents totalled 6.8%, and sales through own offices accounted for 5.9%.

Throughout the year, Aeroflot Group has introduced several initiatives aimed at strengthening relations with the international agency network by optimising agency terms, offering special rates to sales agents, and leading joint marketing campaigns.

In 2016, the highest international sales were generated in Europe (45.0%).

Breakdown of Aeroflot’s domestic revenue

39.7%

60.3%

Agents and own sales offices in MoscowAgents and representative offices in regions




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Aeroflot’s international sales by channelBreakdown of Aeroflot’s revenue from international sales in 2016

Corporate SalesAeroflot Group is actively enhancing its corporate sales. Aeroflot’s corporate customers include a variety of fuel and energy, finance, pharmaceutical, retail, food, and construction companies. Our well-balanced mix of industries ensures sustainability of the corporate sales segment.

Aeroflot Group’s corporate sales priorities include: ― global companies maintaining representative offices or business projects in Russia or the CIS;

― major international or regional Russian companies; ― state-funded institutions.

Aeroflot’s sales force meet with key market players, identify opportunities, work out partnership terms and conditions, and sign contracts with promising companies.

Pricing PolicyAeroflot’s pricing strategy primarily seeks to develop and maintain a sophisticated schedule of fares and fare rules, serving as a sales management tool to maximise revenue. The pricing policy takes into account both the price factor and the load factor, which is supposed to ensure profitable operations throughout the network. Aeroflot’s pricing policy is tailored to the chosen market and Aeroflot’s positioning objectives. Fares are based on changes in competition on the market; demand fluctuations; seasonal changes in capacity driven by flight frequencies, type of aircraft operated on the route and quality of connections; FX fluctuations; fuel prices; political and economic environment. Aeroflot’s fare schedule and fare rules are designed to encourage the use of all fare groups taking into consideration passenger segments.

Our Sabre and Sabre-based IT tools enable maximization of revenue and include a number of software packages providing for seat inventory and pricing management.

2016 saw carriers actively migrating from a simple fare schedule to fare brands, i.e. the model that uses 3–4 fare groups differentiated not only by fare rules but also by the set of value-added services and privileges. Starting from November 2016, Aeroflot has applied a fully branded fare schedule offering two fare groups in the Business and Comfort Classes (Classic and Flex) and four fare groups in the Economy Class (Promo, Saver, Classic, Flex). Price differences between the fare groups were reduced to provide free access to value-added services and privileges.

BSP / ARS / THCAuthorised agentsOwn sales offices

EuropeAsiaAmericas

CISMiddle East

45.0%

26.0%

10.3%7.0%

11.7%

2015 2016

87.3%8.5% 6.8%

83.6%

7.9% 5.9%

Sales and Distribution (continued)

The maintenance and repair policy of Aeroflot Group’s airlines provides for strict compliance with the requirements of countries of registration, maintenance programmes and aircraft lease agreements. It is focused on enhancing capacity and technical competencies, rolling out cutting edge technological solutions, and employee training and development, while constantly improving performance.

Each of the Group’s companies has departments responsible for airworthiness and maintenance of operated aircraft. The airlines also cooperate with one another under signed agreements.

Aeroflot Group has in place a strategic programme to centralise maintenance of aircraft and aircraft components. The centralisation provides for separating base and line maintenance.

In late 2015, as part of its strategy, the Group established LLC A-Technics, its new aircraft maintenance and repair subsidiary, based at Vnukovo airport and in Orenburg. In 2016, the company was certified by EASA and launched its operations.

Aircraft Maintenance and Repair Stations

Aeroflot Group’s MRO facilities

Aeroflot Group has an efficient aircraft maintenance, repair and overhaul (MRO) system that enables to service the fleet of Aeroflot airline and subsidiaries as well as provide services to third party customers. MRO operations focus on keeping the fleet in good condition, and ensuring high reliability, flight safety and on-time performance.

SAINT PETERSBURG

MOSCOW

ORENBURG

VLADIVOSTOK

YUZHNO-SAKHALINSK

Note. Aurora’s hangar in Yuzhno-Sakhalinsk is designed for repair and maintenance of turboprops only.

2,060employees

487employees

361employees

469employees

138employees

Wide-body hangar Narrow-body hangar

8 hangars

> 3,350,000

> 3,500

work man-hours

headcount




→

PJSC Aeroflot holds and maintains certificates issued by European, Bermudian, and Russian aviation authorities for maintaining airworthiness of the following types of aircraft and components: ― A320 Family (line maintenance, A-check, C-check, 6YE check);

― B-737 (line maintenance, base maintenance); ― A330 (line maintenance, A-check, C-check); ― B-777 (line maintenance); ― RRJ-95B (line maintenance, base maintenance).

In 2016, Aeroflot provided aircraft maintenance and repair services to 26 airlines, and provided technical assistance to 46 airport operators and aircraft maintenance companies.

Aeroflot Group partners with leading maintenance and repair market players, which enables it to keep the fleet in good condition and optimise costs. The Group’s partners are: Volga Dnepr Technics Moscow (line maintenance, Boeing 737-800NG), STARCO (Airbus A330), Boeing Shanghai (Boeing 777), and S7 Engineering (Airbus A320 and Boeing 737-800NG). Aeroflot Group continues cooperate with Lufthansa Technik AG for have maintenance of Group’s aircraft.

In 2016, the Group approved its MRO Strategy until 2021, to increase insourced and decrease outsourced services, and to centralise its repair and maintenance operations. In particular, the Strategy provides for: ― constructing Hangar 4 at Sheremetyevo airport to perform base maintenance of Boeing 777-300ERs;

― introducing new types of maintenance and repair operations;

― carrying out C-checks of frames and further expanding the range of services offered by A-Technics;

― developing component repair capacities and expertise;

― creating a single Big Data analytics facility driven by predictive maintenance principles;

― setting up a targeted framework of providers of maintenance stations.

Maintenance facilities at airports and types of maintenance

Airport and location Company Line maintenance Base maintenance

Sheremetyevo airport (Moscow)

Aeroflot ― Airbus A330 ― Airbus А320 Family ― Boeing 777 ― Boeing 737-800 NG ― Sukhoi Superjet RRJ-95

― Airbus А320 Family ― Airbus A330 ― Boeing 737-800 NG ― Sukhoi Superjet RRJ-95

Vnukovo airport (Moscow)

A-Technics ― Boeing 737 ― Boeing 747 ― Boeing 777

― Boeing 737 ― Boeing 747 ― Boeing 777

Pulkovo airport (Saint Petersburg)

Rossiya Airbus A320 Family Airbus A320 Family

Orenburg airport (Orenburg)

A-Technics Boeing 737 Boeing 737

Vladivostok airport (Vladivostok)

Aurora ― DHC-6-400 ― DHC-8-200/300 ― Airbus А319

N/A

Yuzhno-Sakhalinsk airport (Yuzhno-Sakhalinsk)

Aurora ― DHC-6-400 ― DHC-8-200/300 ― Airbus А319

N/A

Aircraft Maintenance and Repair Stations (continued)

Take-offs serviced at Sheremetyevo airportTHOUSAND

Labour intensity per flight hour of Aeroflot airline aircraftMAN-HOUR

2012 2013 2014 2015 2016

109.5103.291.883.7

74.0

2012 2013 2014 2015 2016

2.362.392.442.653.03

Repair and maintenance divisions at PJSC Aeroflot

AIRCRAFT MAINTENANCE DEPARTMENTMaintenance of aircraft of Aeroflot and other Group airlines

QUALITY ASSURANCE DEPARTMENTDevelops a quality management system for aircraft maintenance and airworthiness.

AIRWORTHINESS DEPARTMENTMaintains airworthiness of aircraft operated by Aeroflot airline, manages technical condition of the fleet throughout the entire aircraft life cycle, develops and implements PJSC Aeroflot’s strategy and policy covering aircraft operation.




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2012 2013 2014 2015 2016

99.975%99.978%

99.972%

99.961%99.965%

2012 2013 2014 2015 2016

0.45

Blacklist lineSAFA Ratio > 2

0.21

0.640.850.75

Flight Safety and Aviation Security

Flight SafetyThe Company regularly performs risk analysis and successfully passes audits for compliance with Russian and international safety regulations. The safety level of Aeroflot flights in 2016 was 99.975%, exceeding the 99.957% target set for the reporting period and staying comfortably within the 99.900%–100% top range.

In 2016, the airline was audited for compliance with IOSA’s ORG (SMS) section and ISAGO’s ORM-HS (SMS) section. Following the audit, a Corrective and Preventive Action Plan was developed.

In line with the external audit plan, 2016 saw regular inspections of airport refuelling facilities by the IATA Fuel Quality Pool (IFQP).

In 2016, as part of the Safety Assessment of Foreign Aircraft (SAFA) Programme, the European Civil Aviation Conference (ECAC) state inspectors carried out scheduled inspections of Aeroflot airline’s aircraft. For fleet safety inspections, the SAFA Programme has set up a safety ratio with the standard value of ≤ 2. In 2016, Aeroflot airline’s aircraft demonstrated a strong SAFA safety ratio of 0.45. The Company’s aircraft were recognised to be in full compliance with all the applicable safety regulations.

In 2016, Aeroflot continued to develop its IT infrastructure supporting the flight safety management system. The Company’s intranet website features a voluntary reporting system for flight safety issues encouraging active employee involvement. The airline also continued to develop its Air Accident Database, which helps to identify and minimise safety risks.

Flight safety level of Aeroflot airline SAFA ratio of Aeroflot airline

Aviation and Transportation SecurityAeroflot cooperates closely with airport security services, airlines, and law enforcement authorities to implement an action plan to maintain a high level of aviation and transportation security, passenger and staff safety.

In 2016, the Company continued to successfully operate its Automated Aviation Security Management System (AA SEMS), introduced in 2015. This system helps assess the actual status of the security system and monitor its compliance with standards provided for by the airline’s Security Programme, recommended ICAO and IATA standards, and laws of destination airport countries.

PJSC Aeroflot passes regular audits for compliance with international safety regulations. In 2016, it successfully passed an audit for compliance with the US Transportation Security Administration requirements and the АСС3 (Air Cargo or Mail Carrier operating into the Union from a Third Country Airport) validation procedure carried out by an EU

validator. Following the audit, the EU validator noted Aeroflot’s high level of all stages of cargo and mail handling operations and the unique and content-rich nature of the new Aeroflot – Russian Airlines АСС3 Security Programme.

In 2016, Aeroflot airline’s experts were actively involved in improving the Russian aviation and transportation security legislation. As proposed by PJSC Aeroflot, the Russian Ministry of Transport amended its regulations covering transfer baggage, cargo and mail safety in Russian airports. As part of a working group set up by the Russian Ministry of Transport, the Company’s representatives contributed to the development of a new version of the Ministry’s decree on the procedure for air carriage of weapons. Aeroflot also continued to collaborate with its SkyTeam partners on aviation security matters. In June 2016, Aeroflot specialists attended a scheduled meeting of SkyTeam Aviation Security Functional Experts (ASFE).

Canine TeamIn 2016, the Company continued to develop its canine service. Aeroflot’s integrated canine service is a biotech-based security solution, which ensures consistent and regular inspections of the airline’s infrastructure and vehicles. The Company’s ensures olfactory monitoring of Sheremetyevo airport

facilities to detect explosives and explosive devices. Aeroflot’s experience of using specially-trained dogs as extra safety measures is completely unique in many respects and is of interest to the entire air transportation industry.

Interaction with Subsidiary AirlinesAeroflot Group companies maintain an ongoing security information sharing. As part of its multi-brand strategy, the Group will seek further integration of its subsidiary airlines in this area. In particular, the Group plans to create a shared information space to monitor the progress of

aviation security efforts, and trace the security status across its base airports and route network. All necessary information will be available from the planned information system, which will be as sophisticated as the one currently used by PJSC Aeroflot.

Flight safety and aviation security have always been a top priority for Aeroflot Group. The Group airlines have an integrated management system for flight safety and aviation security to ensure compliance with IOSA international standards and the Federal Aviation Rules of the Russian Federation.




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In 2016, Aeroflot became the first Russian company to be awarded 4-Star Airline status by Skytrax for quality of customer service, and for the fifth time won the SkyTrax World Airline Award as the Best Airline in Eastern Europe (the airline also won the award in 2011, 2013, 2014, and 2015).

According to Brand Finance research, Aeroflot is the strongest brand among the world’s largest airlines. The brand strength indicator relies on marketing research data along with benchmarking of financial results and measurements of overall potential versus peers. Our extraordinary brand strength provides a compelling indication of its sustainability and growth outlook, and testifies to the success of the Company’s marketing efforts. The Aeroflot brand was valued at USD 1.27 billion as at 31 December 2016, placing it among Top 30 airlines by value.

During 2016, we rolled out a number of advertising campaigns in more than 30 countries, including the EU, USA, Japan, India, CIS countries and etc. These campaigns were designed to improve sales of direct flights to Moscow, connecting flights between Europe

and Asia, connecting flights to Russian destinations, as well as promote individual services and options. In 2016, the Company placed particular focus on raising the brand profile in our priority Asian markets, including China and South Korea, to boost demand for connecting flights from Asia to Europe. In addition, we took efforts to promote the Group’s products and services among the professional community.

In 2016, Aeroflot airline took part in the Moscow International Festival “Circle of Light”, organised and ran a successful New Year Travel light show in major Russian cities (Saint Petersburg, Novosibirsk, Yekaterinburg, Kazan, and Samara) and in Astana, Kazakhstan.

As part of activities to establish a united regional carrier under the Rossiya brand, we undertook a rebranding exercise to build on the valuable legacy of the previous logo and add some new, modern attributes. The launch of the new airline brand was supported by an advertising campaign in Russia in TV, outdoor, press, and web advertising channels.

Improving Customer Experience Aeroflot Group continuously strives to improve customer experience as a strong competitive advantage to secure its leadership in the future. In 2016, the Group’s companies continued to improve their products and services focusing on a wider use of information technologies.

Customer Service and Brand Management

Key Achievements in Customer Experience in 2016In-flight services ― carry-on electronic devices are now

permitted for use in Flight Mode during the entire flight when flying with the Group’s airlines;

― menus for all travel classes were improved, including based on the results of a crowdsourcing-based poll;

― Asian national cuisine dish sets were included on the in-flight menus on flights to China, Korea, Thailand, Vietnam, and Japan;

― new (halal) meals were introduced; ― amenity kits on flights lasting more than three hours were expanded and upgraded;

― selection of printed matter in English was expanded on a number of routes;

― in-flight magazine for children, “Aeroflot. The Young Traveller” was introduced.

Online services ― a new fare schedule was launched on the Company’s website, mobile website and mobile apps;

― first wave of the E-Commerce Platform project was launched, its functionality including purchasing of health and flight insurance policies, Aeroexpress tickets and car rent;

― delayed baggage tracing service was launched, enabling passengers to trace lost baggage online through the World Tracer system;

― open for Check-in service was launched to inform passengers via text messages that their flight is open for online check-in on the Company’s website www.aeroflot.ru

― international and national passports can now be scanned at the time of ticket purchase using a mobile app on iOS (including iPad) or Android platforms;

― Aeroflot website is now available in eight foreign languages (English, German, French, Italian, Spanish, Chinese, Korean, and Japanese);

― online sales of government-sponsored / subsidised transport services were launched;

― all Aeroflot website sections are now accessible to customers with disabilities;

― Rossiya airline’s new website was launched;

― updated English version of Aurora airline’s website was launched.

Contact Centre services

― additional Contact Centre platform was launched in Volgograd;

― Web Callback service was introduced in the eight languages used on the Company’s website www.aeroflot.ru;

― an extra line was launched for calls from a toll free number in Korea in the Korean language;

― Short Number *555 service was launched for calls to the Contact Centre, enabling customers to obtain full information about the Company’s products and services, as well as book and purchase air tickets. The number is toll free and available for calls throughout Russia for customers of the Big 3 mobile operators – Beeline, MegaFon, and MTS.

Airport services ― coverage and stability of free Wi-Fi service (125 Wi-Fi access points, with a speed of up to 100 Mbps) was improved, and additional panel charges for electronic devices were installed at Sheremetyevo airport;

― new electronic scales for hand luggage were installed at boarding gates.

In 2016, the Company continued to consistently improve service quality and promote the Aeroflot brand in the Russian and global markets. In the reporting period, Aeroflot launched a series of advertising and marketing campaigns, ran programmes to boost demand for and provide informational support to new domestic and international services, and delivered a number of media projects involving a variety of promotional channels and tools. Important brand building tools include service quality improvement, the loyalty programme and sponsorship programmes.




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Aeroflot BonusAeroflot Bonus is the largest frequent flyer programme in Russia, CIS and Eastern Europe. In 2016, the number of programme members increased by 15% y-o-y to 5.9 million people, with a frequent Aeroflot Bonus flyer (defined as a passenger who travelled within 24 months) averaging 6.2 flights.

Aeroflot Bonus offers its members an opportunity to earn free miles when flying with Aeroflot Group and SkyTeam Alliance or using partner services around the globe.

In 2016, 48 new partners joined the programme. The total number of Aeroflot Bonus partners reached 97, of which 78 are not involved in the aviation business. The partners include airlines, banks, hotels, and restaurants.

During the year, we implemented a number of initiatives to improve customer service, namely: ― added online mile earning function available to Aeroflot Bonus members;

― piloted mile redemptions for travel class upgrades on one-way routes;

― launched a Feedback service available from personal accounts of Aeroflot Bonus members with an extended functionality to view previous requests and track processing time and status;

― provided broader opportunities for members to earn and use bonus miles to pay for goods, work or services of partners not involved in the aviation business and significantly expanded the range of goods and services offered in our Rewards Catalogue on www.rewards.aeroflot.ru, which can be paid for with miles.

Aeroflot Bonus membersMILLION Aeroflot Bonus partners

2012 2013 2014 2015 2016

5.9

5.14.6

4.03.4

19.6%

2.1%

11.3%

3.1%

5.2%

37.1%

3.1%4.1%

6.2%8.3%

AirlinesBanksHotelsCar rentalsCar dealers

Restaurants Appliances and electronicsFood and beveragesFashion and accessoriesHealth and beauty

Corporate Sponsorship PJSC Aeroflot continues its traditional sponsorship support to multiple sports, culture, business and other social projects, initiatives, and organisations.

Aeroflot’s sponsorship efforts are focused on: ― promoting Russian sports and providing support to Russian sports organisations;

― supporting cultural organisations in their efforts to promote Russian culture abroad.

In 2016, PJSC Aeroflot allocated a total of RUB 2.1 billion for sponsorship support (2015: RUB 1.9 billion).

Cultural projectsIn 2016, the Company continued to support ROSKINO film production company in holding events to promote Russian cinema at international film festivals in Berlin, Cannes, Venice, Toronto, London, and Los Angeles. Aeroflot provided support to a number of cultural initiatives run by the Centre of Film Festivals and International Programmes, which, during the year, held a series of Russian cinema and art festivals in Venice, Rome, Milan, Nice, and Cannes. As part of the Russian Cinema Year, the Company named some of its new aircraft after prominent Russian film directors.

In the reporting year, Aeroflot partnered with THREE T PRODUCTIONS to release a remake of legendary Soviet movie “Flight Crew”, with KVN competition series, and was a partner for the Golden Mask,

Breakdown of PJSC Aeroflot’s spending on sponsorship programmes, 2016

Customer Service and Brand Management (continued)

National Theatre Award and Performing Arts Festival, and The Golden Gramophone, Russian national music award.

In 2016, Aeroflot became a General Partner of the 6th Moscow International Festival “Circle of Light”, Grebnoy Kanal site. The spectacular multimedia show with the largest ever video projection as the central attraction, took the viewers on a virtual tour of Russian cities.

Aeroflot and its subsidiaries have a strong track record of running awareness-raising campaigns to draw public attention to the importance of conservation of the Amur tiger and Far Eastern leopard. The company partnered with the Amur Tiger Centre to create animal images to be used for livery design for some of Rossiya airline’s aircraft. In addition, in late 2016, Aeroflot launched its in-flight magazine for children, “Aeroflot. The Young Traveller”, featuring the Amur tiger and Far Eastern leopard as its main characters. The magazine aims to both entertain children during the flight and promote a responsible attitude towards Nature among the younger generation.

Support for sports Traditionally, sports have been placed high on the airline’s sponsorship agenda. Aeroflot actively promotes its own sport teams and supports the world’s largest international sports events.

In 2016, the Company continued to provide sponsorship support to CSKA Professional Football Club, with which it has a long-standing partnership. Through a wide range of marketing and advertising tools, Aeroflot has access to a multi-million audience of football fans.

To raise the levels of brand recognition and boost Aeroflot’s profile as a premium carrier in the global market, in 2013 the airline entered into a partnership agreement with Manchester United FC. In 2016, Aeroflot held a number of marketing events, including a sponsored match and training session for its partners at Old Trafford Stadium in Manchester, UK, an online project with Ctrip, China’s largest tourist agency, and an online GeoQuest. The events sought to increase awareness of the Aeroflot brand in the Company’s key markets, promote the airline’s route network linking Asia and Europe, and enhance the brand loyalty among the target groups.

12.5%

63.8%

23.7%

Cultural projectsFootball-related projects

Other sports initiatives




→

Aeroflot airline has been a General Partner of the Olympic and Paralympic Committees of Russia since 2010. In 2016, it continued providing support to the committees in its role as the carrier of their delegations.

As a partner of the Russian Volleyball Federation and the Russian Football Union, Aeroflot provides support for the participation of Russian national teams in international competitions. In 2016, the Company’s sports sponsorship portfolio grew substantially as it launched partnerships with the Russian Basketball Federation, Russian Cycling Federation, and the Russian Federation of Acrobatic

Rock’n’Roll. In addition, we resumed partnership with the Russian Golf Association, thus securing access to the closed community of golf lovers.

In conjunction with the Russian Chess Federation and the Association of Chess Federations, the Company held Aeroflot OPEN 2016 international chess tournament, which over the years of its existence has gained immense popularity among international chess players.

In 2016, Aeroflot also provided support to Otradnoe show jumping club, which hosted a Show Jumping World Cup stage.

Marketing ResearchIn 2016, we conducted a number of marketing surveys, including: ― assessment of the Net Promoter Score (NPS) with Bain & Company. NPS has demonstrated an upward trend year after year. In 2016, NPS remained strong at 72%;

― survey of compliance with customer service standards carried out in association with Romir Monitoring Standard as mystery passenger audit. Over the past two years, the project’s results have shown a sustainably high level of compliance at 93%;

― assessment of compliance with international customer service standards based on the airline star rating from SkyTrax, UK’s independent rating agency. Following flight audits by SkyTrax experts, Aeroflot airline was awarded a 4-Star Airline status, achieving the levels of the world’s top airlines;

― assessment of customer satisfaction with Aeroflot airline’s products on the markets of Europe, Middle East, and Asia in cooperation with IATA in its Airs@t customer satisfaction survey, as well as in joint SkyTeam Customer Experience Research project covering all member airlines.

As part of the efforts to update Aeroflot’s marketing strategy for the Russian and CIS markets, we ran a major questionnaire survey, carried out passenger segmentation, analysed consumer trends, analysed competition, and polled over 10,000 current and potential customers. The survey results were used as inputs to develop a set of marketing initiatives. The Aeroflot brand performance in the Russian market improved year-on-year across key metrics: passenger

retention and repurchase intention are the highest across the peer group. The Aeroflot brand stands out for its high score on willingness to recommend and shows the highest score on the service performance expectations metric.

In the reporting year, we surveyed the perceptions of and attitudes to key elements of Aeroflot airline’s image among our target customer audience in China (respondents were shown a video ad, the logo, and the slogan). The results were used to inform a communications strategy for this market.

The Company also led a major marketing study to research the brand health in China, South Korea, Germany, Italy, and the UK.

Aeroflot airline’s NPS index

2012 2013 2014 2015 2016

72%72%67%

58%56%

Information Technology and InnovationInnovation-Driven DevelopmentAs the industry’s leader in Russia and a major European airline, Aeroflot seeks to set standards in technological advancement and innovation. The Company is focused on continuously driving innovations across its operations.

Innovative Development Programme 2020 (the “Programme”), approved by Aeroflot’s Board of Directors on 24 June 2011 (Minutes No. 16) and by the working group on Private-Public Partnership in Innovation under the Government Commission

on High Technologies and Innovation on 28 June 2011, defines the key focus areas of the Company’s innovative development. In 2016, the Programme was updated and extended to 2025.

The Programme’s goals and KPIs reflect long-term development vision for the Russian and international air transport industries, as well as the innovative profile of Aeroflot and its subsidiaries, and the goals and KPIs of the Long-Term Development Programme, Strategy and Investment Programme of the Company.

Summary of Aeroflot Group’s Innovative Development Programme

Programme’s purpose ― support the implementation of Aeroflot Group’s strategy and gain technology leadership in the global aviation industry.

Key focal areas ― improve flight safety ― build an integrated security and anti-terrorist system

― improve operational efficiency and promote resource saving

― automate operating processes.

Key Performance Indicators (KPIs) ― reduced costs of product with improved marketability

― energy savings ― reduce environmental footprint ― increased labour productivity.

Key initiatives ― introduce new types of aircraft ― deliver reliable, punctual, accessible, high-quality air services

― increase labour productivity ― improve operational performance ― drive energy efficiency and reduce the environmental footprint

― increase the share of Russian-made innovative products used in our operations

― harmonise the route network of Aeroflot Group ― expand the application of innovative solutions.

Operational and management performance projects account for the bulk of our R&D costs. In pursuing its Innovative Development Programme, Aeroflot engages third parties, including universities and SMEs, development centres and technology platforms.

Customer Service and Brand Management (continued)




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R&D costs by segment R&D costs by researcher

Key innovative projects in operations in 2016

New data centreAeroflot and IT company Technoserv completed a new data centre based on equipment supplied by Hewlett Packard Enterprise. The new backup DC boosted the capacity of the Company’s primary data centre by two and a half times to c. 110 racks. The Company’s data centres accommodate hardware and software platforms (computing resources, data storage systems) to support the operation of all corporate IT systems, including data storage, processing and transfer. Expansion of data centre capacity will enable the Company to introduce and roll-out new IT solutions and services to support our rapidly growing business, larger fleet and higher traffic.

Development and deployment of a pilot version of an integrated information security system at AeroflotAeroflot is focused on the development and trial deployment of a pilot version of an integrated information security system to structure, streamline, and automate its processes and procedures. This solution provides anti-virus protection and protection against data leaks, prevents DDOS attacks and supports risk management.

Construction of a new advanced hangar facilityThe new hangar facility for repair and maintenance of Boeing 777 type aircraft is completely unique for Russia. Once completed, it will streamline maintenance processes and improve efficiency by reducing open-air maintenance of Boeing 777 type aircraft.

Development and launch of domestic multi-purpose deicing fluidThe Company is involved in an R&D project to develop a de-icing fluid, implemented by Kazan National Research Technological University. The research project aims to reduce reliance on imported de-icing fluids. Among other priorities, the researchers focus on making the product environmentally safe.

Development of a pilot hardware and software package for measurement and integral analysis of a sniffer dog’s physiological responses to objectivise dog inspection resultsThe solution will be used by the canine service to improve security and prevent emergencies. It will serve to maximise efficient interaction between the security system’s biological and technical components in detecting various substances.

Introduction of remote work managementThe Company has designed a methodology to remotely organise and administer activities of Aeroflot’s staff. Remote management of certain tasks will decrease our operating expenses and increase staff mobility.

Information Technology and Innovation (continued)

30%

16%

32%10%

3%9%

37%

5%

58%

Management OperationsIn-flight service

CommerceSafety and securityEnvironment and energy saving

SMEs Research organisations

Universities

Information TechnologyIn 2016, Aeroflot continued implementing a broad range of programmes to roll out advanced IT solutions across all areas of its activities. Digitalisation drives wider application of advanced digital technologies and, as such, has become a key avenue of development for the entire Group. IT projects are pursued as part of Aeroflot’s Innovative Development Programme, which provides for building a shared information space across the Group through a number of initiatives, including:

― unification and integration of IT systems across the Group’s airlines;

― roll-out of uniform operations-related IT solutions; ― automation of route network and fleet management;

― development of a single ticket sales system for all flights operated by the Group airlines;

― development of a single system for aviation fuel procurement;

― roll-out of effective IT solutions to support in-flight and airport passenger service.

Website and mobile applications

Further enhance-ment of the mobile application for passengers

In 2016, Aeroflot continued to further enhance its proprietary mobile application for passengers, seeking to provide an even better user expe-rience. E.g. the Company added a feature that scans and saves travelling passport data in the app. It also added functionality to save personal data of travel companions for easier booking, purchases via Apple Pay, and push notifications updating passengers on their flights. The application also generates tailored offers for passengers using iBeacons to boost sales.

Website enhance-ment to assist air travellers with disabilities

Aeroflot’s website has been enhanced to make it accessible to disabled travellers in line with the requirements of the United States Department of Transportation.

Region-specific website customi-sation

The website customisation function offers users a localised version depending on the country of login to make it more user-friendly.

Modification of the Content Manage-ment System (CMS)

CMS modification aims to expand content customisation capabilities and speed up the updating of websites in different languages.

New booking system

As part of our project to shift to a new pricing policy, we have intro-duced a new booking system to automate sales in online channels. The new online booking system is designed to enable passengers to book air tickets via the airline’s primary and mobile websites. The system is a 100% proprietary solution, interfaced with Sabre via web services. With this system in place, the Company can now quickly and more flexibly adapt and respond to user requirements.

Fraud monitoring module

A new system designed to create and manage rules and filters of the fraud monitoring module within the payment gateway enables more ef-fective checks of suspicious activity related to online sales of air tickets.

Key IT projects in 2016




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Information security

Development of a personal data protection system for the Company’s website and Sabre IX platform

In order to protect personal data in accordance with applicable laws, Aeroflot has put in place a project to simulate information security threats to users of Aeroflot.ru website and Sabre IX. Measures to ad-dress existing IT threats to these systems were developed, and Aeroflot intends to subsequently extend them to other systems of the Group. The project is scheduled for completion by late 2017.

Safe Key The Safe Key protocol will enable Aeroflot to accept payments made with American Express cards via its official website more securely. As a result, the Group will reduce its financial losses caused by fraudulent online purchases of air tickets.

Improved sales process

Building an integrated airline retailing environ-ment under the NDC programme

Aeroflot has started building an integrated air retailing environment in accordance with IATA’s NDC (New Distribution Capability) standards. The concept of unified distribution environment is driven by an innovative approach to adopting common standards of access to the airline’s systems via all potential retailing channels. The airline will be able to identify the end buyer that has requested the product and generate a tailored personalised offer, which will dramatically improve loyalty among agencies and passengers. The project is scheduled for comple-tion by late 2017.

Big data enabled dynamic segmen-tation

In 2016, we designed and launched a big data enabled dynamic seg-mentation IT system. The new system uses data processing, machine learning and simulation to boost the inflow of customers.

In-flight innovation

Internet On-Board project

In 2016, we launched in-flight Wi-Fi service on two new Boeing 777s. Software was upgraded on twenty-two A330s. New time-based tariffs and no-voice GSM services are now offered on all of Aeroflot’s wide-body aircraft.

SITA CrewTablet mobile app for flight attendants

In 2016, Aeroflot continued to implement a project to equip flight attendants with CrewTablet tablet-based applications. This mobile ap-plication designed by SITA enables crew members to use their tablets to quickly and easily access all passenger and operational data to enhance in-flight services to customers. Another 700 tablets were distributed under the programme in 2016.

Company management

Manager Dashboard Manager Dashboard is a unique patented IT system developed by Aeroflot for desktop PCs and tablets to track consolidated data from all operational and commercial systems operated by the airline.The solution provides the management with online access to up-to-date information on any out of the 427 indicators used to give a snapshot view of the airline’s business activity.

Information Technology and Innovation (continued) Procurement

Procurement activities at Aeroflot Group comply with Federal Law No. 223-FZ On Procurement of Goods, Works, and Services by Certain Legal Entities dated 18 July 2011, PJSC Aeroflot’s Regulations on Procurement of Goods, Works, and Services, relevant policies of Aeroflot’s subsidiaries, and other procurement-related regulations adopted by the Russian Government. Procurement needs of subsidiaries are met both through a consolidated procurement process by Aeroflot, and individual subsidiary procedures.

Procurement transparency, no discrimination and unreasonable restrictions, and ability to procure from a wide pool of quality bidders are top priorities for the Group in its strive to maximise procurement efficiency and reduce costs.

The procurement process in Aeroflot and its subsidiaries is organised in line with the best practices, including online bidding. In 2016, the value of Aeroflot’s competitive procurements in electronic format accounted for 56.36% (50.45% in 2015) of the total, in line with the requirements of the Federal Agency for State Property Management (Instruction No. GN-13/1206 dated 21 January 2011). For Aeroflot Group, this share totalled 56.31%.

Each bidding procedure averaged at 3.3 bids (+1.1 y-o-y) from potential contractors. This testifies to complete transparency and competitive nature of Aeroflot’s procurement process, and a growing interest of potential suppliers.

In 2016, competitive procurements saved RUB 1,732 million for Aeroflot and RUB 2,186 million for the Group.

Item Aeroflot Aeroflot Group

Competitive procurements in electronic format (by value) 56.36% 56.31%

Single source procurements 63.91% 53.44%

Procurements from SMEs 64.96% 59.27%

Average number of bidders 3.30 2.36

Savings through competitive procurements, RUB million 1,732 2,186

Savings through competitive procurement, % 1.25% 0.82%




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Fuel ProcurementIn 2016, all fuel supply contracts were signed by Aeroflot based on results of bidding processes won by tenderers who could offer the best financial terms and guarantee required reliability, including flight safety assurance.

Transparent competitive procedures and formula-based pricing optimise fuel costs, which has always been a major expense item for the Company. Fuel pricing formulas are devised in the bidding process. In 2016, the share of fuel procured by Aeroflot Group at formula-based prices in Russia reached 90%.

Pursuant to the order of the Deputy Prime Minister and paragraph 3 of Meeting Minutes No. IS-P9-25pr dated 21 November 2011, Aeroflot focuses on direct cooperation with vertically integrated oil producers through contracts with their subsidiaries specialising in aircraft fuel sales to avoid an unjustified rise in fuel prices or an artificial supply shortage.

At the Group level, fuel procurement terms are determined by agency agreements. When making a consolidated order covering the demand of all the Group’s companies, Aeroflot initiates bidding processes to select suppliers of fuel and related aircraft services.

Aeroflot settles accounts for supplied fuel and aircraft storage and refuelling directly with counterparties, and supervises separate accounting for transactions with consignees, which allows to promptly charge controlled entities for the costs incurred.

These arrangements cover virtually the entire fuel needs of subsidiary airlines, excluding a small number of Russian airports (less than 3%), which are not contracted or alternate airports, as well as airports where fuel procurement is part of integrated ground handling agreements.

Optimisation of fuel procurement at Aeroflot is supervised by the Fuel Commission.

Procurement (continued)

Board in charge of independent audit of Aeroflot’s procurement efficiency.

In the reporting year, the Company implemented a number of initiatives to ensure accurate reporting on procurements from SMEs, including optimisation of the list of procurement codes, updating SAP data to verify counterparties’ SME status, in line with the Unified Register of Small and Medium-Sized Business Entities effective from 1 August 2016.

The Group is committed to continue supporting SMEs by facilitating their access to corporate tenders, in accordance with the specifics of SME participation in procurements and the specifics of civil aviation.

Advisory Board in Charge of Independent Audit of Procurement EfficiencyIn its pursuit of procurement transparency, Aeroflot has in place the Advisory Board in charge of independent audit of procurement efficiency. The Advisory Board includes representatives of public organisations, academic and industry scientists, and well-known procurement experts.

The Advisory Board: ― is responsible for auditing Aeroflot’s procurement operations;

― monitors implementation by Aeroflot of measures enhancing access of small and medium-sized businesses to corporate tenders;

― improves efficiency of applied advanced technologies, ensures transparency, and enhances fair competition in Aeroflot’s procurement processes.

The Advisory Board operates under an action plan approved for each calendar year. Proceedings of the Advisory Board are published on Aeroflot’s website at: http://www.aeroflot.ru/cms/content/soveshchatelnyi-organ.

Procurement from Small and Medium-Sized EnterprisesIn 2016, Company’s initiatives to support small business substantially increased supplies from small and medium-sized enterprises (SMEs). The number of contracts concluded by Aeroflot with SMEs increased by 85.4% y-o-y, or more than fourfold by value. Aeroflot’s procurements from SMEs accounted for 64.96% of the Company’s procurement volume. For Aeroflot Group, this share was 59.27%.

According to Resolution of the Russian Government No. 1352 dated 11 December 2014, annual procurements from SMEs shall not be

less than 18% of the aggregate annual volume of contracts concluded by customers as a result of the procurement process. Procurement data both for Aeroflot and the entire Group for 2016 reflect Aeroflot’s focus on SMEs as priority suppliers (subject to specific business profiles).

In 2016, Aeroflot signed an agreement with JSC RSMB Corporation promoting cooperation of the parties to ensure access for SMEs to procurements of goods, works, and services. A representative of JSC RSMB Corporation is a member of the Advisory

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