Competition, preferential tax treatment and subsidies

On April 9, the round table on the topic "How to solve the issue of high cost of passenger transportation?" was held at the press center of the Parliamentary Gazette. It was attended by the Deputy Chairman of the State Duma Committee For Physical Education, Sport, Tourism and Youth Affairs Sergey Krivonosov, the Adviser to the Chairman of the Federal Agency for Tourism and Head of Vipservice Holding Dmitry Gorin, a member of the Expert Council at the Ministry of Transport of the Russian Federation Kirill Yankov and the Deputy Chairman of the All-Russian Association of Passengers.

Participants of the round table addressed factors influencing the formation of the final cost of air and railway tickets and discussed legislative initiatives that could effectively regulate air and railway fares to stimulate further growth in passenger traffic.

As it was noted by experts, population mobility is growing and passenger transportation market cannot help but react to this process. In 2017, civil aviation increased by 18–19%, while railway passenger transportation increased by 14%, following the results of Q1 2018. The expanding tourism industry also stimulates the demand of population for transportation. "The opening of Turkey last year brought to the market additional 5 million passengers, who did not travel for the last two years," Dmitry Gorin noted. The head of Vipservice Holding also added that the tourism market makes a significant contribution to the increase in the low-cost transportation on the market. "Prices for charter flights of tour operators are 20–30% less than for the same scheduled flight."

The participants of the round table noted several key factors, which are already affecting or may affect the reduction of transportation cost for Russians. One of them is programs of air transportation subsidy assistance, according to which the government subsidizes flights to certain regions/cities subject to certain conditions. However, only this measure is obviously not enough: RUB 8 billion are allocated for it from the budget, however, out of 62 million passengers using domestic flights, only 1.5 million of them can take the benefits of this subsidy.

In addition, the reduction of prices in the aviation industry is affected by the non-refundable fares and fares without luggage. As of January 1, 2019, they will be applied also in railway transportation, which should lead to more attractive prices from RZD.

One of the forward-looking measures, which was already discussed at the Ministry of Transport, is setting VAT to zero for domestic air flights (except for airports of the Moscow air hub). If this proposal is accepted by the government, regional transportation will get a significant additional impulse for improvement.

In addition, experts believe that competition will have a positive impact on the fares: in particular, the entrance of foreign low-cost carriers to the Russian market can have a positive impact on fares.