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Estonian airline prepares to meet the challenge of Ryanair


Ryanair announced the commencement of its first Estonian services in Dec-2010 as its drive north-eastwards continues.

The carrier now operates at nine Polish cities, though with no bases: at Kaunas in Lithuania, where it opened a base this year but does not operate in the capital, Vilnius Airport; at Riga, Latvia, despite that being the base of airBaltic; in addition to Tampere and Lappeenranta in Finland. Tallinn will not be a base for the airline. All the flights there will be operated from existing bases.

From Tallinn Airport, the capital of Estonia, the LCC will operate to:

Ryanair forecasts 300,000 passengers a year through Tallinn and claims it will create and sustain 300 local jobs. As usual the route launch announcement was supported by a limited-time reduced price offer across the network, along with typical exhortations to “escape the high fares” charged by Estonian Air and airBaltic, “by choosing Ryanair’s lowest fares and our no fuel surcharge guarantee”.

Lower your fees and we’ll double the passengers

In Mar-2010, Ryanair reportedly requested that Tallinn Airport lower the carrier's fees, stating that in return it would double the number of passengers at the airport, adding services to Milan, Gerona, Brussels, Düsseldorf, Kaunas, Oslo, Stockholm, London and Madrid. Five of those routes do figure in the commencing schedule. However, at the time the airport did not immediately agree to the proposal, stating it would itself be paying for Ryanair to operate from the airport.

What is the veracity of these traffic claims by Ryanair? Judging by the experience at Kaunas, Ryanair indications on traffic growth were quite precise and the airport has seen 100% traffic growth monthly from May-2010 when the Ryanair base began to operate. According to the Airport Director, Ryanair has “the sixth sense” in identifying highly potential routes ahead of other airlines.


















































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Tallinn’s Lennart Meri Tallinn Airport, aka Ülemiste Airport, is the largest airport in Estonia and home base of national airline Estonian Air. It is located approximately 4km from the centre of Tallinn and has a single asphalt-concrete runway of 3070m by 45m. The airport underwent expansion between 2006 and 2008. The terminal was expanded, adding 14 new gates, separate lounges for Schengen and non-Schengen passengers, 10 new check-in desks and a new restaurant and cafes. During 2009 it handled 1,346,000 passengers (-25.7%), the economy of the Baltic countries having been particularly badly affected by the recession as an investment and consumption slump set in following the bursting of the real estate market bubble. In fact, GDP dropped nearly 15% in 2009, among the world's highest rates of contraction. Prior to the slump the annual passenger traffic at Lennart Meri had increased by an average of 14% from 1998 to 2008.

In better times Estonia, a 2004 European Union entrant, has a modern market-based economy and one of the higher per capita income levels in Central Europe and the Baltic region. Successive governments have pursued a free market, pro-business economic agenda. Tallinn's priority has been to sustain high growth rates - on average 8% per year from 2003 to 2007. The economy benefits from strong electronics and telecommunications sectors and solid trade ties with Finland, Sweden and Germany. The government is on track to adopt the euro in 2011.

Estonian Air pre-eminent before the arrival of Ryanair

Before the arrival of Ryanair, Tallinn Airport was dominated by Estonian Air and Estonian Air Regional, with 19 year-round or seasonal services between them. No other passenger airline (airBaltic, Avies, Blue1, City Airline, Czech Airlines, easyJet, Finnair/Finncomm, LOT, Lufthansa, Norwegian Air Shuttle and Windjet) operates more than two scheduled routes at Tallinn. On this basis it looks as if it will be a straight fight between Estonian Air and Ryanair for domination. There are several overlapping routes, eg London, Oslo, Stockholm and Dublin. Ryanair’s presence at Tallinn will not have a direct effect on airBaltic’s operations at Riga (it only operates to Riga and Vilnius from Tallinn) simply because Ryanair already has a 13-route network at Riga, with flights to many of the same cities it will serve at Tallinn.

Pan-national single airline a possibility, but on hold

Could an SAS-style pan-national airline be the most appropriate response to Ryanair’s threat in the Baltics? The potential for such an entity has been under discussion since the Transportation Ministers of Latvia, Lithuania and Estonia met to evaluate the establishment of a single airline for all three Baltic states but it met opposition from some quarters. airBaltic is fast outgrowing Estonian Air in the Baltic market, which would further create difficulties for a common aviation firm. Then in Feb-2010 airBaltic said it would purchase a stake in Estonian Air. For its part, the Estonian Government expressed interest in a potential takeover of SAS’ holding in Estonian Air. SAS held a 49% stake in Estonian Air, with the Estonian State owning 34% and investment bank, Cresco 17%.

In Sep-2010, SAS Group and the Estonian Government reached an agreement that will result in SAS divesting its 49% stake in Estonian Air, which it has had since 2003. Following a rights issue, the Government will hold 90% and SAS 10% of Estonian Air, which has an option to buy SAS' remaining stake and SAS has the option to sell its stake at fair market value after four years. SAS will continue its commercial cooperation with Estonian Air. The transaction will take effect automatically after the Estonian parliament has approved a change in its 2010 state budget.

As a result the prospect of such a single Baltic airline has edged a little nearer but at the same time Estonian Air has questioned the rationale behind Baltijas Aviacijas Sistemas' decision to launch a new Lithuanian airline. Baltijas Aviacijas Sistemas is a holding company owned by airBaltic’s CEO Bertolt Flick and which has a 47.2% shareholding in the Riga-based airline. Estonian Air's public relations manager stated that “the new aviation firm will start directly competing with airBaltic’s flights via Riga and on the background of that, this plan seems weird". Mr Flick stated that the new airline will not compete with airBaltic, with the two airlines to ''have separate business models ... and serves two different markets". The Latvian Prime Minister reportedly stated Mr Flick will not be able to manage airBaltic, where the Latvian state has a controlling interest, whilst concurrently managing a competing airline. In the interim Estonian Air outlined plans to increase services in the Lithuanian market, with new services from Vilnius to Amsterdam and Stockholm.

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