BMI's Executive Summary

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Tourism Overview

Following an estimated recovery in the growth of foreign visitor arrivals in 2006 (after a decline in the previous year), BMI believes that the tourism sector is showing more favourable signs in 2007. Although recent data releases have been minimal, official sources show nearly 1.64mn foreign tourists visited Moscow (based on arrivals at Moscow airports) in H107, representing a 15% increase on the corresponding period of 2006. The highest number of visitors came from Germany, while other significant source countries included the US, China, Britain, Italy, France, Japan and Spain. Moreover, international airline passenger traffic in the first nine months of 2007 was up very strongly year-on-year (y-o-y).

Forecast Scenario

The Russian economy continues to impress, expanding by 7.9% y-o-y in Q107. While the energy sector remains a key component growth was actually strongest in the manufacturing and construction sectors. We believe this trend will continue over the long term, with new capital investments in infrastructure as outlined in the 2008-2011 budget plan, as well as increased private consumption driving the economy through to 2011. Our key concern remains inflation. While the latest figure shows consumer price growth coming in below the 8% end-year government target, large money supply growth and increases in fiscal spending point to added inflationary pressures going forward.

Although BMI has raised its growth forecasts slightly over our extended forecast period, we continue to anticipate relatively moderate growth in foreign visitor arrivals (but an improvement on the country's recent poor performance prior to 2006). Of particular significance are price rises in the tourism sector (especially accommodation), which are reportedly as having a dampening influence, while the continuing appreciation of the Russian rouble over the medium term is also likely to undermine potential tourism (the Russian rouble broke through our long-held RUB25.00/US$ target in September 2007).

Aeroflot

In 2006 Russian national airline Aeroflot strengthened its position in the domestic market, increasing its share of total domestic passenger traffic from 12% to 13.1%. However, with regard to international passenger traffic, Aeroflot's share of the total continued to fall, declining marginally to 30%. Overall, the airline carried 23% of all passenger traffic in the Russian market. In the short term, the company aims to increase the number of passengers to 9.9mn in 2007, which would represent a near 14% increase y-o-y.

Siberia Airlines

Latest data for the first eight months of 2007, show Siberia Airlines carried 3.6mn passengers, up 7% yo- y and made 30,400 flights, a 12% increase y-o-y. The airline achieved strong growth in revenues in H107, reaching US$451mn, up 20% y-o-y. Siberia Airlines attributed the favourable performance so far in 2007 mainly to modernisation of the aircraft fleet, expansion of the flight network, increased frequency of flights on many of the airline's routes and considerable reduction in fuel costs.

Domodedovo International Airport

After strong growth in passenger numbers at Moscow's Domodedovo International Airport – Russia's leading aviation hub – in 2005 and 2006 of 15.7% and 10.1% y-o-y respectively, latest data for the period January to September 2007 show even more buoyant growth, with passenger numbers totalling nearly 14.2mn, up a marked 21.4% y-o-y. International passenger traffic in the period increased an impressive 27.6% y-o-y to almost 8.4mn passengers, while domestic passenger traffic was up nearly 14% y-o-y to 5.9mn. The highest passenger growth rates over the period in question were recorded on flights to such destinations as Yekaterinburg, Antalya, Sharm el Sheikh, London, St. Petersburg, Chelyabinsk, Tivat, Krasnodar and Mineralnye Vody.

Chapter 1 - Executive Summary

Tourism Outlook

Commercial Airline Safety

Russian Airlines

Hilton

Chapter 2 - Market Overview

Tourism Outlook

Russia Tourism Industry - Historical Data & Forecasts

Table: Russia Tourism Industry - Historical Data & Forecasts

Russia Tourism Industry SWOT

Chapter 3 - Travel

Commercial Airlines

Chapter 4 - Hospitality

Accommodation

Table: Structure of Accommodation Market

Accommodation Developments

Gaming

Infrastructure

Chapter 5 - Forecast Scenario

Competitiveness Under The Spotlight

Exchange Rate Concerns

Table: Growth And Output

Chapter 6 - Country Snapshot: Russia Demographic Data

Section 1: Population:

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education & Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption and Stratification

Chapter 7 - Middle East, Europe and Africa Tourism Business Environment Rankings

Table: Middle East, Europe and Africa Tourism Business Environment Rankings Matrix

Long Term Political Risk

Country Business Environment

International Tourism Receipts

Visitor Arrival Growth

Investment Environment

Shock Factor

Chapter 8 - Business Environment

Foreign Direct Investment

Overview

FDI Regime

Reforms

FDI Inflows

Chapter 9 - Company Profiles

Aeroflot

Siberia Airlines

Transaero

Chapter 10 - BMI Forecast Modelling

How we generate our industry forecasts

Tourism Industry

Tourism sector data

Sources

Chapter 11 - Appendix: Regional Demographic Data

Wages (ave labour force per annum), US$ PPP

Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Emerging Europe Tourism Reports: Sample of Companies Ranked

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Comparative cross-border analysis assessing business and regulatory factors to rank Asia’s most competitive tourism markets. Indicators used include Political Risk, Business Environment Risk, Forecast International Tourism Receipts, Visitor Arrival Growth, Investment Environment and Shock Factors (taking account of any special factors such as terrorism, natural disasters and disease). Company SWOTs for leading resort, hotel, airline, travel and tourism operators in each market, including competitive intelligence on overall geographic presence, competitive positioning and relationships with international operators; % share of operator markets; % share of international arrivals and departures; % share of busiest domestic routes; main products and services; panregional expansion, merger and acquisition strategies.

Network of European Tourism Sources

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BMI's European Tourism Reports are based on an extensive network of multilateral organisations, government departments, tourism industry associations, chambers of commerce and company reports. Information sources include: