TALLINN - The positive effect of the activities of Estonian Air on the Estonian economy is around 130 million euros a year, of which 70 million euros is connected to tourists visiting Estonia and 20 million euros to other companies that directly service Estonian Air, Economy Minister Juhan Parts stressed in the Riigikogu while answering questions from MPs last week, reports LETA.
Parts said that the weakness of the airline’s business plan did not lie in its not being useful for the economy or the tourism sector; it was, rather, expressed in the company exceeding its planned losses. The business plan forecast Estonian Air’s loss for 2012 at less than 10 million euros, with the loss exceeding this caused by business risks becoming reality.
Parts noted that if Estonian Air continues operating independently and does this on the basis of a reduced flight schedule, it is expected to handle around 700,000 passengers a year. That means for the Tallinn Airport around the same as in 2011, i.e. still considerably higher than, for example, in 2010.
“Considering how important flight connections are both for business and tourism, an aviation company based in Tallinn is not a matter of pride or luxury, but a matter of practical need,” Parts said.
Estonian entrepreneur Urmas Soorumaa agrees that Estonian Air presently is a small regional carrier, and that it is going to remain like this in the near future, reports business portal dv.ee.
“I am sure that everyone who has read a single article about the aviation industry, and had at least one flight, knows that the aviation sector makes losses all over the world,” Soorumaa said in an interview with Postimees.
Estonian Air is a small company and needs smart management. In fact, profit is a kind of dream, which is unlikely to come true. The airline needs a maximum number of flights to cities (not towns) in the neighboring countries which would serve as hubs for making further flights to other countries.
In discussing the airline’s challenges, former Estonian Air CEO Erki Urva stated that the biggest mistake was to set unrealistic goals, reports ERR.
“I must admit that, at least in Central and Eastern Europe, there isn’t a single airline that has succeeded with such a strategy,” said Urva, who headed the company from 2000 to 2005. In order to create such a hub, a carrier must offer many destinations and competitive, cheap tickets. Estonian Air couldn’t do that and stay profitable, Urva said.
“In order to begin growing again, the company first has to get its act together, implementing consolidation, closing unprofitable routes and reducing the number of flights,” Urva said.
The Supervisory Council of Estonian Air has changed the company’s head, assigning Jan Palmer as the new CEO of Estonian Air as of Nov. 1. At the same time, all the members of the Supervisory Council will present their membership resignation request to the Minister of Economic Affairs and Communications.
In autumn 2010, after acquiring a majority of the company’s shares, the Estonian State set a target for the airline to increase connections from Estonia, and to achieve profitability. In 2011, in order to reach this goal, the company introduced a new strategy which focused on expansion of the route network.
“By the middle of this year, it was clear that the chosen strategy of Estonian Air had faced conditions which worsened the company’s financial performance considerably,” said the chairman of Council.