Lithuanian Airlines under pressure

  • 2004-04-08
  • By Steven Paulikas
VILNIUS - Lithuanian Airlines' stronghold on the domestic airline market was dealt a severe blow from neighboring Latvia last week, bringing into question the long-term viability of the state-owned flagship carrier.

On March 31, airBaltic, the Latvian national carrier, unveiled plans to make Vilnius its second hub after Riga. The airline will take advantage of the EU open skies agreement to begin routes from the Lithuanian capital to five European cities by June 1, adding another five destinations by the end of summer.
Neither airline is hiding the fact that airBaltic's entry into the Lithuanian domestic market-the first time in history a European national airline will establish a hub in a foreign country-is akin to an all-out air war.
"Yes, they're competition. The situation is what it is," said Giedrius Sniukas, press secretary for Lithuanian Airlines.
While the aggressive move by airBaltic will undoubtedly shake up not only the Lithuanian but the Baltic travel industry, the fact that the airline's management sees so much maneuvering room in Vilnius may point to deeper concerns about Lithuanian Airlines.
Unlike airBaltic, which is 47.2 percent controlled by Scandinavian Airlines System, Lithuanian Airlines is wholly state-owned, the victim of high-profile failed privatization attempts.
While the State Property Fund, the government agency charged with the sell-off of state enterprises, plans to offer a public tender for Lithuanian Airlines in the near future, the air carrier's uncertain fate has essentially paralyzed any efforts to formulate a long- or even medium-term strategy.
With a lack of any mandate for innovation, leadership at Lithuanian Airlines has had little choice but to stick with the status quo.
"Last year's plan, which will last until 2007, says that Lithuanian Airlines will remain a traditional type of air carrier while we strive to add more flexibility to our business," said Sniukas.
Yet with EU membership spelling the end of protected commercial airspace and government subsidies and with airlines offering similar services at much lower costs knocking on Lithuania's door, the time for traditional carriers may have already passed.
"It's very difficult to imagine how Lithuanian Airlines, as a state enterprise, will be able to compete with airlines with more private capital," said Remigijus Simasius, an expert at the Lithuanian Free Market Institute.
"Without a doubt, competition will increase, and as a state enterprise, Lithuanian Airlines is not able to benefit from private investment the same way as other airlines. Moreover, it is subject to political influences that may not allow it to make positive business decisions," he said.
Whether as a result of political or simply economic conditions, the Lithuanian Airlines of today will be forced into the cruel world of open competition on May 1 with few of the tools other airlines use to lure customers.
Unlike most modern air carriers, Lithuanian Airlines has yet to offer online ticket purchasing or paperless tickets, while its fleet of three Saab-2000 aircraft that service lower-traffic routes have caused nine separate maintenance failures during their three years of operation.
The greatest potential downfall to Lithuanian Airlines' business is the relatively weak bottom line it offers its customers. By clinging to its "traditional" status, the airline has ruled out the low-fares model now being employed by airBaltic in Latvia-and soon to be implemented in Lithuania as well.
A survey conducted by The Baltic Times revealed that a return ticket on airBaltic from Riga to London-Heathrow in mid-June costs as little as 98 lats (144 euros) before tax, while Lithuanian Airlines charges 1050 litas (305 euros) before tax to fly on the same days from Vilnius to London-Gatwick.
"We think what a passenger needs from an airline is to get from point A to point B. People really don't care if they get a sandwich while they're on board if their ticket costs half as much," said Vija Dzerve, spokeswoman for airBaltic.
Yet while increased pressures from competition may spell an uncertain outlook for Lithuanian Airlines, analysts argue that the airline's weakened position may translate to better options for consumers.
"From the state's position, it's difficult. But it's not bad news at all for travelers," said Simasius.
Lithuanian Airlines currently services fifteen cities from Vilnius and Palanga.