Air Lituanica launches operations, becomes Lithuania’s sole scheduled airline

Air Lituanica to launch three routes within first six weeks

Air Lituanica's launch of Vilnius-Brussels service on 30-Jun-2013 came almost nine months after Vilnius Mayor Arturas Zuokas's announcement in early Oct-2012 of the airline's planned launch. The carrier is 83% controlled via Air Lituanica Group UAB by Start Vilnius UAB. The remaining 17% is held by Air Lituanica Club UAB, which is a private capital enterprise which brings together around 30 private investors from Lithuania.

The airline aims to carry 70,000 passengers in its first year of operations with services from Vilnius to Amsterdam, Berlin, Brussels, Moscow, Munich and Prague. Air Lituanica is following a hybrid model with a buy-on-board service concept for economy passengers and a full service for business class passengers.

Air Lituanica's initial route network

Route	Frequency	Aircraft	Launch date	Current operators
VNO-BRU	Six times weekly	E170	30-Jun-2013	Brussels Airlines, Ryanair (to CRL)
VNO-AMS	Daily	E170/E175	08-Jul-2013	N/A
VNO-TXL	Four times weekly	E170/E175	05-Aug-2013	N/A

NOTE: VNO = Vilnius International Airport; BRU = Brussels Airport; CRL = Brussels South Charleroi Airport; AMS = Amsterdam Airport Schiphol; TXL = Berlin Tegel Airport.
Source: CAPA - Centre for Aviation and Innovata
*According to Innovata data for 08-Jul-2013 to 14-Jul-2013

On its launch route, Vilnius-Brussels, Air Lituanica is competing directly with Brussels Airlines and indirectly with Ryanair, which operates to Brussels South Charleroi Airport. Air Lituanica aims to capitalise on Lithuania's accession to the Presidency of the Council of the European Union with the new route. Lithuania will hold the presidency from 01-Jul-2013 to 31-Dec-2013.

Following the launch of Vilnius-Brussels service, Air Lituanica CEO Erikas Zubrus said the airline was "very pleased with the fact that more tickets are being sold to foreigners wishing to visit Vilnius rather than Lithuanians travelling abroad. This will undoubtedly have a positive effect on developing tourism and attracting new visitors to the country". The airline subsequently reported an average passenger load factor of 70% on the service after its first week of operation.

Air Lituanica faces no competition on its second route, Vilnius-Amsterdam, which was launched on 8-Jul-2013 with one daily flight. Its forthcoming third route, Vilnius-Berlin, is also not currently served by any scheduled carriers, according to Innovata data.

To operate its initial two routes, Air Lituanica has wet-leased a 76-seat Embraer E170 aircraft from Estonian Air. The agreement with Estonian runs until the end of 2015.

While the Amsterdam and Brussels services are marketed under the Air Lituanica brand they are operated with an Estonian Air flight number, making Air Lituanica for the time being at least a virtual airline. Estonian Air is also providing commercial services including ticket sales, revenue management, interline and codeshare agreements.

Air Lituanica CCO Simonas Bartkus has said the airline plans to lease an E175 aircraft from Embraer subsidiary ECC Leasing from late Jul-2013. This aircraft is expected to arrive in time for the launch of the airline's third route to Berlin in early Aug-2013.

This suggests Air Lituanica could have its own air operators' certificate by early Aug-2013. But the airline could also potentially hire Estonian to operate this second dry-leased aircraft on its behalf.

Future expansion covers Germany, Georgia, Russia and Sweden

Air Lituanica has said its next batch of routes will include Moscow, Munich and Prague. Other potential routes were highlighted by Mr Zuoka in Oct-2012 included Hamburg, Saint Petersburg, Stockholm, Tbilisi and Istanbul. The original plan was for all of these to be launched in 2014 except Istanbul, which would come in 2015.

Of these, only two are currently operated by other carriers. SAS Scandinavian Airlines currently operates a daily Vilnius-Stockholm Arlanda service while Transaero, Aeroflot and UTair currently operate to Vilnius from Moscow Domodedovo, Moscow Sheremetyevo and Moscow Vnukovo, respectively. Transaero currently operates twice weekly on the route, while Aeroflot operates daily and UTair operates twice daily.

LCCs have strong foothold in the Lithuanian market

Air Lituanica's biggest challenge will be to establish its presence in the Lithuanian market considering the strong foothold by low-cost carriers. LCCs hold the top three largest airline positions based on weekly seats offered.

Ryanair is currently the leading carrier in Lithuania and currently accounts for almost 39% of the country's airline seat capacity. The next two largest carriers in the market are Wizz Air and airBaltic, which provide about 15% and 8% of the country's seat capacity. LCCs in total contribute a huge amount of capacity in the country with six carriers (airBaltic, Norwegian Air Shuttle, Ryanair, Wizz Air, Wizz Air Ukraine and WOW Air) currently providing 65% of the country's overall seat capacity.

Air Lituanica currently contributes around 2% of Lithuania's international capacity with its initial two routes. This ranks Air Lituanica as currently the ninth largest carrier operating to and from Lithuania.

But the airline's upcoming service to Berlin should see its ranking increase to eighth place ahead of Finnair but still behind LOT Polish Airlines. If Air Lituanica follows through on its expansion plans and has a network of about 10 routes by the end of 2014, it could capture about a 10% share of the market. This would make Air Lituanica the third largest carrier in the country but still well behind market leaders Ryanair and Wizz Air.

Airlines operating to/from Lithuania, ranked by weekly seats: 08-Jul-2013 to 14-Jul-2013

Rank	Airline		Total Seats
1	FR	Ryanair*	37,422
2	W6	Wizz Air*	14,040
3	BT	airBaltic*	7,816
4	W2	FlexFlight*	7,768
5	LH	Lufthansa*	5,312
6	SK	SAS*	3,236
7	LO	LOT - Polish Airlines*	2,926
8	AY	Finnair*	2,376
9	LT	Air Lituanica	1,976
10	UT	UTair Aviation*	1,960
11	SU	Aeroflot*	1,936
12	DY	Norwegian Air Shuttle*	1,928
13	SN	Brussels Airlines*	1,504
14	PS	Ukraine International*	1,260
15	OS	Austrian Airlines*	1,200
16	WU	Wizz Air Ukraine*	1,080
17	OV	Estonian Air*	912
18	QU	Utair Ukraine*	420
19	UN	Transaero Airlines*	404
20	TK	Turkish Airlines*	384
21	X9	WOW Air*	360
22	7R	RusLine*	300

* indicates a foreign carrier
Source: CAPA - Centre for Aviation and Innovata

The majority of capacity in Lithuania is to/from the capital airport, Vilnius International Airport, with around 73% of overall capacity. This is followed by Kaunas Airport with around 24% and Palanga Airport with around 4%.

According to Innovata data, only three airlines currently operate scheduled service to Kaunas - airBaltic, RusLine and Ryanair. Ryanair accounts for almost all of the capacity at Kaunas, about 97%. The Ireland-based LCC has a base at Kaunas that operates 19 routes and provides over 22,000 seats weekly.

Palanga is served by more carriers, four, but has only about 3,500 total weekly seats. airBaltic, Norwegian Air Shuttle, RusLine and SAS currently serve Palanga.

Lithuania's fourth airport, Šiauliai Airport, which was until recently solely a military airport, is now a mixed use public/military airport. But it currently is only served by cargo carriers. The airport is still owned by the Lithuanian army.

While for now Air Lituanica is focusing on building its international network from Vilnius it has mentioned the possibility about potentially also operating from Kaunas and Palanga as part of a later phase. Kaunas is Lithuania's second largest city, while Palanga is Lithuania's most popular resort town.

Palanga is over 200km from Vilnius while Kaunas is only about 100km. Kaunas is close enough to the capital to potentially draw passengers away from Vilnius. But as Ryanair has large operations at both airports the amount of spillage is likely not significant.

Ryanair serves 14 routes from Vilnius including Brussels. It does not also serve Brussels or any of Air Lituanica's initial three destinations from Kaunas.

Coming months vital for the future of Air Lituanica

The coming months will be vital for the future of Air Lituanica as it aims to spread awareness of its brand and route network among Lithuanians and residents of its Western European destinations. Air Lituanica's viability will hinge on its ability to compete with foreign LCCs, which already account for a majority of the market.

By offering both a LCC-type economy product and a full service business class product, Air Lituanica may be able to appeal to both sectors of the market. But it will be challenging given the economies of scale enjoyed by much larger LCCs and the fact they have established and powerful brands. The previous failures of local scheduled carriers in the Lithuanian market highlight how difficult it can be to establish a sustainable niche in a relatively small market with significant LCC presence.