Published On: Tue, Dec 30th, 2014

The Russian Economy Hits the Dust with the Ruble

Russian Airline

The nosedive the ruble has taken has left Russia’s airlines grounded, according to the Financial Times. Russian airlines were seeing an increase in traffic, but that advantage has collapsed due to the fact that many of Russian airlines’ expenses are in other currencies. To add insult to injury, Russian airlines have been upgrading their gas guzzling planes with expensive alternatives from Airbus and Boeing, and have considerable debt.

The ruble has fallen 40% so far against the dollar, according to the Economic Times. Even though jet fuel is cheap, fewer Russians are traveling, given the economic constraints caused by sanctions. Russia’s leading airline, Aeroflot gets 90% of its revenue in rubles bu 60% of its expenses are in other currencies. Russia’s number 2 airline, Transaero, may have to suspend flights. The Russian government might have to step in to subsidize domestic routes, but with Russia hard hit by low oil prices, sanctions and now a dropping ruble, this will only increase the burden on the country.

The ruble has been in very serious decline to levels not seen since 2009. In addition the Gross domestic product fell 0.5% for the month of November. Russia is a major exporter of oil and with the commodity at $60 a barrel, the Russian economy has been tumbling. The ruble has been the second worst performer in Bloombergs tracking of 170 currencies.

 

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