Estonian Air & Nordica. Forever a Feeder

A year and half ago in my last post regarding Estonian Air, i gave a brief history and analysis of what -from what i have gathered, brought on the demise of this tiny nation's national carrier. Today, eighteen months later, let's take a snapshot of what's become of the country's aviation landscape and it's key carrier.

The day after the shutdown of Estonian Air, an announcement was made of a new 40 million euro government funded national airline under the banner of "Nordic Aviation Group", now known as "Nordica". Largely comprising of former Estonian Air staff, it's launch seemed haphazard, as passengers accustomed to streamlined booking processes faced booking confusion more typical of post-soviet times, when one was ever sure if or when a flight might depart. Fortunately for both Estonians and Nordica, processes were quickly restored to more typical Estonian reliability and efficiency. Regardless, compared to Estonian Air, the flight network was severely reduced in both destinations and frequency.

Without it's own aircraft, operating license or airline code, an agreement was made with struggling Adria airlines, Slovenia's national carrier for legal commercial operations, as aircraft were also wet-leased from BMI while Nordica worked towards it's own AOC and Commercial IATA status. I can only speculate to why Adria was initially selected, possibly for it's lack of any real competitive threat to the re-establishment of a national carrier.

Several airlines took advantage of the confusion in Tallinn, including SAS increasing frequencies from Stockholm, Oslo and Copenhagen (Estonians soon ceding the Copenhagen route completely to the SAS), along with Air Baltic bolstering it's recently established Tallinn hub with flights to Amsterdam and Paris -effectively scooping-up Estonian's former KLM-Air France codeshare agreements. The lucrative Tallinn-Moscow line was also ceded to Aeroflot due to the cancelation of an international air service agreement with now defunct Estonian Air.

While Tallinn Airport has reported dramatic increases in passengers served, start-up Nordica has faced fiercer competition than Estonian Air had ever encountered. Nordica has been structured to market aviation services, it's not an airline as it has never applied for a an AOC. Instead a subsidiary named "Regional Jet OÜ" holds the air operators certificate, perhaps to better sever marketing operations from aircraft operations in case one of the two fail. Another benefit may be to provide wet-lease services to other airlines, without confusing or diluting the newly established Nordica brand.

Nordica-Adria's dual-branded marketing seemed confusing at best, particularly to those without any background knowledge of Estonian Air's demise and Nordica's inception. However, the brand-sharing partner changed to Polish LOT airlines in November 2016, which seemingly brought new benefits and changes. In exchange for a 49% stake, Nordica owned Regional Jet OÜ was contracted by LOT to operate it's Stockholm-Warsaw route, in addition to it's Tallinn-Warsaw route.

Soon after, SAS (alliance partner of LOT) contracted Nordica and LOT co-owned Regional Jet to operate two routes out of Copenhagen, however not with Regional's current CRJ aircraft but with four ATR turboprops in SAS colours -an aircraft type which neither Nordica or it's Estonian predecessor ever operated. While it's known operations of non-uniform aircraft types can become quite costly, the three to six year contract with SAS along with the possibility of flying ATRs on Nordica's own "thin-margin" routes may help justify the type diversion.

These shareholding and line agreements bring precariously familiar revenue streams and partner relationships to Estonia's new "national carrier". Not long ago, Estonian Air was little more than a feeder for SAS -a 49% shareholder in the company at one point (though ownership percentage varied throughout the partnership). Expansion however was severely curtailed, as Tallinn was never allowed to become a connecting hub for Nordic customers. Stepping into competitive territory meant dealing with the repercussions of stepping on a partner's toes, something Air Baltic experienced first hand.

Yet Air Baltic, despite some setbacks, has become a formidable player in the region through its independent expansion strategy, developing Riga into a regional connecting hub. Nordica's management may discount Air Baltic's riskier strategy in favour of "more secure" feeder or wet-lease agreements, but they should remember as a subcontractor they may become just as susceptible -particularly during an industry downturn when mainstream airlines cut frequencies and routes.

While management predicts loss-making Nordica will become profitable by 2019, the long term prospects of becoming a sustainable national airline, let alone a competitive regional player seem slim. I suspect we may see a repeat of ownership changes, with LOT set up to gain the greatest benefit from Estonians' funded Nordica -in the expansion of it's bases, routes and revenues.

Why Estonian Air Finally Failed.

Estonian Air files for bankruptcy - Finally.

Having been an commercial aviation enthusiast for much of my life, along with some experience as a broker in the industry, i have followed the rise and demise of many carries over the years, in particular the national carrier of Estonia  -a country i once resided in.

This news does not come as a surprise, as i’ve written about Estonian Air's problematic issues before. Estonian Air has been a precarious airline from day one, teetering on the edge of existence with feline-like nine lives. Serving a country of 1.3 million, it was created to be the pride and calling card of this newly independent nation in 1991, however the airline never truly came into it’s own.

Pride being a key driver of the Estonian people and their airline, the first task at hand was to erase a Soviet legacy by replacing antiquated Tupolev aircraft with new Boeings, which were a size or two larger than the young airline should have worn at the time.

The fleet upgrade, which also included two used Fokker 50 turboprops, was initiated with the help of an investment fund and Maersk who had strong ties to Finnair, which at a young age clipped Estonian’s wings to become little more than a feeder service for larger airlines. The arrangement with Maersk and Finnair failed to bring any benefit to Estonian’s carrier, so they were replaced by SAS who seemed more promising though offered little more. Estonian Air still being marginalized, the Estonian Government took controlling interest from SAS to hopefully allow Estonian Air to span it’s wings and grow.

Independence and freedom from being controlled opened up Estonian Air’s options, providing contract services to other airlines and codeshare arrangements from KLM to SAS. Estonian hired Air Baltic’s ‘mastermind' Mr Taskila who sought fleet upgrades for an expansion that did not yet realistically exist. Mimicking Air Baltic to a degree, attempts were made to open new routes starting from St Petersburg to Milan, yet it’s expansion was marginal with a lack of clarity and regularity of service. Taskila’s strategy drained the fledging airline even further. It was time to find another CEO who might turn the airline around.

Jan Palmer was recruited to stop the bleeding, optimizing routes and cutting services was the first priority. Expansion was halted, yet market strengths and weaknesses were not properly analized and no recalibration or new direction for the business was taken, Estonian Air only continued to bleed. A bailout was needed if the airline was to survive. But as we now know, bailouts are a no-no in the EU, as Estonian Air must now pay back subsidies recieved from taxpayers.

Antitrust commissioner Margrethe Vestager stated clearly that the carrier "didn't carry out the nescessary restructuring to become viable as a business". I couldn't agree more with this statement. And continued subsidies will not bring reform to the failing airline.

So could have bankruptcy been avoided? There’s no guarantees in this business and the aviation industry is cut-throat at it’s best. Yet Estonian Air’s demise has much more to do with mis-management than market or industry dynamics. From the beginning, yielding to larger ‘friends’ in the industry never allowed the airline to grow into it’s own. Take Braathens and Norwegian as examples.

Braathen’s yielded and were eventually absorbed by SAS and Norway's national carrier ceased to exist. Tiny Norwegian Air Shuttle grasped an opportunity and has now become a formidable European airline, without any government assistance of sort. Air Baltic also pried itself loose from SAS’s control to become a struggling, yet formidable survivor. Estonian Air’s fate may only strengthen’s Air Baltic’s position in the region.

Estonian Air’s key flaw has been a lack of independent vision from day one. Providing feeder service certainly gives a revenue stream, but leaves an airline vulnerable to market downturns or to simply be discarded on a whim. Understanding the market and carving out it’s own position through hub and transit strategies could have placed Estonian Air on a more solid footing. Tallinn as a transit hub could have served much of Russia and Eastern Europe, even Asia if they had Finnair’s type of strategic wisdom.

11 years ago the European market opened up, yet no realistic attempt was made to serve other markets through subsidiaries or sub-branding. An Estonian Air Regional subsidiary was created, yet even that failed to do more than separate a turboprop fleet from the parent company. A non-nationally branded subsidiary could have made significant inroads into other Nordic or European regions.

Is there a future for an Estonian national carrier? The key question lies more in strategic vision. If a new airline is built on nationalistic pride as some government officials at times have eluded to, it will fail. Tallink, the Baltic Sea’s largest ferry operator has also expressed interest in creating a new airline for Estonia, but aviation is much different than ferry and shipping industries.

Some may say consolidation in the industry is inevitable, so Estonians should give up on the idea of a  national carrier. Yet consolidation is often what causes new and small airlines to emerge, competing in markets and filling niches larger carriers have overlooked or neglected. A new state owned company ‘Nordic Aviation Group’ has announced they will take over Estonian Air’s flights starting November 8th to seamlessly transition to a new airline, but without a new vision their fate will most certainly be the same.

Government bailouts and subsidies are never a solution, only clear vision and strategy could have turned Estonian Air around. Now, after using up all of it’s nine lives, it's best to start anew and draft a realistically progressive business strategy with an open blue sky in mind.

Wizz Air - the high cost of a low cost airline

I recently had the undeserved privilege of flying with Wizzair, a cut rate airline based in Hungary. The experience was wrought with unexpected surprises from booking through to my final flight. What should have been a bargain price trip ended up costing significantly more than if i had flown with a mainstream airline.

Wizzair’s booking system seems to be relatively simple to use, though it has some dangers (i believe purposely) built in. I opened up the page with my Google browser and proceeded to book my bargain $44 flight from Budapest to Stockholm Skavsta, from where i had booked a $20 flight on to Tallinn with Ryanair. Enticed by the pricing, i booked the flights.

I clicked on the date and time of travel i desired, the 5th of May, and proceeded to the next page to pay. After i had paid, i discovered my confirmation was not for the 5th as i had requested, but for the 7th instead. My Ryanair connection become useless to me, another needless expense. I went back to see if i had done anything wrong, and discovered just by gliding your computer’s mouse over the screen before clicking on the icon to go ahead, can change the dates. I wonder how many people have booked the wrong flights due to this (intentional) fault.

Immediately i tried to contact Wizzair, but they offer no phone service unless you are located in specific countries, and then you need to pay outrageous rates for customer service calls. So with no phone number which would work calling from the USA, i sent an email to customer service. I received an automated reply that i would be contacted in due time, however their response came weeks later. In essence i was stuck with a ticket i had not requested. Tough luck!

The next unexpected but shrewd policy of WizzAir was to charge for larger carryon baggage, smaller ones were free. So i carefully measured my luggage (see attached video) and it just fit their ‘small’ and free luggage criteria. So no additional expenses for me... or so i thought..

So after extending my trip to Budapest 2 days longer than initially planned (with expenses involved), I arrived at the gate to board my flight and was required to squeeze my luggage into a frame. Admittedly my luggage was packed tight, but my luggage did not want to go in the frame due to 2mm wide plastic edges of the luggage. In every other way my luggage fit the frame. I then proceeded to try to put my luggage in upside down and again got caught on these 2mm edges, but it was mostly in the frame (see attached video). No grace and no go, WizzAir representatives arrogantly insisted i pay a 40€ ($50+) fee for this 2mm deviation of my luggage. This another insult added to the previous booking injury, which doubled the cost of flying with them, not to mention my other incidentally related expenses.

The flight was pleasant enough, though taking Ryanair’s example, no even water was available for free. Arriving in Skavsta 2 days later than i booked meant i had missed my Ryanair connection, and there were no suitable alternatives available on that date. So i took an expensive bus ride to Stockholm and caught the overnight ferry from Stockholm instead, another $80+ expense added to the bill.

I talleyed up the total cost of the low cost Wizzair ticket, my extra expenses came in excess of 300€, or close to $400. Far cry from the $44 flight i booked.

Would i fly WizzAir again? I don’t know, but i would definitely be very wary of any ‘low cost’ imposter who after alluring you with cheap prices dig much deeper into your pockets.

The swan song’s final verse

It’s been 3 years since I gave a grave outlook for Estonian-Air. Since then, two changes in management and three uprooted business plans has not bode well for this tiny carrier. Living on government life-support, this once hopeful bird is now in essence clinically dead.

Sacked in October of last year, CEO Taskila’s plan was aggressive: building an expansive network to rival Air Baltic’s success (which in reality was not the most profitable success). The fleet renewal process started with CRJs was abruptly ended, in favor of a deal to lease Embraer 170 jets. Even if the Embraer is a more cost effective choice, Taskila and OV’s management board should have known well that every fleet renewal program is a high cost investment. Starting two renewal programs in such a short period would be draining for the fittest airlines, and Estonian Air could never afford such a drain.

Unfortunately, Estonian Air’s business plans have lacked progressive vision since it’s inception. Initially formed as a national carrier, developing new markets was never seriously on the agenda of it’s controlling owners. Starting with Maersk in 1995 through to SAS, this sheltered stepsister (unlike Air Baltic) was kept in the back kitchen as a feeder for others, never allowed to dance at the aviation ball. And alas, the ball was ending by the time Taskila extravagantly escorted her there. For Estonian it was just too much, too fast, and too late.

Flight has always been a balancing act, and it takes wisdom to know when to soar and when to glide. Growth should never be rushed. But Estonian was asked to soar when it’s wings had become too weak to fly. Streamlining operations while moving to a more efficient fleet might have made a more nimble and resilient carrier to face stormy european skies. Available resources should have been used at capacity or disposed of, before new aircraft was acquired. The fleet of Boeings, CRJs, SAABs and Embraers rarely worked at full potential, and dormant birds burn cash fast...

Though it was refreshing to see Estonian’s network expand recently, the groundwork was incomplete. Marketing this obscurely named airline should have been at the forefront, developing a brand with a distinct identity, especially when entering new markets. This may have taken the form of exemplary on board service or a no frills format, regardless it needed to find it’s defined market niche. Estonian however, remained undefined - sputtering and stalling between many promising silver clouds.

Estonian’s new CEO Jan Palmer has been handed the most impossible task to accomplish, untangling a skewed business plan with mismatched aircraft, in order to create a clear vision and direction for his colleagues to follow. He may feel it’s easier to bury this tangled nest and start fresh.

True to nature vultures are circling, and recent nordic newcomer FlyBe is the most likely to benefit from Estonian’s demise. There has even been rumors of it taking over as Estonia’s flag carrier, if the flag remains involved at all.

Some say national carriers are a relic of the past, but don’t tell that to Estonian’s neighbor Finnair who has carved out a very sustainable and profitable niche in the global aviation market. Long term vision and strategic planning, along with streamlined efficiency and resourcefulness, remain the only keys to survive in this bird eat bird business.

R.L.

The demise of european business class travel

The 90's were boom years for fat business oriented airlines. For many airlines, midweek business travel was a cash cow to fund ineffecient airline structures. Implimenting the weekend rule for leisure travellers gave the opportunity to service both clientel with the same flights. So often a business traveller would find himself beside a 'leisure traveller' who's ticket cost 5 times less.

These obstinant rules were often taken advantage of, with business travellers opting to take weekend vacations connected with business trips, a perk which would often save the company money. Another tactic was to buy two return economy tickets, disposing of the return flight, which was wasteful to say the least. With careful planning, one could span return flights over one of more weekends, prearranging two midweek business trips well in advance. Of course the flexibility to change flights was lost, but it was still cheaper to buy another economy ticket when needed..

Times have changed and flights have become much more competitive with more low cost airlines in the european skies. Business class fares have long collapsed, weekend rules have all but disapeared, and one way fare calculations are now the norm with most growing airlines. Competition has forced efficient cost structures on both airlines and businesses using their services. Many traditional airlines have struggled with high cost structures and have been forced into severe restructuring, while low cost start-ups have thrived.

However, the future of the airline industry is still unclear. As some low cost airlines have faultered, and capacities along with margins have been cut, are we on the way back towards more business class service and higher cost air travel? ..

the rise and fall of Nordic stars

One does not normally associate Norway with low cost airlines. Considered to be one of the most expensive countries in the world, in 2002 a small regional airline Norwegian Air Shuttle took the european airline industry by storm.

Initially established to operate regional flights with Fokker 50 aircraft in Norway, many routes in cooperation with Braathens. With Braathens absorbed by SAS, and termination of a series of route agreements, Norwegian in 2002 re-aligned itself into a low cost operation. By 2003 it's entire Fokker 50 fleet was replaced with Boeing 737s, an ideal aircraft to expand into key SAS markets. Within 8 years Norwegian became the 4th largest low cost airline in Europe, which operates 45 aircraft to 85 destinations in 27 countries, capturing a significant share of SAS traffic.

Scandinavian Airlines System (SAS), was created by a merger of  Norwegian, Danish and Swedish airlines, and has been the royal star of Nordic aviation for over 50 years. Recently however it has faced considerable trouble in restructuring operations for today's more competitive market. Rather than focusing to develop it's own network, growth strategy has included aquisitions of other regional airlines, most of which have recently been divested at a loss. These included British Midland, Air Baltic, and Spanair which it eventually sold for only 1 euro.

Although an all jet fleet proved successful for Norwegian, SAS has failed to become competitive due to higher costs. Due to ineffiencient operations, a short lived attempt to market the low-cost "Snowflake" brand was also dropped in 2004. The Q400 turboprop with low operating costs was to become the cornerstone of SAS's regional development plans, but it was hastily removed from operation after three landing gear incidents in 2007. Today the most efficient regional aircraft in SAS's fleet are are CRJ900 jets, no match for Q400 economics.

As a result SAS has been bleeding capital for years, and it's share of the European market has dropped significantly. To add insult ot injury, Air Baltic, a company SAS helped create, has recently won the tender for  Swedish government flights, which was once considered an SAS sacred cow.

In a few short years, small Norwegian and Baltic airlines have successfully upstaged this airline of three kingdoms, showing cost efficient operations and well planned route networks can bump larger established players off their throne.

The rise and fall of Nordic stars

One does not normally associate Norway with low cost airlines. Considered to be one of the most expensive countries in the world, in 2002 a small regional airline Norwegian Air Shuttle took the european airline industry by storm.

Initially established to operate regional flights with Fokker 50 aircraft in Norway, many routes in cooperation with Braathens. With Braathens absorbed by SAS, and termination of a series of route agreements, Norwegian in 2002 re-aligned itself into a low cost operation. By 2003 it's entire Fokker 50 fleet was replaced with Boeing 737s, an ideal aircraft to expand into key SAS markets. Within 8 years Norwegian became the 4th largest low cost airline in Europe, which operates 45 aircraft to 85 destinations in 27 countries, capturing a significant share of SAS traffic.

Scandinavian Airlines System (SAS), was created by a merger of  Norwegian, Danish and Swedish airlines, and has been the royal star of Nordic aviation for over 50 years. Recently however it has faced considerable trouble in restructuring operations for today's competitive market. Rather than focusing to develop it's own network, growth strategy has included aquisitions of other regional airlines, most of which have recently been divested at a loss. These included British Midland, Air Baltic, and Spanair which it eventually sold for only 1 euro.

Although an all jet fleet proved successful for Norwegian, SAS has failed to become competitive due to higher costs. Due to ineffiencient operations, a short lived attempt to market the low-cost "Snowflake" brand was also dropped in 2004. The Q400 turboprop with low operating costs was to become the cornerstone of SAS's regional development plans, but it was hastily removed from operation after three landing gear incidents in 2007. Today the most efficient regional aircraft in SAS's fleet are are CRJ900 jets, no match for Q400 economics.

As a result, SAS has been bleeding capital for years and it's share of the European market has diminished significantly. To add insult ot injury, Air Baltic, a company SAS helped create, has recently won the tender for  Swedish government flights, which was once considered SAS's sacred cow.

In a few short years, small Norwegian and Baltic airlines have successfully upstaged the airline of three kingdoms, showing cost efficient operations and well planned route networks can bump larger established players off their own throne.