InPhocus, episode 20 – Looking to Russia for a different perspective

This is my interview given to Kevin May for the PhocusWire’s InPhocus initiative (podcast-style interviews). It’s one of the very few materials about the Russian travel market available in English, so enjoy.

Hi, I’m Kevin May, welcome to InPhocus. This is episode number 20. Here we are in the first week of August. Thank you very much everybody for tuning in again, as always. It’s just me this week flying solo in the hot seat here, so we’ll just talk straight-in really.

I spoke to Max Kraynov, he’s the CEO of Aviasales based in Moscow in Russia, earlier this week. What we have been trying to do (as you may have noticed) over these previous 19 episodes is every now and again try and talk to somebody in a different region around the world, come and get their perspective on some of the things that have been going on. We’ve realised we hadn’t been to Russia yet.

So Max I’ve known for many many years, interviewed him a couple of times (PhoCusWright conferences and PhocusWire stories), so it was actually quite good and extremely interesting to catch up and get his perspective on some of the things that been going on in Russia, how it relates to the coronavirus and the travel industry, and how he sees things – quite different to how you might expect the point that used to be in other parts of the world. So, this is my interview with Max Kraynov from Aviasales recorded earlier this week.

Kevin: Max Kraynov, welcome to InPhocus. Thanks ever so much for joining us on our 20th episode.
Max: Thanks. Always happy to see you and hear you and to project our opinion on what’s going on.

Kevin: That’s good. Now just before we went on air I said ‘How are you?’. You said ‘Oh!’ and you kind of gave us a little bit and then you said: ‘Yeah, we’ve been here before. Russians are resilient’. Which kind of made me chuckle a little bit, and I’d like you – now that we are on air… If you could just explain what you mean by ‘We are resilient’ and you’ve been here before.
Max: I think it’s a part of Russian culture that whatever crisis you see you’ve been there before and you’ve done that before. So, you kind of always have a plan – plan A, plan B, plan C and plan D. So, it goes all the way down the alphabet. So, we’ve been there before in 2014, when some flights were cancelled, then online travel agencies burned down in flames, and Russian rouble lost about 60% of its value versus the US dollar. And our commission levels fell down twice. It was fun. We survived. We have written a very thick playbook as a result, which we are using now.

Kevin: OK, that’s interesting, and clearly the Russian sense of humour creeping in air a little bit as well. What I’m curious about – you said right at the beginning there, Maxim, you’ve been on plan A, plan B, plan C, plan D and you go through the alphabet. What letter are you on at the moment?
Max: Currently it’s plan B. Obviously, we still want to go back to plan A, but I understand it’s a pipe dream and will never gonna happen.

Kevin: Right. So, tell me a little bit if you can, Max, what is the situation in Russia at the moment? Both from an outbreak perspective in the wider society ’cause many things I suspect I don’t know, and in terms of the travel sector from where you sit. Is it recovering or still to a halter, those kinds of things. Where are you now?
Max: At the moment, when it comes to domestic flights, we are at more than 100%, compared to the last year, which is good. But generally speaking, there are almost no international flights, because either nobody wants Russians or nobody trusts Russian medical authorities, which I think is a big mistake. But people need to understand that the Russian strategy of containing the spread is about maintaining low and manageable levels of transmission and infection. And I think the country did this really well: there are no shortages of hospital beds, everybody seems to be more or less relaxed – one could say ‘burnt out’ and that will be correct as well. But I think it’s more or less a healthy balance in terms of people’s minds about when you should wear a mask or you shouldn’t wear a mask, whether you believe in the virus or you think it’s just a seasonal flu gone bad – it doesn’t matter. What the government has managed to do quite successfully is just limit the level of infection, and that’s perfect. Plus they are working on the vaccine, and I think there are a couple of pretty promising developments there. I think they’re quite in a rush to be the first to market. Obviously, it’s a country’s pride and stuff like that. Nothing’s wrong about it except for, maybe, like a hundred of volunteers dying [while making] that vaccine. Anyway, Russians are gonna be one of the first nations to get the vaccine. Obviously, one of the reasons why is just because the country wants to go back to normal. And the country effectively has been able to go back to normal: give or take like the 30% of traditional travel agencies are not going to reopen ever. So, there is a big graveyard of those somewhere. It’s quite sad, but when it comes to just normal travel market, the domestic market, at least for us as Aviasales, has completely recovered. Because lots of planes are grounded, and lots of people are holding on to their wallets at the moment. So, what we do see is that people [still] travel, we see a huge uptake of domestic flights, ’cause Russia is a huge country geographically, its population is more than 145 million people. People need to travel and discover culture, to travel at least once a year. If you didn’t do that then you haven’t had your annual leave.

Kevin: Just on that, Max. I mean, maybe we’re gonna come to this someday. Russia in the I would like to say brief years that I’ve been an adult has become much more… It’s about 27 now, but it’s become a lot more… You would go on holiday now and I’m thinking of South-East Asia 10 years ago, you would see a lot more Russian tourists in South-East Asia, you would see a lot more in the South Mediterranean. So, I guess, those kinds of trips are just being done domestically all the time that the flights are still grounded and just feed into what you do, because I don’t know what your split between domestic and international is prior to this at Aviasales.
Max: Yeah, there are a lot of really good questions, so I’ll address them one by one. On the first one, in low season, our split was about 31% international and 69% domestic. In high season, that was about 35% international and 65% domestic. We have huge numbers that means hundreds of thousand flights per year. That being said, we believe that – again, our belief is not really rooted in any statistics or anything, – we believe that lots of people travel domestically at the moment where they can, and there are quite a few really really nice places to go to. But on the other hand, they’re holding on to their pockets, so whenever the borders are open more or less widely, when they can at least squeeze through – and we are thinking just maybe October-ish, – then people would make an international flight… Again, I said ‘ish’, right? So, we have our fingers crossed about it. People would also try to make an international trip, not too far, so probably without stopovers or transfers like in Dubai or anything. But that’ll probably be for a shorter period of time, because your average trip roughly 2-3 weeks long [in the past] is going to be like 5-7 days long. But still it’s emotionally important to feel that you are not trapped anymore, that there is no iron curtain and you’re not in a cage, whatever color or material the cage is made of. People – and Russian people, too – are very freedom-loving. So, we do know that people are still holding onto the cash.

Kevin: So, the fear brings some geopolitics into the conversation, but it’s always there, it’s always around the score in the US election year, those kinds of things. I mean you said in one of your previous answers, Max, about other countries not trusting the science or the medicine of Russia and the US. So, talk just a little bit about that and how inhibiting that might be in terms of getting things up and running intensive international recovery for your customers and the wider population.
Max: Well, that’s a tricky question, because I don’t want to go too much into politics. I’ve got quite unconventional views. My personal take is that the cost of a mistake – and I’m talking about the European Union in particular, – the cost of the mistake of bringing somebody unwanted into the European Union and having that person spread a virus, I think it’s unacceptable. There is not much trust in foreign documents, unless they can be verified within the EU, they have a number and they have a doctor’s name who can be also checked. So, there is no standardization of tests, no standardization of the vaccines and no single body of rules about how to treat certain people in the post-disease or during disease, and stuff like that. So, there should be consistent protocols about it. At the moment the best way is just literally stick your head in the sand for a while. It’s not because it’s rational, it’s just for certain groups of people the cost of a mistake is unacceptable.

Kevin: I’m going back to something that you said previously. You talked about the traditional travel market, travel agents. I think it’s 30% of those that are going to be gone forever. Will the customers of those, do you sense, Max, move online or just go to another agency they are comfortable with?
Max: My take is that most of them will go online.

Kevin: Why would they do that? Just because their favourite travel agent is closed doesn’t mean that they weren’t automatically shifted online.
Max: The question is do you really have a favourite travel agent. What we see is that when it comes to the Russian market, it’s very price sensitive. Unfortunately, the tourism market in itself is quite opportunistic, so whenever agents sell tours, self-made tours or something that is really made of some junk flights to some hotels that are going to close the door in front of a person who gets there, there are quite a few myths about it. People when they sit in the quarantine for three months – they learn to use their credit cards, right? All the same, they understood that they don’t need to go to an ATM machine and just pick up some cash. So, now you can actually type in those 16 digits into a web form and all of a sudden you have a digital product that you can use. What we’ve seen so far is a lot of new audience, people we’ve never seen before and people who started forcibly buying online. They’re not allowed to leave home, they’re not allowed to go to their favourite travel agency, right? Because that will be closed. And I think it’s the most important positive shift of 2020 is the complete shift online. So, that’s the reason. As I’ve said, we see quite a big uptake of domestic flights as well, despite spending of maybe one half on marketing [vs previous years].

Kevin: There’s always been a curious one, I remember once getting my head around the kind of the GDS systems working in Russia. One of the travel boards for many years had an agreement with one of the big GDSs there. How does that all work in Russia?
Max: It’s still the same. The guys like Aeroflot are still trying to get NDC up and running, and I think they’re quite successful.

Kevin: And that’s where I was kinda getting too, you kinda jumped to it.
Max: Luckily, it is not just a buzzword, it is happening, though it costs a lot of money to implement and run, but eventually all the benefits will be there. In the beginning we were kind of scared that the majors like Aeroflot and S7 will drop off the idea and just go back full in with their respective GDSs. But that hasn’t happened, and then we kind of applauded their decision… Seriously, we don’t work direct with Aeroflot for several reasons, but let’s say the fact that they are plugging their airlines, their routes, into the NDC platform allows us on our level of interaction with OTAs to offer certain things that we couldn’t do in the past. So, to us technologically it’s a big advantage.

Kevin: One of the things one of your representatives said to me via email before we started talking earlier today, said something about ‘Aviasales for business‘, which was a product that you launched in the middle of April. The question is – very briefly, what is ‘Aviasales for business’? I’m curious given that you were already into April – why, why, why the hell did you still launch it yet, given that there is no business travel to speak of certainly in many markets? So, what happened?
Max: That’s another Russian specific… I’ll answer in two different sets of facts. If you read things like the Harvard Business Review or any other respectable magazine, you always invariably read that COVID-19 is supposed to accelerate lots of technological trends and lots of previous projects. We used to have that project and we wanted to launch it in February, but for various reasons we couldn’t get [the right people in the right places in the team], so it got postponed a bit. The actual problem is that in Russia if you’re buying tickets with a personal credit card, you cannot just give that receipt to your accountant and the business would write it off as a business expense. It doesn’t work this way. So, you need a certain type of [a tax receipt] for each transaction. It’s incredibly stupid bureaucracy, but that’s what it is. I would personally pay a lot of money to the government for them to scrap that, but unfortunately…

Kevin: Your personal Influence doesn’t go that high just yet.
Max: Yes. So, this project allowed us to implement something that nobody in the Russian market had or has, which is the metasearch for businesses, where we could compare different options coming from different OTAs. The usual way of work is that you have a traditional travel agency that services different businesses, they connect to one or two GDSs and some airlines direct, but the price they give you is not competitive. Then later on they put the surcharges, the service fees, they may even put somebody in your office with a laptop to use the system. So, we decided to put the whole thing upside down and let people choose the lowest price. It’s a kind of a value proposition, same that we do for consumers, to bring that to business, long story short. But obviously, if we want to put a good spin on it that we accelerated something that we always wanted to do – well, thanks to COVID we were able to do it. On the bright side, I always tell people that ‘Guys, if anything goes wrong, our exposure is much lower than if we had millions of customers from day one’.

Kevin: OK, so it’s almost like a dry launch pretty much […].
Max: It’s quite wet now, but yes, we’re still at the beginning.

Kevin: Thank you, Max, for joining us on this. The one question I’ve got, which is completely lost on our listeners, is where is your background? Clearly, it’s a virtual background, but I’m wondering where it is because it’s incredibly…
Max: It’s our Moscow office.

Kevin: Your Moscow office, but you’re not in there. So, when are you back in your offices in Moscow with your full team?
Max: We work remotely until January 1st next year.

Kevin: Is that your decision or is that your government’s?
Max: It’s the company’s decision.

Kevin: Right. And is that just for what reason? I’m just curious.
Max: That’s interesting. We have almost 300 people in the company, and we seek lots of feedback from our colleagues, when it comes to their safety and the mental state, and so on. And I was surprised, honestly, to see how many people took the risk of COVID really really seriously and that they really were concerned about their own well-being, which is fair enough, about their families’ well-being, their colleagues’ well-being, and so on. And we are not in a position to try and influence those people, and we have to accommodate them. So, the safest way to do that – unfortunately for the business, but fortunately for the people and the company culture – is to play along. But I do go to the office twice a week just to say hi to those who are brave enough.

Kevin: Right. So, for those that are listening I would describe it. There’s lots of very colourful pipes hanging from the ceiling. It looks like an office that the people who used to design nightclubs in Manchester in the late 80s and early 90s would have designed. Like ‘The Hacienda’. Only a fraction of people listening will know what I’m talking about, but that’s what it looks like. I think it looks really cool, but anyway. Thank you very much, Max, for joining us on InPhocus, I really appreciate it.
Max: Thank you. Thanks, guys.

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One Response to “InPhocus, episode 20 – Looking to Russia for a different perspective”

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