Russia Tourism Report Q2 2008

Tourism Overview After a recovery in the growth of foreign visitor arrivals in 2006, BMI believes the tourism sector had a stronger year in 2007. In particular, favourable growth was recorded in foreign tourist arrivals to Moscow in H107, mainly from the EU, the US, Japan and China. Growth in international airline passenger traffic in 2007 as a whole also appears to have been buoyant year-on-year (y-o-y). Further, according to official sources, Russian outbound tourism was up relatively sharply last year compared with 2006, with Egypt and Turkey particularly popular as destinations.

Forecast Scenario The Russian economy is expected to remain robust through the long-term with real GDP growth forecast to stay above 5.0% until 2012. In line with trends developing through the first half of 2007, we believe that investments and private consumption will increasingly become the major factors driving growth, with the construction, manufacturing and retail trade sectors likely to outperform the rest of the economy.

In the wake of relatively robust growth in foreign tourist arrivals in 2007, BMI anticipates a slowdown this year and moderate growth over the forecast period to 2012. Key factors hampering the tourism sector include a general shortage of mid-priced hotels, price rises in accommodation (inflation spiked to a 27- month high in December) and the continuing appreciation of the Russian rouble (we forecast an exchange rate of RUB22.00/US$ over the medium term).

Aeroflot According to latest figures, Russian national airline Aeroflot carried some 6.9mn passengers in the first ten months of 2007 (although the airline only provided a growth rate for H107, up a strong 18% y-o-y).

As a result, Aeroflot looks set to achieve its 2007 target growth rate for passenger numbers. The airline's financial results for the first six months of 2007 show a net profit of some RUB3.2bn (US$126mn).

S7 Airlines S7 Airlines (Siberia Airlines) is on course to record strong growth in 2007. Latest data for the first ten months of 2007 show S7 Airlines carried almost 4.8mn passengers, up 13% y-o-y. The seating occupancy ratio was also up 3.9% y-o-y to a favourable 82.1%. Over the first nine months of 2007, the airline achieved buoyant growth in revenues (exclusive of VAT), reaching US$845mn, up nearly 27% y-o-y.

According to the airline, revenues are forecast to reach US$1,170mn in 2007 as a whole, while the number of passengers is expected to total close to 5.8mn (up some 18% y-o-y).

Domodedovo International Airport After very strong growth in passenger numbers at Moscow's Domodedovo International Airport in 2005 and 2006, the airport maintained its leading position among Moscow airports last year. Nearly 18.8mn passengers used the airport in 2007, a marked increase of 22% y-o-y. International passenger traffic in the period increased an impressive 27% y-o-y to almost 10.8mn passengers, while domestic passenger traffic was up just over 16% y-o-y to some 8mn. The highest growth rates were recorded on routes to Antalya, Vienna, Hurghada, Yekaterinburg, St. Petersburg, Sharm el Sheikh, Bangkok, Krasnodar, Chelyabinsk and Mineralnye Vody. Total passenger traffic in December, meanwhile, amounted to 1.4mn, up 21.3% compared with the same month in 2006.