Air war between Russia and Belarus

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April 22, 2016 18:07

Airline flights between Minsk and Moscow stopped for four hours on March 26, as \"Rosaviatsia\" had recalled previously issued permission to travel to the Belarusian airline \"Belavia\".

After several hours of negotiations, the parties took time-out until 29 February. As a result of the meeting, held in Moscow on March 29, the airlines of Russia and Belarus will continue to operate under the old schedule of submitted applications until the May 10, 2012. During this time, negotiations will continue. Thus, albeit for a few hours, a new trade war in the CES took place. 

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Until March 26, when the conflict broke out, Aeroflot had served three flights daily from Moscow to Minsk, and the Russian company UTair had served one flight. The total number of hours per week for Russian companies was 28; the Belarusian national carrier Belavia had the same number of hours. Yet last year the Russian airline S7 Airlines was appointed to this line. For a number of reasons it could only begin flights in the new summer season, which started on 26 March. But with access to the route of S7 Airlines, Russia has obtained an additional, fifth, frequency, and the total number of hours increased to 35.

Belavia has seen the parity violation of the frequency agreements in the actions of the Russian side. As a result, \"Aeroflot\" was refused to coordinate one of the flights. And the aeronautical authorities of Russia, of course, had to defend the interests of \"Aeroflot\" by revoking Belavia’s permission to fly.

The basis for the conflict is purely commercial. Tickets of the Russian carriers are cheaper, with only 55% of the load, Belavia fears further reduction of the number of passengers. However, due to the limited number of aircraft and financial resources, it cannot increase the number or frequency of flights, insisting on parity.

At the same time, lower prices of the international carriers are often explained by the \"wholesale\" sales of services. We are talking about passengers flying from Minsk not to Moscow, but via Moscow to countries where Belavia planes do not or cannot fly. In fact, the lower prices of Russian carriers are one way of competing for transit passengers –not only with Belavia, but with transnational airlines. With this organization of passenger traffic, air travel is quite a natural desire of Russian airlines to increase frequencies. So, apparently, they are not concerned about the utilization of flights on the level of 55%.

It should be recalled that equality demanded by the Belarusian side has become a cause of conflicts with European and Turkish airlines. Since Belarus does not have such a close economic and political integration with the European Union and Turkey compared to Russia, the Belarusian side has always gained victory in previous wars, using a powerful \"administrative\" weapon. Experts point out one interesting detail concerning the aspirations of the Russian side to achieve liberalization of air transport to Belarus: Belarus raises exactly the same arguments to protect its own market, which Russia uses in negotiations with the EU. Russia is not ready to compete with the EU in the open sky.

Thus, in anticipation of the holiday season, the partner countries are advocating the interests of their big companies, trying to use ultimatums and administrative resources. The interests of the population, who could have cheaper tickets and more convenient connections to remote destinations, have been sacrificed in this battle.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.

According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.

The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.

Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.

The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.

Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.

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