MOSCOW — If you happen to produce widgets in Russia and sell them in foreign currency, your time has come.
Konstantin Babkin, president of a company that produces tractors, is convinced that the ruble should have been devalued long ago. "An excessively strong ruble already killed our airplane construction, food and light manufacturing industries," he says.
Some economists agree that the previous exchange rate of 33 to 35 rubles per dollar was bad for exports. "The disparity between the "real" exchange rate and the official rate is unprecedented, and it is a real barrier for exporters of high-tech products," one observer said in the middle of November. Now the ruble is trading at more than 45 per dollar.
And the exporters are happy. "In the end, our exports have grown by 27% this year," Babkin says. His company exports tractors to Poland, Hungary and Romania, although exports comprise only about 20% of the company's sales. This year, the company sold its first products in Germany.
Babkin thinks that a fair exchange rate would be about 55 rubles per dollar. But exporters would feel a bit more confident if it was readjusted gradually instead of undergoing a free fall. The quick fall the of ruble has made international buyers hesitant about investing in Russian products. After all, if you buy a tractor, you're committing to several years worth of parts and repair services. "What if everything falls apart there tomorrow?" those buyers no doubt ask themselves.
"I have another factory in Canada," Babkin says. "A Hungarian bank was willing to give a farmer a loan for my Canadian combines but not for a Russian tractor."
Babkin says his domestic orders are up by 15% too. "Large agribusinesses have started to buy our machines," he says. "They never even noticed us before."
Sollers, an auto manufacturing company, is also experiencing a booming business. "The devaluation is an excellent opportunity to expand the sales market," a representative from the Sollers press office says. "But that opportunity with be limited within a year or two, so the effect will be less noticeable."
In fact, it's not that simple. Russian manufacturers often aim to sell internationally so that they can get access to bank loans abroad, which have lower interest rates than those in Russia. "We sell three-quarters of our products abroad," says a representative of one Russian manufacturer who wishes to remain anonymous. "We would prefer to sell everything in Russia so that we could just use one currency, but the reality of the Russian market doesn't let us. Now, on the one hand, we have increased our income from exports. On the other hand, we also have loans from foreign banks that we have to repay."
That's exactly the situation in which most companies that should theoretically be flourishing find themselves. One father-son company near the Finnish border has grown into a major berry supplier, at home and abroad. But because the company has loans in euros, the devaluation has left it in a difficult situation. "We sell two-thirds of our production domestically, so if you account for the loan payments in euros, we have nothing left,” complains Aleksandr Somokhvalov, the company's director. "What are we going to do now? Either sell all our berries in Europe, unprocessed, because they aren't interested in our processed berries, or double the price for Russian consumers."
Port at Oblast. Photo: Euno
Do foreign countries even want what Russia produces? Russian non-oil and gas exports fell from $525 billion in 2013 to $490 billion in 2014.
"Next year should be like 2009 for domestic tourism, which grew 30% to 40% that year," says Ilya Klubnikin, former general director of a Sochi resort. "But right now, at the end of 2014, there hasn't been a big surge."
The hotel owners, hostel owners and resorts we spoke to hadn't noticed an uptick in domestic tourism. "We are equally as full as last year," says Dmitri Kyzin, owner of Kofehostel in Nizhny Novgorod. "The only thing I've noticed is that people are coming for one or two days instead of three or four days."
Viktor Lemeshev, owner of a Karelia resort, says that the difference for his business is that they are seeing more Finns because it's on the Finnish border. "Last year only one Finnish travel agency agreed to sell trips to our resort, but this year we had three," he says.
Considering, of course, the 40% to 50% drop in international tourism, simply maintaining the same occupancy rates as last year seems like a success.
Food businesses, which were already suffering from international sanctions, prohibitions on smoking in restaurants and rents that are paid in dollars, are likely to see a major crash. According to various estimates, every fourth or fifth restaurant in Moscow and St. Petersburg is likely to close in 2015. Fast food joints typically flourish during difficult situations like this, but they aren't exempt from rent problems. "We've only just now been able to negotiate reductions in rent," says Aleksei Gisak, founder of a Chinese takeout chain.
But it does seem that business models like Gisak's, which are focused on food deliveries, could have an advantage, as people try to save money by staying in.
Trust in the crisis
Entirely unexpectedly, it seems that the crisis has increased opportunities for peer-to-peer services. Russians have always approached the sharing economy relatively skeptically — perhaps because of our untrusting mentality — but these services could witness a boost this year.
In 2014, the number of Russian offerings on Airbnb doubled. "This year is our chance," says Ekaterina Kukureko, an Airbnb representative. "Right now in Russia there are 8,000 apartments for rent. By comparison, there are 22,000 in Croatia and more than 100,000 in Paris. We expect the users in Russia to grow this year."
Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.
It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.
More than a year later today, experts believe that air traffic won't return to normal levels until 2024.
But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:
Cleaner aviation fuel
The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.
While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.
Fees imposed on the airline industry should be funneled into a climate fund.
In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.
Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.
High-flying ambitions for the sector
Hydrogen and electrification
Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.
One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.
Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.
New aircraft designs
Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.
International first class will be very nearly a thing of the past.
The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.
Aerial view of Rome's Fiumicino airportcommons.wikimedia.org
Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.
The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.
Data privacy issues
However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.
Auckland Airport, New Zealand
The billion-dollar question: Will we fly less?
At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.
Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.
40% of Swedes intend to travel less
According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.
But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.
At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.
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