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Most international traffic to Lithuania goes through Vilnius International Airport, however Kaunas, to the northwest of the capital Vilnius, is the destination for most budget airlines. The national carrier of Lithuania, Lithuanian Airlines (FlyLAL), suspended operations and declared bankruptcy in 2009 after suffering the effects of a price war with its major competitor airBaltic and amassing huge debts. The only native carrier operating scheduled services out of Lithuania now is the LCC Star1 Airlines, based at Vilnius International Airport.
Airports in Lithuania
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AirBaltic commenced a new codeshare with Etihad Airways on 16-Dec-2013, launching a four times weekly A310 service and linking its Riga hub with Etihad’s in Abu Dhabi. Riga is the Baltic region’s principal transfer point – the airport says that 33% of passengers in 2013 are transit/transfer traffic – and Abu Dhabi is rapidly emerging as an important hub for travellers flying between Europe and Asia.
Following airBaltic’s near bankruptcy in 2011 and its subsequent renationalisation and investment from the Latvian government, the state has been on the look out for a private sector investor. Meanwhile, CEO Martin Gauss has been focusing on the carrier’s restructuring programme and expects to restore profitability in 2014 after achieving better than expected results for 9M 2013.
An EU investigation into state aid received in 2011 is ongoing and could potentially lead to the carrier having to repay the funds received from the state. This would increase the pressure to secure fresh investment. Some observers have suggested that the Etihad partnership could be a stepping stone to a future equity relationship. The codeshare attests to some meeting of minds already.
Eastern European low-cost carrier group Wizz has unveiled plans to expand its Vilnius base in Lithuania and establish its third Ukrainian base in Lviv. The announcements follow other recent expansion announcements that will see Wizz expand its bases in Bulgaria and Macedonia.
In the Lithuanian capital Vilnius, Wizz Air will expand its fleet of A320s at the airport to three aircraft. The carrier will use the additional aircraft to launch three new routes and increase frequencies on five existing routes.
Meanwhile the group’s Ukrainian subsidiary Wizz Air Ukraine plans to base one A320 at Lviv from 30-Apr-2014. The aircraft will be used to launch five new routes from Lviv, which Wizz Air Ukraine now serves with three routes. The A320 to be based at Lviv Airport will be Wizz Air Ukraine’s fifth aircraft overall.
Air Lituanica launched services at the end of Jun-2013, making it the first scheduled Lithuanian carrier since the collapse of FlyLAL in 2009 and Star1 Airlines in 2010. Air Lituanica will see Lithuania once again connected to other key European countries through a home-based carrier.
As the largest of the three Baltic states with a land area of 65,300km2, Lithuania has a population of about three million and had a GDP in 2012 of about USD42 billion, according to World Bank data. The country currently has four airports in Vilnius, Kaunas, Palanga and Šiauliai which are served by about 20 foreign carriers.
Aside from Air Lituanica, there are currently five other Lithuanian airlines including five charter carriers (Aurela, Avion Express, DOT LT, Grand Cru Airlines and Small Planet Airlines) and one cargo carrier (Aviavilsa). There have been no domestic services in the country since the demise of FlyLAL.
Latvia’s national carrier airBaltic recently reported a narrowing of its net loss in 2012, with RASK up 15%. The carrier is just over a year into a five year profit improvement plan. It says that it is surpassing its original turnaround plans and is on track to achieve targeted profitability by 2014. Network restructuring, improved revenue management and the relative economic health of the Baltic region compared with other parts of Europe are providing tail winds.
With only modest capacity growth planned for 2013 and monthly profitability exceeding management’s plan for the first three months of the year, there may be potential for airBaltic to improve on its 2013 target of stable RASK and perhaps to reach a positive net result ahead of schedule.
Nevertheless, its unit costs are not as low as the LCCs with whom it increasingly competes and labour productivity lags peers. Its fleet modernisation programme should help to narrow the unit cost gap, but management will be hoping it can retain its current pricing power.
Estonia’s national carrier has dropped its ambitions to develop extensive hub operations at Tallinn Airport and appointed Jan Palmér as the new CEO to scale down the airline’s network and halt mounting losses. The small regional carrier in 2011 adopted a new network model, shifting its traditional focus on point-to-point markets to a network strategy based around feeding transfer traffic within Europe and to and from the Commonwealth of Independent States (CIS) region. The core goal was twofold: to increase the number of destinations and frequencies from Estonia, and to do so with a sustainable profit in the medium term.
To underpin Estonian Air’s new strategy, the Estonian government in Dec-2011 decided to invest an additional EUR30 million in the airline, increasing its ownership from 90% to 97.34%. It also endorsed the revamp of the carrier’s entire fleet of narrowbody and regional jets with Embraer E-Jets.
Russia is seeing increasing low-cost airline activity with a number of recent developments pointing to the opening of the eastern nation’s LCC market. Since the collapse of the country’s only LCCs Avianova and Sky Express in Oct-2011, there has been no domestic low-cost traffic but there has been growth in international low-cost traffic from foreign carriers.
The domestic market would also receive a boost if Russia authorises foreign LCCs to compete domestically, which is currently being considered. Such a change in policy could lead to domestic services being introduced by leading European LCC groups such as easyJet and Ryanair as well as lead to the launch of new LCC subsidiaries from Russian full service airline groups such as Aeroflot and Transaero.
easyJet has unveiled plans to enter the Russian market in early 2013, initially with flights from London Gatwick to Moscow but the carrier is also interested in several other international routes from the UK and Switzerland to Russsia. Ryanair is also interested in entering the Russian market and has applied for traffic rights in the UK-Russia market.