The prospect of Russia dropping a fee imposed on airlines flying over Siberia could shave as much as $100 per passenger off of roundtrip flights between Europe and Asia, industry analysts say.
The fee, first imposed in the 1980s during the waning days of the Soviet Union, has long been a point of contention between Russia and Europe. European officials have refused to support Russia’s entry into the World Trade Organization until Russia drops the fee, which Europe contends is in violation of a treaty signed in 2006. Under that agreement, Russia pledged to drop the fees by 2013, but until recently it was unclear whether Moscow would stand by that commitment.
The Wall Street Journal reported on Tuesday that the outlines of a deal with the European Union (EU) have been reached and could lead to the elimination of the Siberian surcharge. What remains unclear, however, is whether the terms of the 2006 agreement, which called for the end of all Siberian overflight surcharges on Jan. 1, 2014, will go into force. Industry sources, who asked not to be identified, corroborated the Journal’s story.
The fee is over and above traditional overflight fees, which most countries in the world charge to cover the cost of air traffic control services. By that measure, Russia’s overflight fees are in line with, and even in some cases lower, than other countries’.
When it was first imposed, the Siberian overflight royalty, as it is known, gave European airlines direct access to Asian markets—then, most importantly, Tokyo—without having to divert to Anchorage. “European airlines paid tens of millions of dollars to Russia to save hundreds of millions of dollars in fuel and flying time to fly via Anchorage,” says industry consultant Craig Jenks.
Funds from the overflight royalty went straight tobefore the Soviet Union collapsed. Despite the liberalization of the Russian economy since then, the royalty fees continue to go to Aeroflot and other Russian carriers. In a memo earlier this year, the EU estimated that European airlines paid more than $420 million in royalties, mostly to Aeroflot, in 2008, the most recent year for which data are available. “EU carriers are de facto forced into agreements with their competitor, Aeroflot,” the memo says.
Just how much the fees generate is the subject of much debate. “Nobody knows how they are calculated, whether by weight or some other measure,” says Jenks. “It is the opposite of transparent.”