Address of the Chief Executive Officer

Dear Shareholders,

Aeroflot’s biggest achievement in 2017 was its return to top tier of global airlines after a 30-year hiatus. Aeroflot Group is now one of the top 20 airline groups globally by passengers carried. One of the most important strategic goals that we set out to achieve by 2025 has been reached well ahead of that target.

In parallel, another important process is underway: significantly improved recognition of Aeroflot around the globe and increased customer loyalty. According to the well-known consultancy Brand Finance, in 2017 Aeroflot was the most powerful brand in Russia and was ranked number one for brand strength amongst airlines globally.

For the second year running we placed fourth in the world in US-based consultancy Bain & Co.’s ranking of digitalisation of airlines. 100% of our business processes have been automated. We rolled out SAP’s enterprise management system in record time, and we were the first company in Russia to fully adopt that system. The switch to a new income recognition system cut the time that data on revenues is available from two months to two days. We are leveraging the Internet of Things, with IoT solutions allowing us to establish processes for servicing of aircraft, significantly reducing aircraft down time.

Aeroflot has maintained its ranking as the top online store in Russia, with ticket sales through the website totalling RUB 169 billion in 2017. Approximately every second passenger uses our digital services. A priority in this area is the development of our apps. They are available on all major operating systems and include functions such as search, booking and purchase of tickets; flight check-in; and notifications, an online departures and arrivals board and flight status information. We are leveraging Big Data to vastly improve communication with customers and to attract ever more passengers. Big Data generated marginal revenue of nearly RUB 1 billion.

All our long-haul aircraft are equipped for WiFi access. In 2018 we will complete the roll-out of WiFi on our medium-haul aircraft, the largest segment of our fleet. The Aeroflot IT strategy through 2020 places a particular emphasis on continued multi-level use of Big Data and cloud technology.

In 2017 we received new confirmation of our premium quality product. In 2017 British consultancy Skytrax confirmed our Four Star rating, which we were first awarded in 2016. US industry association APEX recognised Aeroflot with a Five Star rating. APEX’s ratings are an American version of Europe’s Skytrax rating.

The world’s largest travel website, TripAdvisor, recognised Aeroflot as the best airline in Europe and best Business Class in the world. The World Travel Awards, known as the Oscars of the travel industry, awarded Aeroflot the prestigious recognition as Europe’s Leading Airline Brand. We were also recognised as China’s Favourite International Airline at the Flyer Awards 2017, edging out Qatar Airways that had won this category the previous two years.

Aeroflot fully leveraged the expanding Russian air travel market. 2017 was another record year for Aeroflot. As Aeroflot Group we carried 50.1 million passengers, 15.4% more than in 2016. Aeroflot – Russian Airlines carried 32.8 million passengers, a year-on-year increase of 13.3%. This increase reflects the strong growth of the Russian market and, as per IATA data, was nearly twice the growth rate of the global airline industry (+7.1%). Revenue passenger kilometres for Aeroflot Group in 2017 increased by 16.2% year-on-year and available seat kilometres increased by 14.2% year-on-year. The passenger load factor for the Group rose by 1.4 percentage points to 82.8%.

In 2017 Aeroflot Group strengthened its position across all market segments and expanded its route network, including routes that bypass Moscow. Low-cost carrier Pobeda occupies a unique place in the Group: it flies from many regional Russian airports and has been a big contributor to improved mobility for the Russian population. Our LCC is financially independent and is delivering profitable growth while offering the lowest fares in the Russian market. According to aviation portal Aviasales, fares on routes that Pobeda flies decline on average by 25%. Since we launched, Pobeda has allowed more than one million people to fly for the first time in their lives.

Our mid-tier subsidiary, Rossiya, increased passengers carried by 27% year-on-year. Today Rossiya is comfortably in the top three largest air carriers in Russia.

Our subsidiary airline that specialises in the Russian Far East, Aurora, has consolidated its position on regional routes.

Transit traffic plays a vital role for Aeroflot. According to the aviation news and data site, in 2017 Aeroflot flew the most capacity of any airline between Europe and Asia – one of the most competitive and open markets in civil aviation.

This breakthrough performance would have been impossible without our modern fleet of aircraft. Aeroflot’s fleet averages an age of 4.1 years, making it the youngest fleet of any airline globally flying at least 100 aircraft. Our airline is the single largest buyer of the innovative domestic aircraft manufacturers. As of the end of 2017, Aeroflot had 37 Sukhoi Superjet 100s in its fleet, of a total of 50 that have been contracted. In 2020 Aeroflot plans to take receipt of its first next-generation MC-21-300 airliner. Eventually we plan to receive 50 of these aircraft.

Our strong traffic results and measures to increase efficiency have delivered excellent financial results. Under IFRS, Aeroflot Group increased revenue by 7.5% year-on-year to RUB 533 billion. We ended the year with net income of RUB 23.1 billion. EBITDAR was RUB 122 billion and the EBITDAR margin came in at 22.9%. EBITDA was RUB 56 billion and the EBITDA margin is 10.5%

In 2018 the ratings agency Fitch upgraded PJSC Aeroflot’s credit rating from B+ to BB-, assigning a Stable outlook. In addition to the 2017 financial results, Fitch cited the Company’s strong potential and positive trends on the Russian airline market.

Aeroflot is intimately involved in the socio-economic development of Russia and large-scale initiatives to secure Russia’s place of prominence in the world. We expanded the flat-rate fare programme that boosts mobility for Russians who live in far-flung and strategically important regions. In 2017 we developed a unique flight schedule to accommodate the upcoming World Cup. And in 2018 Aeroflot and its subsidiary airline Aurora successfully flew a programme of flights for Russian Olympians to the XXIII Games in South Korea.

For 95 years the history of Aeroflot has been inseparable from the history of Russia. The Company will continue to work in your interests and the interests of the Russian state, our largest shareholder. With your support Aeroflot plans to continue to deliver on its most important mission: to offer our great country a powerful and modern airline that opens new historical horizons – an era of transformation.

Vitaly Saveliev
Chief Executive Officer
PJSC Aeroflot