Hard times have Baltic airlines fighting for survival: Making the best of a crisis

  • 2008-10-09
  • By Adam Mullett

WINGING IT: The three major airlines of the Baltics have become viscious in their efforts against each other.

VILNIUS - Animals in a cage without food will turn on each other to survive. Among the most ruthless species, it seems, is the Baltic airline company.
Competition has become so fierce that flyLAL, Lithuania's private airline company, sued airBaltic for millions for price dumping (see Page 6) after it lost ground in many of its key markets.

Airline companies are feeling the pinch of foreign competition, rising fuel prices, economic slowdown and conglomerations in Europe that threaten to squeeze the smaller companies out of the market.
Different airlines are taking different approaches, and some are opting for localization. The Baltic Times reported last week that Estonian Air was changing its focus from long international routes to shorter and domestic flights for business travelers to Estonia, Finland and Lithuania.

All three big Baltic carriers have been forced to make major alterations to their business plans.
Estonian Air said it could not compete with the mergers that dominate European airways. The partnership between AirFrance and KLM is a controlling force in the European market. British Airways recently acquired Iberia, and Lufthansa has also made inroads into neighboring countries.
Estonian Air boss Andrus Aljas cited consolidation of the competition as his company's major hindrance. Lacking the muscle of larger companies, it cannot viably open new routes.

Estonian Air is trying to sell its large Boeing planes and go local with smaller craft like the Saab and the CRJ900.
"We have focused on the local niche… for example, on Oct. 2 we'll be flying between Tallinn and Kuressaare. There are more plans. The vision is to serve the entire Estonian market, fly to Kuressaare, Tartu, Helsinki and Vilnius," Aljas said.

"But to have a point in flying to a destination three times a week, it needs 25,000 passengers per year," he said.
Some problems, such as the economic downturn and rising fuel costs, seem intractable.
"When it comes to fuel, we can't talk about the relation between supply and demand. It's not possible to forecast," Aljas said.

Fuel accounts for approximately 30 percent of the total expense of flying.
Like Estonian Air, flyLAL has had to cancel routes in the last year and has also rethought its strategy. Whereas Estonian Air decided to cover the local market extensively, flyLAL has set its sights on long-distance travel.
Organizing alliances on particular routes such as Vilnius to Chicago, the historic center of the Lithuanian community in the United States, or to new business areas in Central and Southeast Asia will be flyLAL's new strategy to increase passenger traffic and make existing routes more profitable.
FlyLAL CEO Vytautas Kaikaris said the market is very price-sensitive.

Kaikaris believes price is the key factor in getting clients in the current economic climate in Lithuania, Latvia and Estonia.
"People will choose the company with the lowest prices. They will not pay more money for extra services or better brand recognition," he said.
The biggest winner in the region so far is without doubt airBaltic, which has more flights than its direct competitors, flyLAL and Estonian Air, combined. The company recently posted positive figures with increased cabin capacity. More routes have also been announced.

AirBaltic Lithuanian sector chief and Vice President Tadas Vizgirda said that while fuel prices were a worry, airBaltic is part of the large SAS network and benefits from its connections.
"We have agreements and we are part of alliances, and if they join, then it is good for us because it expands our network. When they expand, we can get more connections," he said.
But there may be trouble ahead even for the big players.

Vizgirda said that global economic downturn has led people to tighten their belts and avoid air travel.
"When you look at the mind frame of people when they hear 'world crises and 'recession,' they go into savings mode. Businesses too do this and revise their budgets. Inflation is also a problem and people are very price-sensitive," he said.

The trouble is that it is quite difficult for short distance carriers to cut their prices. There is very little to differentiate carriers for short distance flights within Europe, Kaikaris said.
"It is a commoditized market 's we don't compete on the product, but on distribution channels and your access to the market, on how you sell, what kind of relationships do you have to the sales agents, which are still a big part of the total sales. How well you do marketing 's how you drive people to your website, which is your own channel, and how you create the image of the company and what is the reputation of that country," Kaikaris said.

The two biggest battlegrounds in the Baltics are the Riga and Vilnius airports. The Riga airport is owned by the Latvian government and is experiencing record growth. The airport works closely with airBaltic, whose president and CEO, Berthold Flick, expects to become the undisputed leader in the region.
"This year the Riga airport forecasts a total of 3.7 million passengers, while the Vilnius airport expects fewer than 2 million. The point is that the situation with the aviation market in Lithuania is worsening, and it is a better option for residents of our neighboring country to depart from the Riga International Airport," Flick said.
Vilnius International Airport staff told TBT that they may see over 4 million passengers during 2009, when Vilnius will be the European Capital of Culture. FlyLAL is a major sponsor of the event too, which could see its stocks rise.

Finding the best deal
Many avenues exist to find the cheapest flights. Traditionally this has been the travel agent, but with the invention of websites such as www.skyscanner.net, it is easy to see what cut a travel agent takes. Skyscanner is a Web-based price comparison company that gives the total price of the flight, including taxes and charges, which comprise a major chunk of the ticket price.
Balts are well-accustomed to price comparison Web sites, which are popular among young travelers who often opt to fly instead of driving.

"I think these days it is such an easy way to compare all the companies on websites such as skrisk.lt, and you can easily see which airlines will be offering you the best deal," Kaikaris said.