AIR TRANSPORT in RUSSIA and ITS IMPACT on the ECONOMY © 2020 Oleg A, Gerasimov
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AIR TRANSPORT IN RUSSIA AND ITS IMPACT ON THE ECONOMY © 2020 Oleg A, Gerasimov. All rights reserved. 1. INTRODUCTION 2 Global Aviation Industry in 2019 3 4.3 billion passengers That’s more than half of global population $2.7 trillion economic impact It is 3.6% of world GDP, equal to the United Kingdom economy. 65.5 million jobs supported 4 times more than total number of employed people in Canada Source: Aviation Benefits Report 2019 - Industry High Level Group on behalf of ICAO 4 Air transport impact on an economy United States of America China France ▷ 4.2% of GDP ▷ 0.93% of GDP ▷ 4.3% of GDP ▷ 6.5M jobs supported by air ▷ 6M jobs supported by air ▷ 1.1M jobs supported by air transport sector transport sector transport sector ▷ $779 billion GVA ▷ $104 billion GVA ▷ $105 billion GVA contribution to GDP contribution to GDP contribution to GDP What about Russia?... Note: GVA – Gross Value Added; GDP – Gross Domestic Product Source: Aviation Benefits Beyond Borders Reports 2018 5 The purpose is to estimate the influence of air transport industry on the economy of Russia so as to understand the importance of the aviation sphere for the country 6 The way to findings Review of literature Methodology Calculations Academic journals, On the basis of Oxford Data from official books, technical Economics and United financial reports, reports, working Nations ones pro.fira.ru, SPARK- papers Interfax, disclosure.ru, e-disclosure.ru 7 2. METHODOLOGY 8 What is implied by air transport sector? ▪ Airlines – Companies that provide transport for people and freight ▪ Ground-based infrastructure – Organizations that provide facilities for airlines and services for people and freight. It includes on-site services, such as airport utilities, and off-site ones that are connected with air traffic control and air regulation. 9 Four channels of economic contribution DIRECT INDIRECT the output and employment of the output and employment the firms in the aviation sector supported through the aviation sector’s Russian based supply chain INDUCED CATALYTIC employment and output spillover benefits associated supported by the spending of with the aviation sector those directly or indirectly (includes the activity supported employed in the aviation sector by the spending of foreign visitors travelling to Russia via air) Note: only direct and indirect economic contribution is considered in the following calculations 10 Direct economic impact GDPA= COE + GOS + TP&M – SP&M where ▪ GDPA is Gross Domestic Product which is generated by air transport sector ▪ Compensation of employees (COE) measures the total remuneration to employees for work done and additional payments, connected to it. COE includes salaries, wages, and fringe benefits such as health or retirement ▪ Gross operating surplus (GOS) is the surplus due to owners of incorporated businesses. It is equal to EBITDA ▪ TP&M is taxes on production and imports ▪ SP&M is subsidies on production and imports. 11 Indirect economic impact ▪ Measured on the basis of Input-Output Tables ▪ Source for data: World Input-Output Database (WIOD) Air Transport sector multipliers in Russia Year 2007 2008 2009 2010 2011 2012 2013 2014 Multiplier 2.13 2.26 2.37 2.34 2.32 2.26 2.27 2.30 ▪ The data exist only for 2007-2014. For 2015-2018 calculations the multiplier for 2014 is used ▪ More information about how to calculate the multipliers can be found in the “Handbook of National Accounting – Input-Output Table Compilation and Analysis” by United Nations ▪ Only nominal GDP is considered in calculations and analysis, if not stated otherwise Source: authors’ calculations on the basis of WIOD 12 3.1 RESULTS The indicators of aviation sector importance 13 selected countries. Data relates to 2017 or most recent recent or most 2017 to relates selected Data countries. Source: WorldBank 100% 150% 200% 250% 300% 350% 400% Air passengers carried (% of population) (% of carried Air passengers 50% 0% (Air passengers carried include both domestic and international aircraft passengers of air carriers registered in the country the in registered carriers air of passengers aircraft international domestic and both includepassengers carried (Air New Zealand Luxembourg Switzerland Hungary Panama Australia USA Netherlands United Kingdom Finland Canada Latvia Malaysia Spain Portugal Austria Greece Turkey Germany Belgium Saudi Arabia Thailand France Chile Japan Israel Russia Colombia Peru Czech Republic Mexico Brazil Italy China Lebanon Indonesia South Africa Argentina Phillipines Jordan Kong Hong Singapore Ireland Iceland Cyprus Malta Ecuador UAE ), regular flights, flights, regular Romania – – – Poland – 992% 533% 2212% 3453% – Morocco – 717% Egypt 632% India Kenya Ethiopia Nigeria 14 Countries at the top ▷ Are small by territory and population; ▷ Have a major carrier (e.g. Ireland – Ryanair; Hungary – WizzAir; UAE – Emirates); ▷ Primarily rely on transit passenger flow. Countries at the bottom ▷ Are Developing or Least Developed; ▷ Have big population (Kenya – 50M, Ethiopia – 105M, Nigeria – 191M, India – 1.4B); ▷ Are still far ahead of the countries in their regions (Africa, South Asia). Russia ▷ Ranked 33th of 56*; ▷ 69% of population is carried; ▷ All of the countries ahead, except Panama, Thailand, Chile have higher GDP (PPP) per capita. Note: if to take all of the countries, for which WorldBank has statistics, then Russia is ranked 54th of 159 15 Source: WorldBank 0,00% 0,25% 0,50% 0,75% 1,00% 1,25% 1,50% 1,75% 2,00% 2,25% 2,50% 2,75% contribution to the economy (% of GDP) (% of economy to the contribution Direct+Indirect , ATAG Malta , Oxford Economics, IATA. Data relates to 2017 or most recent. The same countries as on the previous bar chart bar previous the on as countries same The recent. most or 2017 to relates Data Economics, IATA. , Oxford France Switzerland USA Ireland Saudi Arabia United Kingdom Australia Cyprus Portugal Thailand Spain Canada Luxembourg Jordan Mexico Israel Kenya sector aviation Ethiopia Netherlands Chile Greece Germany Belgium Malaysia Italy Turkey Finland Austria Argentina South Africa Hungary Latvia Lebanon Japan Russia Egypt Morocco Ecuador New Zealand New Phillipines Kong Hong Singapore Iceland Czech Republic Panama Indonesia UAE Peru – Romania – – 3.69% 10.8 – – Colombia 2.86% – 5.4 4 Brazil 3.46% .77% 2 4 Poland % China % India Nigeria 16 Countries at the top ▷ Have high percent of air passengers carried (% of population); ▷ Have large hub-and-spoke network; ▷ Have one dominant airline* (market share > 50%) and airport. Countries at the bottom ▷ Are Developing, but have big population, territory and high GDP (PPP) ; ▷ Have a number of big airports; ▷ Have no dominant airline. Russia ▷ Ranked 42th of 56; ▷ 1.05% – aviation sector contribution to the economy; ▷ Russia’s comparable is Japan (similar number of passengers carried & economic contribution). Note: both international and domestic routes, national and foreign carriers are considered 17 Source: WorldBank 100 000 110 000 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000 90 000 in aviation sector (USD per year) per (USD sector aviation in GVA , ATAG 0 Singapore , Oxford Economics, IATA. Data relates to 2017 or most recent. The same countries as on the previous bar chart bar previous the on as countries same The recent. most or 2017 to relates Data Economics, IATA. , Oxford France Israel Japan Belgium employed person per Netherlands Australia United Kingdom Austria Hungary Saudi Arabia Germany Canada New Zealand Finland Chile Spain Panama Italy Kenya Portugal Argentina Mexico Malta Greece UAE Ethiopia Lebanon Poland Turkey Cyprus Czech Republic Ecuador Indonesia Thailand Russia Phillipines South Africa Luxembourg Switzerland Switzerland Romania Kong Hong Iceland Brazil Ireland Latvia USA China Jordan – – – Malaysia $ $ 120 898 120 $ – – – 135 897 135 Peru 273 127 $ $ $ 118 182 118 147 761 147 Nigeria 111 111 India Egypt Colombia Morocco 18 Countries at the top ▷ Are Developed; ▷ Have high economic contribution of aviation sector; ▷ Have high workforce productivity in other sectors of national economies. Countries at the bottom ▷ Are Developing or Least Developed; ▷ Aviation sector is less significant for their economies; ▷ National airlines carry small percent of country’s population. Russia ▷ Ranked 42th of 56; ▷ One aviation sector employee generates $31 724 per year; ▷ Is ahead of other BRICS countries. 19 A country, for which aviation sector is of utmost importance ▷ Is Developed; ▷ Has high level of workforce productivity in the whole economy; ▷ Is located NOT in Africa, South America or Oceania; ▷ Has small population; ▷ Has one major airline; ▷ Has one big hub airport; ▷ Relies on transit passengers taking international flights. 20 3.2 RESULTS Russian air transport performance 21 Passenger traffic (million) International Services Domestic Services 140 130 120 110 100 90 73,1 80 68,8 62,6 70 46,3 39,2 52,6 60 56,4 35,4 50 32,7 40 29,2 27,4 24,8 23,8 30 55,1 45,3 46,9 47,4 20 38,6 39,5 42,5 27,7 31,4 32,2 10 20,3 22,4 21,3 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: The Federal Agency for Air Transport (Rosaviatsiya), Transport Clearing House (TCH) 22 Passenger Turnover (billion passenger-kilometer) International Services Domestic Services 350 325 300 275 250 135 225 126 200 89 115 78 175 99 104 150 71 66 125 60 100 50 55 49 188 75 147 153 145 161 124 128 111 50 88 100 25 62 68 63 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: The Federal Agency for Air Transport (Rosaviatsiya), Transport Clearing House (TCH) 23 Passenger turnover (% of increase over the previous year) International routes Domestic routes Total 40% Rebound after the crisis 30% Rebound after the crisis 20% 10% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -10% Consequences of the global financial -20% crisis 2007-2008 Russian financial crisis 2014- Source: authors’ calculations 2016, sanctions, oil prices 24 International routes ▷ Fluctuate more significantly; ▷ Depend on Ruble exchange rate; ▷ Grow easier after financial crises.