CEO of Tallinn Airport Riivo Tuvike said on the "Esimene stuudio" talk show that Tallinn Airport will have to hike airport fees again as early as next year.
What would have happened to Tallinn Airport's financials had the fees not been hiked?
Looking at the situation today, aviation is a loss-making business for us. It lost €2.7 million last year. The question is how to cover it? Ways need to be found to avoid service disruptions. And it makes sense to do it through airport fees.
At the same time, the airport's real estate and catering business is more than €8 million in the black. What other purpose should that serve?
We have a lot of systems and infrastructure in need of constant updating. The airport is small and needs to be expanded. Tallinn Airport was designed for 2.8 million [annual] passengers, while we catered to 3.2 million in 2019. We clearly saw that the airport was too small and that existing infrastructure is in need of development. We need the money to invest in airport infrastructure, to make it more comfortable for the people of Estonia.
We plan to invest around €110 million over the next three years. Our existing loan portfolio that we need to service amounts to €45 million. And that requires decent finances. The non-aviation-related income fills that hole today. But it cannot for long.
The owner's (government) expectation is for the airport to be profitable, while maintaining and expanding air links. Doesn't your decision to cut the number of destinations mean you're complying with just half of that expectation?
We must always look at what we compare the number of destinations to. Looking at 2019, then 2022 and now 2023, we had 35 European destinations in 2019, while we have 45 today. A few more will be added today. We'll lose some but still have more than in 2019. We have been working on boosting the number of destinations in recent years.
Wouldn't it be better for the airport to break even but offer more destinations?
It is a matter of choices. What would happen is that we would be unable to make the infrastructure investments I outlined. It would mean going to the government to ask for additional resources.
For example, Latvia has invested an additional €40 million in its airport in the last few years. Estonia has different expectations. Estonia wants us to manage both everyday activities and necessary investments.
You are managing them. Your profit is solid. Is there no way to let the aviation side of things sink a little deeper into red, make money off Estonian entrepreneurs renting workshops and parking lots, sell expensive croissants in the cafe to keep the economy airlines flying from Tallinn?
We need to invest a total of €110 million over three years.
The €3 [airport] fee hike will not pay for those investments.
€3 per outgoing passenger, which was the extent of our hike. It comes to roughly €4.5 million and that buys quite a lot.
Shouldn't we subsidize people coming here, looking at our climate and location, so they could spent their money in Estonia. We would get back the money spent tenfold through tourism.
Agreed. And we're working on doing exactly that. We're prioritizing major hubs, such as Frankfurt or Amsterdam. We're working on improving links to hubs.
Would EU state aid rules facilitate more than what we have seen so far in terms of subsidies for the airport? The fancy new security gates where people no longer have to fish their laptops out of their bags... Couldn't the government just pay for them?
The state is supporting us. It pays for the rescue and security services. It will fall a little short this year. EU state aid rules permit that much.
If politicians say Estonia should have more links to the outside world, perhaps they could rephrase the owner's expectation and say that the airport can make a slight loss as long as we have destinations?
I don't know about that but thinking of the future, in the conditions of growing expenses and salaries, we will be back in a situation where our costs outweigh the state's targeted funding again next year.
It is quite probable we will have to alter and adjust airport fees again next year. And the adjustment will be toward hiking them. Of course, should compensation grow, there would be less need to do that.
How is Latvia managing to keep airport fees low? Ryanair's market share in Latvia keeps growing, while the airline says Tallinn Airport cannot be reasoned with when we hike the fees. What are the Latvians doing differently?
The first thing that's different in Latvia is geography. Airports measure their potential attraction areas. That distance is to within 200-250 kilometers of the airport. Looking at where Riga is located and drawing a 250-kilometer circle around it, the area has roughly five million people. Riga's more advantageous geographic locations gives it an edge.
Secondly, Latvia has capitalized on that favorable location as a strategic way to boost and grow its aviation. That is how they got airBaltic.
Talking about airport fees, looking at the Baltics, the problems are one and the same – inflation is the same for all three. I believe we just did it first in Estonia. I have talked to every one of my colleagues. Everyone – Estonia, Latvia and Lithuania – planned to hike the fees. The Lithuanians have done it by now.
And Ryanair closed the door behind them there too.
Sure. It's their style. We haven't physically hiked the fees in Estonia yet as the Competition Authority is still processing them. And Riga was also looking to hike them. Those discussions took place in October, and they decided against it.
What happened? The elections?
In other words, politicians realized that delivering news of fewer direct links [from Riga] was not a good look going into elections. What could that decision end up costing the Latvian taxpayer? How much more will Latvians have to pay to have better links to the outside world than Estonia?
During Covid, they were allocated €39.7 million, while airBaltic got €291 million. Those are the ballparks.
Putting €40 million in an airport should be offset rather quickly through increased tourism?
I have not kept an eye on Latvian tourism in those years or whether revenue is up by that much. Though it would be interesting to find out.
Is the competition situation such that the things we leave undone [in Tallinn] get done in Latvia that sees our passengers opt for Riga instead?
We do not see it as a competition. Latvia is in a different situation. They have airBaltic and Riga is its home city. The strategies of the airport and airBaltic are intertwined. We would rather see airBaltic fly to more places out of Tallinn and are working toward that end. Of course, Riga Airport is a competitor in some ways, while I would also describe us as good colleagues, exchanging know-how and experience.
Estonia also has a national airline in which millions have been injected –Nordica. I don't suppose they plan to lend a helping hand to launch new direct flights from Tallinn? What is your take on their current existence?
That question should be put to them, while I would rather think not. It would mean competing with the economy airlines already in Tallinn. That would be very difficult. This would end in the need to subsidize lines. Nordica flying from Tallinn would not yield new passengers.
So, Nordica will continue generating revenue for the state by operating flights for major corporations, and this is not about to change in the near future?
Perhaps it's not for me to say, but if you were to ask me whether Estonia needs an airline flying somewhere else, I would say it is a good question, from a strategic point of view.
Comparing Tallinn and Riga airports five years from now, Riga has extremely ambitious plans. How do you see the situation a few years from now?
Riga indeed has ambitious plans. They are trying to link Rail Baltica to the airport. Basically, to have a single terminal, which is great for airBaltic and in terms of creating a major hub. For Estonians, the question is what do we want out of it as a society. The Rail Baltica terminal in Riga will lie just 500-600 meters from the airport. We should be able to do the same, link them. Would Estonia lose its links? I don't think so. In the end, comfort is king, and as long as there will be passengers, there will be flights out of Tallinn.
But could we end up where he have really convenient air links for business passengers in Tallinn, while holiday travel would move to Riga?
No. Definitely not. It is a question of how many favorable holiday destinations there are. As long as there are passengers, the destinations will be there.
Editor: Aleksander Krjukov, Marcus Turovski