Estonian Air forced to rethink strategy

  • 2008-10-01
  • By Matt Withers

FLIGHT OR FIGHT: Estonian Air weighs the pros and and cons of the airline business as consumer demand heads down.

TALLINN - Estonian Air will develop a local niche in order to circumvent market losses due to overwhelming international competition, the company's president said.
Andrus Aljas, president and board member of the national airline, said the combined presence of Scandinavian airlines, foreign national carriers and budget airlines has made competition tight in Tallinn. The situation is worsened by Tallinn's close proximity to other regional hubs like Helsinki, Riga, St. Petersburg and Stockholm.
Speaking at a company seminar, Aljas spoke of four key factors in Estonian Air's decision to focus on internal flights.

"First is naturally the deterioration of economic environment: additional expenses due rising fuel prices and environmental protection. When it comes to fuel we can't talk about relation between supply and demand. It's not possible to forecast," said Aljas
Fuel costs currently account for 30 percent of the airline's total expenses, and this figure is liable to increase.
Another major concern, Aljas said, is the consolidations of major airlines.
The Air France-KLM partnership continues to dominate the European market, while British Airways took over Iberia, and Lufthansa has also made recent acquisitions, leaving less market scope for independent European airlines like Estonian Air.

The third subject raised is the shroud of doubt that hangs over the direction of the aviation industry. Many operators are currently on the fence regarding the cheap-flight revolution, pondering the profitability of offering budget flights.
On average, budget flights comprise only 20 percent of commercial traffic at international Baltic airports. If budget flights aggressively enter the regional market, this could render Estonian Air's current international services obsolete, as price matching would be financially crippling for the company.

Current international negotiations to loosen continental restrictions and instigate an 'open sky' policy would also be damaging, as it would allow American and Asian airlines to muscle their way into the European market.
Lastly, Aljas attributed the diminutive size of the Estonian market as a continuing hindrance; the lack of demand has undermined the airline's attempts to open new routes into Europe.
"The Estonian market is one of the smallest in Europe 's only Malta, Cyprus and Luxembourg are smaller. But to have a point in flying to a destination three times a week, it needs 25,000 passengers per year," Aljas said, adding there are few profitable destinations.

Consequently the company is aiming for greater flexibility, investing in smaller aircraft more suited for local flights, such as the 33-seater Saab SF340 and Bombardier's 90-passenger CRJ900. With a fleet reconfigured for better regional service, Estonian Air hopes to carve its niche in the aggressive aeronautical market.
"We have focused on a 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.