As Estonian Air Business Information, Profile, and History

History of As Estonian Air

AS Estonian Air is the national airline of Estonia. Based in Tallinn, Estonian Air flies five mid-size Boeing 737 airliners to about a dozen destinations in Europe. It serves about 500,000 passengers a year. Traditionally, almost 90 percent of revenues have come from scheduled passenger operations. Estonian Air also operates charter flights and flies mail and cargo. Scandinavia's SAS Group is a major shareholder, with a 49 percent holding. The Estonian government owns 34 percent of shares; the remaining 17 percent are held by AS Cresco, an Estonian investment group.

Origins

Estonia was part of the Soviet Union for 50 years. During this time, a local division of Aeroflot provided air services, carrying 800,000 passengers a year at its peak, according to Flight International.

After the fall of the Soviet Union, Estonia regained its independence and on December 1, 1991, established a national airline, AS Estonian Air. Destinations to Germany, Finland, and Sweden were among the first served, a continuation of service from the Soviet airline Aeroflot. The airport operations were separated from Estonian Air in September 1992.

According to Airline Business, Estonian Air carried 160,000 passengers in its first full year (1992). Its loss of $310,000 on revenues of EEK 100 million ($7.8 million) was mostly due to unprofitable domestic routes, where the average fare was just $2.30. However, other airlines were already offering competition on the lucrative international routes.

By January 1993, Estonian was flying to Helsinki, Stockholm, Frankfurt, Copenhagen, and Amsterdam. It was increasing frequency of service to the West from the one to four weekly flights typical of the Soviet era, noted Airline Business. Though a tiny country of less than two million people, Estonia was hoping to justify having its own airline by billing itself as a gateway between East and West.

The carrier joined the International Air Transport Association (IATA) soon after its founding and in 1994 formed a joint venture with Amadeus Holding, the global computer reservation service.

Estonian Air faced competition by sea as well as by air on the 45-mile (85 kilometer) route between Tallinn and Helsinki. The airline's monthly passenger count on this route doubled to 6,000 immediately following the tragic sinking of the ferry Estonia in September 1994.

Westernization in the Mid-1990s

Estonian Air underwent two major changes in the mid-1990s that made it more of a Western-style airline. The small fleet of Soviet aircraft was replaced with new Western planes, and the airline was partially privatized.

The carrier had inherited from Aeroflot a fleet of about a dozen 72-seat Tupolev Tu-134s (only five of which were being used) and four smaller 26-passenger Yakovlev Yak-40s. These jets were relatively inefficient and noisy by Western standards. Estonian had also inherited a dozen propeller-driven An-2 biplanes.

Estonian began leasing its first U.S.-made Boeing 737, configured for 109 passengers, in 1995. A second one entered the fleet the following year. The mid-size Boeing 737 was the global standard for low-cost carriers. In 1996, a pair of Fokker 50 turboprops were leased from Maersk Air for the short-haul commuter routes.

The Russian-made aircraft Yaks and Tupolevs were retired by the end of 1996. At about the same time, according to Aviation Week, Aeroflot was compensated $700,000 for the spinoff of its Estonian division. Settling this claim allowed Estonian Air to resume suspended flights to Moscow.

Estonian had about 500 employees in 1995, down from 676 two years earlier. The head count continued to drop, as the Boeings required fewer crewmembers and less maintenance. By 1997, Estonian had 380 employees--100 of whom were with the ground handling operation at Tallinn Airport, according to Aviation Week. The airline's pilots and flight attendants were unionized around January 1997.

The airline was partially privatized in September 1996, with Maersk Air A/S of Denmark acquiring 49 percent of shares and Cresco Ltd., an Estonian investment group, taking 17 percent. The government retained a 34 percent stake. The airline was valued at about EEK 60 million ($10 million). Estonian got a new president, former Maersk Travel Managing Director Borge Thornbech. Maersk won the privatization deal over a higher bid from SAS Group, due to its plan to develop Estonian Air as an independent airline, rather than subsume it to its own group.

According to Aviation Week, scheduled international operations accounted for 86 percent of total revenues of EEK 365 million ($27.2 million) in 1996. Revenues rose to EEK 558 million by 1998.

Cooperative Marketing in the Late 1990s and Beyond

Estonian's frequent flyer program, Blue Star, was introduced in 1997, followed the next year by the debut of the "Blue Velvet" business class. Estonian began participating in SAS's EuroBonus frequent flyer program in 1999.

There were other cooperative agreements in the late 1990s. In 1997, Estonian joined AVIS in offering a Fly & Drive package. Estonian code-shared with Finnair from 1996 to 1999 on flights between Tallinn and Helsinki. (After this relationship ended, Finnair formed an Estonian subsidiary, Aero Airlines AS, to compete on this route, which Finnair had originally flown from 1924 to 1940.)

Estonian Air began code-share flights with SAS to the Scandinavian capitals in 1999. The SAS deal provided vital access to traffic from the Star global airline alliance (Finnair was joining the rival oneworld alliance). "Scandinavia has no direct service to Minsk (Belarus) or Kiev (Ukraine) and our aim is to become a regional mini-hub for those destinations," company President Borge Thornbech told Air Transport Intelligence. Yet another cooperation agreement was signed with Latvia's national airline, airBaltic, in mid-1999.

The airline was maintaining links with Eastern Europe, where its destinations included Moscow, Kiev, Riga, and Vilnius. However, the Minsk, Belarus route was canceled in July 2000 due to low traffic. Aeroflot Russian Airlines became Estonian's code-share partner on the Tallinn-Moscow route in 2001.

Tallinn Airport opened a new cargo terminal in 1998. Its passenger facilities were subsequently upgraded at a cost of $32 million in time for the new Millennium. Estonian Air was then operating three Boeing 737s and two Fokker 50s to 13 destinations. The airline had been intending to replace the Fokkers with regional jets, but this would be delayed first by an economic crisis in Russia, then by the effects of the September 11, 2001 terrorist attacks on the United States.

Online in 2000

A travel portal, travelUp.net, was launched in 2000. It allowed customers to book hotels and rental cars in addition to flights. The site was revamped and renamed reisi.net in 2002.

There were some leadership changes at the time. In 2000, Maersk Air executive Jorn Ericksen became Estonian's president. He would be succeeded two years later by Erki Urva.

According to the Baltic Times, Estonian Air reported a sevenfold increase in the cost of insurance following the 9/11 terrorist attacks on the United States. The airline temporarily switched to leased aircraft as it lined up coverage. However, Estonian was not as affected by the subsequent industry crisis to the same degree as other airlines. In fact, in 2001, it posted its first profit, EEK 15 million ($882,000), on revenues of EEK 800 million. During the year, a joint venture with Air BP, Estonian Aviation Fuelling Services Ltd., was established at Tallinn Airport. Profits more than doubled in 2002 to EEK 39.2 million as revenues reached EEK 838 million.

SAS AB agreed to buy Maersk Air's 49 percent shareholding for SEK 180 million ($22 million) in September 2003. In a press release, SAS (Scandinavian Airlines) pointed out that it had been the first Western European airline to open scheduled flights to the country. SAS was also involved in small airlines from neighboring countries. The region's growth and strategic location were keys to SAS's investment. SAS was intending to acquire majority stakes in both Estonian Air and Latvia's airBaltic, but postponed these plans until their effects on the carriers' traffic rights with Russia could be worked out.

Revenues rose slightly to EUR 56.6 million in 2003. In November of the year, the company's last Fokker 50 turboprop came off lease, leaving an all-Boeing fleet. Estonia's upcoming membership in the European Union (EU) called for the additional capacity.

Open Skies in 2004

Estonia's entry into the European Union (EU) in May 2004 opened the national airline to both competition and opportunity. More European destinations had been added, including Berlin, Oslo, and Brussels, home of EU headquarters. New competition included low-cost airlines from distant bases, such as the United Kingdom's easyJet.

Earnings slipped from EEK 81 million to EEK 29 million in 2004. While Estonian lost some market share, the local air market was booming. The airline carried more than 500,000 passengers during the year. Erki Urva, CEO for two years, stepped down in January 2005.

Principal Subsidiaries: Amadeus-Eesti AS (60%); Eesti Aviokütuse Teenuste AS (Estonian Aviation Fuelling Services Ltd.) (51%).

Principal Divisions: Airline Services; Handling Division.

Principal Competitors: Aero Airlines AS; Air France; Alitalia - Linee Aeree Italiane S.p.A.; A/S Air Baltic Corporation (airBaltic); easyJet Airline Company Limited; Finnair Oyj; Iberia Líneas Aéreas de España SA; KLM Royal Dutch Airlines; Lietuvos Avialinijos (Lithuanian Airlines); Virgin Atlantic Airways Limited.

Chronology

• Key Dates:
• 1991: Estonian Air is formed in newly independent Estonia.
• 1995: First Western-made aircraft enter the fleet.
• 1996: Maersk Air and Cresco Ltd. invest in Estonian Air's privatization.
• 2003: SAS Group acquires Maersk's 49 percent shareholding.
• 2004: European Union membership brings open skies to Estonia.