LAL's future hanging in air

As Lithuania's government ponders what to do with the state-owned Lithuania Airlines, the carrier will likely struggle to survive beginning next year when the common European airspace agreement takes effect, allowing foreign airlines to operate unfettered in the country.

Liberalization will bring intense pressure on the airline, the only Baltic carrier that is still exclusively in state hands.

"The liberalization of Lithuania's airspace will pave the way for a fierce competitive environment in which the strongest will survive, so LAL's future performance will largely depend on its marketing strategy and ability to adapt to new business conditions," LAL's privatization commission chairman Valdemaras Salauskas told The Baltic Times.

"This could also involve adopting more flexible pricing policies to win over passengers from low-cost carriers."

A tender to privatize LAL last April failed when the sole qualified bidder, Scandinavian Airlines System, pulled out. SAS officials cited the operation of an LAL subsidiary, Air Lithuania, as one of the reasons the company backed away from the deal.

Air Lithuania, which operates out of Kaunas International Airport, turned in its lowest income ever in 2002 following a string of mediocre years.

The airline owns two 70-seat planes that fly to Hamburg, Oslo, Malmo and Bilund in Denmark.

LAL competitors will likely come from the ranks of low-fare airlines, such as Ireland's Ryanair, which are already being courted by Lithaunia's two main airports – in Vilnius and Kaunas.

"We contacted Ryanair (to discuss) possible future cooperation", said Rimantas Skridaila, director general of Kaunas International Airport. "They proposed financially unfavorable terms that would bring in very small revenues to the airport, but we still think (Ryanair) would help boost our passenger volume, essential for the bare existence of the airport's supporting infrastructure."

The state-owned Kaunas airport, which has been plagued by a lack of profitability for several years, handles up to 10,000 tons of cargo and 20,000 passengers annually.

Ryanair has kept its fares low in part by flying to secondary airports like Kaunas.

According to Skridaila, Ryanair's arrival on the Lithuanian market would open up travel to the rest of Europe for students and even pensioners.

Based on some estimations, a single Kaunas-London round trip on Ryanair would cost as little as 312 litas (90 euros). A flight to London now on LAL is seven times more expensive.

The airline does not offer meals, preassigned seats or some other services offered by full-price carriers.

At the end of May, the State Property Fund submitted proposals to the government regarding LAL's future activities. The overhaul plans include further restructuring and streamlining of the airline, including the elimination of loss-making routes, renewing the fleet and drawing up its investment program.

Once the shake-up is complete and the more liberal rules come into play, State Property Fund officials say there might be another attempt to sell the airline in 2004-2005.

LAL posted a profit of 39.9 million litas last year.