Estonia Air makes operational changes to stay aloft.
TALLINN - Estonian national carrier Estonian Air has announced that the company’s net operational loss was 35.8 million euros in 2012, and together with one-off costs (impairment on aircraft), the net loss for 2012 was 49.2 million euros. In 2012, the revenue of Estonian Air was 91.5 million euros. The costs associated with the attempt to grow the airline and expand the route network amounted to approximately 26 million euros.
“Late last year, the Supervisory Council of the company decided to change Estonian Air’s business model from a growth oriented carrier to a regional point-to-point airline,” said Jan Palmer, CEO of Estonian Air. “While the airline carried a record number of passengers in 2012, low yields from the transfer traffic did not support the airline’s bottom line. Although the airline brought four new jet aircraft into service by the start of the summer season, overall the fleet transition proved to be more costly than planned,” commented Palmer.
From the end of January 2013, Estonian Air is working according to the restructuring plan to become a cost efficient regional carrier to provide flights to the destinations critically important for Estonia, where the demand is constantly high.
“Our turnaround is on track. We are changing from a traditional carrier to a small cost effective regional airline serving a core route network of ten destinations. We have already succeeded in increasing the yield, signed collective agreements with the crew, started to divest non-core assets and thus starting to be where we want to be. This gives us confidence to sustain the business,” added Palmer. The ten core destinations of Estonian Air include Stockholm, Copenhagen, Amsterdam, Brussels, Oslo, Moscow, St. Petersburg, Kiev, Vilnius and Trondheim.
The company’s council chairman Erkki Raasuke said on Thursday that Palmer’s contract will be extended by two years. The current contract should end at the beginning of May and thus the new one would be signed at the end of April. The council of the company concluded an initial work contract for six months with Palmer in October last year, after the previous manager Tero Taskila was fired since the expansion strategy he implemented caused the company to amount huge losses. While turnover grew by 20 percent, losses grew by 184 percent. The company’s finance manager Wade Stokes said that the activities of the previous management of the company caused the loss.
In order to reduce the losses, the company will make several changes in the next few months, the first of which is sale of its subsidiaries. Estonian Air has stakes in three companies: Amadeus offers travel services, Eesti Aviokutuse Teenuste AS sells plane fuel and Estonian Air Regional works on local flights. While in the first two, two foreign companies have a stake and they might be interested in buying the majority stake, the latter belongs to Estonian Air fully and it may be hard to find a buyer.
Palmer said that sale of the subsidiaries is needed to get the state aid permit from the European Commission, which requires that a company that needs help, gets rid of everything that isn’t necessary for its main activities.
Estonian Air intends to make at least 50 employees redundant and raise prices of tickets to compensate for expensive fuel. The planned redundancies are also for the same reason: the company has 200 employees now and by the end of the year there should be 150.
Estonian Air’s passengers can expect a ticket price increase in the near future due to an increase in the fuel surcharge. “Our current fuel surcharge doesn’t cover the increase of the fuel price,” said Palmer. The aim of the company is to increase income per passenger from 92 to 117 euros, he added.
The airline has agreed on the return of two Embraer E190 aircraft that had been ordered, but that Estonian Air did not need as its network has been downsized, according to the company’s press spokesperson Ilona Eskelinen. She adds that the aircraft had been ordered, but not yet delivered.
Erkki Raasuke, chairman of the supervisory board of Estonian Air, said in early March that the airline needs about EUR 8m to pay contractual penalties for terminating existing contracts. In addition, Estonian Air has four Embraer E170 aircraft that it does not need. Eskelinen says that the airline is looking into possibilities to return them as well, reports Postimees.
Currently the company owns ten aircraft, but uses only half of them. It is stressed that the biggest problem is with the three Bombardier aircraft since they are small, so the demand for them is quite poor.
Tallinn Airport board chairman Rein Loik expressed satisfaction over the stabilization of the situation of Estonian Air and is certain that it will have a positive effect on the airport’s results too, Public Broadcasting reports. Loik said that it would be normal if around a third of the flights serviced by the Tallinn airport were flights of the local carrier, i.e. Estonian Air, and the rest would be large international aviation companies and low-cost carriers.
“When we made a forecast for this year at the beginning of the year, we forecast the passenger number at around 1.8 million. Today I dare to think that thanks to the stabilization of Estonian Air, this number will be bigger,” said Loik. He added that he would dare to forecast 1.85-1.9 million passengers by the end of the year and a stable Estonian Air would have a major role in that. 2.2 million passengers used Tallinn Airport in 2012, which was a record of all times for the airport.