With successive national airline bankruptcies, low-budget carriers are seen as an escape

  • 2010-11-11
  • By Linas Jegelevicius

KLAIPEDA - Unlike in Latvia and Estonia, Lithuanian air travel has been through tumultuous shake-ups for the last three years. Due to ever-increasing expenditures, unreasonable operational costs and, most importantly, shady management, Lithuanian airlines, FlyLAL-Lithuanian Airlines, with debt of more than 100 million litas (29 million euros), sank into insolvency and filed bankruptcy at the start of 2009.

Eligijus Masiulis, minister of the Transport and Communications Ministry, was quick to respond to the collapse of the carrier at possibly the worst time – just before the array of events for the national venue “Vilnius – European Capital of Culture 2009.” He quickly promised new players to fill in the void. However, the successor of the doomed national carrier, Star1 airline, lasted just a bit over one year, drowning in financial troubles in early October this year. The executives of the company, plagued with insolvency, were promising to resuscitate the airline with a Chinese company’s lavish financial inflow, but with the ongoing negotiations drawing irk from exasperated Lithuanians, the government revoked the company’s flying license, ending the bid.

With Estonia Air trying to chip off a slice of the Lithuanian air market and airBaltic developing as an air travel hub in the region, Lithuanians fume over lack of political will to establish a national carrier, following Riga and Tallinn. “The Ministry of Transport and Communications would gladly greet a business initiative to create a private national airline, however, entrepreneurs do not decide that,” Masiulis maintained to The Baltic Times. According to him, the aviation business has only been loss-generating over the last years in Lithuania. “Last year our research has shown that just the establishing of such a company would require approximately 30 million euros. I am having in mind a company that would run 5-7 planes to 20 destinations. It would require another 10 million euros yearly to keep the company afloat. With the EU ban to subsidize a national airline’s establishment, the prospects of this kind of company remain very vague,” Masiulis pointed out.

Besides, he emphasizes, the trends in the EU air travel industry are not in favor of a national carrier, as state-run airlines, operating in only 9 out of 27 EU states, are about to go through privatization. “Obviously, other European countries tend to get rid of the business and prefer it being private. In addition, there is a trend of merging together private airlines, which does not leave room for small companies,” Masiulis suggested. All airlines in neighboring countries, the minister claims, are working wastefully. “Therefore, our policy is to be open for all companies. In order to attract them, we have slashed considerably Vilnius Airport’s taxes. I think that the strategy worked out well, as more airlines, after FlyLAL-Lithuanian Airlines’ bankruptcy, have shown interest in flying both from Vilnius and Kaunas airports,” the minister asserted. Asked about the prospects for 2011, Masiulis called them “not bad.”

“However, to attract more airlines and keep the flights booked, we also need to be more active in advertising our country abroad, as well as to have a clear-cut tourism strategy,” Masiulis emphasized.

Despite the turbulence in the Lithuanian airline market, Vilnius Airport reports increasing trends in passenger and flight volumes, as well as in cargo scope this year, up by 9, 19 and 25 percent, respectively. According to Tomas Vaisvila, Vilnius Airport director-general, the passenger volume would have been even bigger if not for the Star1 Airline bankruptcy. He asserts that, according to the data, Vilnius Airport goes strongly second, after Riga Airport.

Despite the setbacks of the national airlines, Vaisvila feels upbeat about Vilnius Airport’s prospects. “Having considerably decreased airport taxes, it has become one of the cheapest airports in the entire Europe, prompting many airlines to look at it,” Vaisvila maintained to The Baltic Times. Low airport taxes may have played a crucial role in attracting Hungarian low-cost airline Wizz Air, which will rival for money-savvy Lithuanian fliers with another low-cost airline, Ryanair, flying from Kaunas. “Concurrently, Wizz Air will launch eight new routes from Vilnius to London-Luton, Doncaster-Sheffield (UK), Cork (Ireland), Eindhoven (Netherlands), Stockholm - Skavsta (Sweden), Milan-Bergamo, Rome-Fiumicino (Italy), and Barcelona (Spain). Fares are starting from as low as14.99 euros, one-way, all-inclusive, starting April 2011,” Balazs Varro, Wizz Air Corporate Communications Manager, reported to The Baltic Times.

However, it is likely that Vilnius Airport will not be satisfied with the Hungarian player. “We are always in negotiations with several airlines,” Vaisvila emphasized. He dismissed the assertion that Vilnius Aiport, unable to compete with Kaunas-based Ryanair, has radically switched its policies to becoming an airport of low-cost airlines. “Vilnius Aiport is open for offers from all airlines. We constantly negotiate not only with low-cost carriers, but with traditional airlines as well. This has resulted in the arrival of Estonian Air this year, also in increased flight frequency by SAS and AeroSvit,” Vaisvila pointed out. Asked whether Ryanair will ever open its base in Vilnius, the airport director dodged a forthright answer, claiming, “We have been in a very warm and close relationship with the company.” However, he added, Vilnius Airport is ready for welcoming other low-budget companies. “We are working on drastic further airport tax slashes next year, which, we predict, will increase the passenger flow by 300,000 – 400,000 people next year. The increase will not be only due to Wizz Air,” Vaisvila maintained.

Though many predict that Wizz Air’s presence in Vilnius will chip away a lump of Ryanair’s passenger flow in Kaunas, he did not want to elaborate on that, claiming, “It will be an issue of pricing for both airports. In depends only on which airport fliers will choose.” To some experts’ cautions over catering to thrifty tourist needs, and fears that Vilnius will become the cheapest tourist destination, Masiulis counter-argued, emphasizing, “Due to the overwhelming downturn, travelers have become very money-savvy. Therefore, low-cost airlines are on the rise throughout all of Europe. The boundaries of what we call a low-budget airline and an expensive airline are dwindling. More than 10 airlines which, according to your definition should be regarded as expensive, will keep operating from Vilnius, bringing high-income travelers and businessmen.” With the competition rising, it seems that Estonian Air is to offer the most for the upcoming winter – six weekly flights to Stockholm and a once-a-week flight to Milan, thus ensuring easy connecting SAS flights from Stockholm - Arland Airport.

Estonian Air president and director-general Andrus Aljas sees big potential in Lithuania. “The Lithuanian aviation market is one of the most rapidly growing in the Baltic region. Statistically, only 0.53 percent of our flights go to Lithuania, while the number is 1.04 in Estonia and 1.94 in Latvia.”

“We took up only 1 percent of the passenger and flight flow in Vilnius Airport last year. While it has risen to 3 percent during this year’s nine months, we are looking forward to hiking it up to 7 percent in 2011,” Aljas said. Other companies also scrambled to follow Estonian Air’s example, offering more flights this winter. Thus, airBaltic is about to deliver a flight for ski enthusiasts to Munich, starting Dec. 25, as Ukrainian Aerosvit will fly twice per day to Kiev instead of having one flight. In addition, there are going to be more flights to Amsterdam and Copenhagen as well this winter. “The winter season is not as active for leisure and relaxation time as the summer, therefore, as a rule, flight frequency always declines in winter. However, this winter seems to be an exception,” Vaisvila noticed.

With the Vilnius and Kaunas airport competition reaching new heights, Kaunas Airport director Arijandas Sliupas remains confident, asserting, “There are still many possibilities for collaboration, not only with Ryanair, but also with other airlines as well. Our airport works single-mindedly in bids to expand the low-cost flight geography.”  However, Sliupas cautions, the prospects depend on general trends in the country, varying from successful expansion of the Lithuanian tourism sector to economic recovery and foreign investment attraction. He dismisses the speculation over somebody’s alleged attempt to switch all air traffic from Kaunas to Vilnius, claiming, “The Lithuanian airport expansion strategy is being coordinated and sustained. Both Vilnius and Kaunas airport boards are of the same people. It is something that allows easy coordination of all strategic actions. I do not think that Wizz Air’s presence in Vilnius will impact negatively passenger flow growth in Kaunas.”

According to him, Kaunas Airport reported an 11 percent passenger flow increase in 2009, compared to 2008, while the growth in 2010 was even more dramatic, seeing a doubling of passenger numbers year-on-year, amounting to 557,000 passengers over this year’s three quarters, a staggering 79 percent hike from last year. “Despite the downturn, we maintain steady growth. Our growth has been triggered by our low price policy. We were able to retain low prices without imposing so-called fuel taxes on our passengers, which is something other airlines tend to do. Besides, we have much improved our punctuality, as the company started being a leader in this regard. In addition, we have significantly decreased complaints about missing luggage. All this has contributed to our outstanding achievement in Lithuania,” Laszlo Tamas, Ryanair sales and marketing head for UK, Ireland, Central and Eastern Europe’s markets, said. Ryanair operates 19 flights from Kaunas.