Econ minister: low inflation hurts financial condition of VIM-Avia

STAVROPOL, Sep 29 (PRIME) – Russia’s low inflation made the business model of troubled airline VIM-Avia inefficient becoming a significant reason for its worsening financial condition, Economic Development Minister Maxim Oreshkin told reporters late on Thursday.

The airline has been delaying a large number of flights since mid-summer, and on Monday it admitted it had no money to continue its activities and would have to stop charter flights.

“The company attracts household money for a long time, it sells tickets in advance, and accumulates financial resources. Low inflation limits the company’s ability to make money on that. It leads to worsening financial model and financial condition,” he said.

“Unfortunately, companies that do not meet the efficiency criteria must die. A low and stable inflation is another working regime not just for the banking sector, but for the whole economy. That is why the businesses that are not based on efficiency and profitability, but rising volumes thanks to inflation, on accumulating people’s money and temporarily placing it in financial instruments – all these plans become inefficient and unprofitable due to low inflation.”

Still, low inflation is a positive factor for the economy as economic resources are distributed more efficiently and go to banks and companies that have healthy business models, he said.

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