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The View on Estonian Aviation for the Next 20 Years

The View on Estonian Aviation for the Next 20 Years. 20th Estonian Aviation Seminar. 12 . 11 .2015. Agenda. Past 20 Years Importance of Aviation Next 20 years Contacts. Over the last 20 years we have seen the passenger volumes more than quadruple with expected 2.1 M passengers in 2015.

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The View on Estonian Aviation for the Next 20 Years

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  1. The View on Estonian Aviation for the Next 20 Years 20th Estonian Aviation Seminar 12.11.2015

  2. Agenda Past 20 Years Importance of Aviation Next 20 years Contacts Estonian Aviation Seminar, 12 November

  3. Over the last 20 years we have seen the passenger volumes more than quadruple with expected 2.1 M passengers in 2015 Source: Tallinn Airport Statistics, Note- 2015 is 10 month figures Estonian Aviation Seminar, 12 November

  4. The peak in regional airports remain at the time when Estonian Air operated 33 seater Saab aircraft Source: Tallinn Airport Statistics, Note- 2015 is 10 month figures Estonian Aviation Seminar, 12 November

  5. In the example of Riga Airport base carrier is fundamental to growth and development of an airport Estonian Aviation Seminar, 12 November

  6. Agenda Past 20 Years Importance of Aviation Next 20 years Contacts Estonian Aviation Seminar, 12 November

  7. Airlines have lowest profit margins as landscape is faced with strongest competition but all other sectors start benefitting immediately Airline concentration in comparison to supplier industries... • Duopoly: • Airbus • Boeing Two lessors have 45% of market share 1500 airlines despite overcapacity and fierce competition • Less than three providers in deregulated markets • In regulated markets: monopolies and state-owned airports Two providers dominate 40% of the market, 7 providers control 70% Monopolists • 4 providers dominate the world market • Individual providers dominate single markets Computer Reservation System Airlines Ground Handling Manufacturer Aircraft lessor Catering Airport ...and the impact on operating margin • 2,6% profit forecast • for 2014 by IATA >30% 16% 15% 11-14% 10-13% 10% 3 % Source: Lufthansa Consulting research Estonian Aviation Seminar, 12 November

  8. When assesing the value of an airline, there is a wide range of beneficiaries involved to be considered Socio-economic impact Direct impact • Creates jobs (industry average is 60 to 80 airline employees per aircraft) • Generates payroll • Increases government revenues from local taxes • Produces airport rental fees - Landing and parking fees - Gate and hangar space rental • Increases supplier revenues - Fuel & Maintenance - Catering & ground handling services +up to 3% GDP* Retail Utilities Maintenance providers Hotels Other providers Airport Airline Financial services IT Ground handler Caterer Indirect social impact • Increases tourism expenditures (trade, restaurants, hotels, local transportation, etc..) • Facilitates business, import / exports, government affairs and VFR travel • Jobs & demand for skilled workers • Creates publicity for the region • Link to key world economies Ground transportation Tour operators Note: * Figures based on averages & global benchmarks for illustration purposes only Source: Economic catalytic effects of Air Transport; Oxford Economic Forecasting Estonian Aviation Seminar, 12 November

  9. Review of studies made on air traffic effect on economy revealed unanimous positive impact • Direct impact is fairly easy to assess and gives a good indication of the developments • Indirect and catalytic effects are harder to assess and depend greatly on the transparency of the economy • Oxford economics study found following items: • 10% improvement on Latvian connectivity would increase 11,5M euros long-term GDP • Study found correlation between increased air connectivity and increased Foreign Direct Investment (FDI) • Latvian aviation sector provides jobs for roughly 18 600 people • Carrying passengers is much more beneficial for economy as cargo contributed only 1,3% Air trafficeffect on GDP Source: Kazakhstan – LCG project in 2013, Latvia – Oxford economis study in 2011, Estonia – Tallinn airport study in 2012 Estonian Aviation Seminar, 12 November

  10. Estonia is best in Baltics in infrastructure however low quantity of international seat kilometers per week hinder further improvement The Global Trade Enabling Report 2014 Lithuania • The Global Trade Enabling Report is a good indicator for expressing willingness to invest in certain countries • As Estonia ranks best in port infrastructure andshipping connectivity then improvement in air service connectivity would potentially further increase Estonian position in the list • Best way of improving position is taking over the risk of running the airline and hence making sure that connectivity is guaranteed Latvia Estonia Source: The Global Trade Enabling Report 2014 Estonian Aviation Seminar, 12 November

  11. Only national carrier will take care of the market when things get difficult, adding value for the state and increasing stability amongst investors 2.8 Passenger traffic in VNO by carriers (in Millions) • Airlines operating in Vilnius never recaptured the passengers lost when FlyLAL went bankruptcy • Only the stimulation of the market by Ryanair and Wizz Air allowed to recover a decent traffic • Would FlyLaL continued, dynamics would have been completely changed and airport more profitable for the state 2.6 Air Baltic 2.4 2.2 Ryanair 2.0 1.8 1.6 Wizz Air 1.4 1.2 Lufthansa Small Planet Airlines 1.0 Scandinavian Airlines 0.8 0.6 0.4 Others 0.2 0.0 2008 2009 2010 2011 2012 2013 Source: Vilnius Airport data, Lufthansa Consulting Estonian Aviation Seminar, 12 November

  12. Even if to import services then carrier without true mission to serve the area will leave or reduce as seen by the example of Air Baltic Market share of passenger traffic in VNO by carriers Air Baltic Ryanair Wizz Air Lufthansa Small Planet Airlines Scandinavian Airlines Others 2008 2009 2010 2011 2012 2013 Source: Vilnius Airport data, Lufthansa Consulting Estonian Aviation Seminar, 12 November

  13. Agenda Past 20 Years Importance of Aviation Next 20 years Contacts Estonian Aviation Seminar, 12 November

  14. With the optimistic (11%) scenario the growth is exponential and impossibly high where as pessimistic (2%) growth unsatisfactory • For the base scenario looking average growth rate of 4% over the last 7 years (after recession) airport volumes would reach 4.6 M passengers • For the optimistic scenario of 10% growth rate (last 20 years average) per year airport would end up in 2035 with more than 15 M passengers • In the case of pessimistic scenario growth will be 2% (average of last 3 years) resulting in 3.1 M passengers in 2035 Source: Lufthansa Consulting Estonian Aviation Seminar, 12 November

  15. What will determine which path will follow for Estonia for the next 20 years? The will of people and decision makers • Sucess/Failure of Nordic Aviation Group and their strategy and growth platform • Ministerial plans for the PSO services from/to the islands • Competitive situation around (Finnair, airBaltic, SAS) and their strategic decision • Ability to increase inbound tourism to Estonia • State priorities for the long-term development of the aviation sector: • Services vs Production • Maritime vs Aviation • Road vs Rail Estonian Aviation Seminar, 12 November

  16. Agenda Past 20 Years Importance of Aviation Next 20 years Contact Estonian Aviation Seminar, 12 November

  17. Contacts Sven KukemelkConsultant Lufthansa Consulting GmbH FRA ZQ FAC 1/ Frankfurt Airport Center 1Building B, 7. OG Hugo-Eckner-Ring60546, Frankfurt, Germany Mob:+49 (0) 151 589 40 567Fax: +49 69 696 20830 e-mail: Sven.Kukemelk@LHConsulting.com www.LHConsulting.com Estonian Aviation Seminar, 12 November

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