The Baltic Times, TALLINN
By Kairi Kurm
Jul 26, 2001
The European Commission fined Swedish carrier Scandinavian Airlines System (SAS) and Maersk Air 53 million euros ($46.08 million) on July 17 for a cooperation agreement that led to price fixing on the Copenhagen-Stockholm route.
Some Estonians fear that Maersk Air, which owns 49 percent of Estonian Air, may have had similar agreements with SAS in Estonia.
SAS and Maersk Air, both of which belong to the international Star Alliance, signed a cooperation agreement on March 1999 under which Maersk ceased flying on the Copenhagen-Stockholm route, giving SAS a monopoly on that route. Maersk Air also promised not to start on the routes occupied by SAS.
Jorn Eriksen, president of Estonian Air, denied accusations of a cartel agreement in Estonia, saying that there was a normal program of cooperation between Estonian Air and SAS in Estonia, which is common among aviation companies worldwide.
“Estonian Air, like many other airlines, has agreements with a number of companies. The market size decides how many companies can fly on one route,” said Eriksen. “On some routes there is room for one carrier, on others, like Riga, Vilnius or Stockholm, there is room for two.”
He said that flights on different routes are also competing with each other, because people would change planes in Helsinki, Stockholm or Copenhagen for a flight that would take them to the destination country.
Estonian Air operates two 107-seat Boeing 737-500 aircraft and two 46-seat Fokker 50 aircraft, and it has flights to nine destinations: Stockholm, Copenhagen, London, Hamburg, Moscow, Kiev, Riga, Vilnius and Frankfurt.
Raimond Made, spokesman for Estonian Air, said that the company operates alone on such routes as Copenhagen, Hamburg, Frankfurt, London, Moscow and Kiev.
He said that on the Tallinn-Amsterdam route Estonian Air is in a “code share” program with SAS. Estonian Air takes people to Copenhagen or Stockholm, and SAS then transfers them to Amsterdam.
“In the past we flew to Amsterdam, but it was an unprofitable route, because the Boeing aircraft was too big for this and the Fokker would not fly so far. There is no monopoly. If we find that it is economically viable to fly to Amsterdam and we have the right plane, we’ll open the line again,” said Made.
According to the daily newspaper Postimees,Estonian Air doubled its prices recently on Stockholm flights from 3,900 kroons ($210) to 6,680 kroons.
“I am impressed with how many mistakes the papers make. They compare totally different prices. Our lowest price to Stockholm is 3,700 kroons,” Eriksen said.
Inge Koppel, product manager at Estonian Holidays, said that Estonian Air’s prices have not risen any more than those of other airlines.
According to Eriksen, the company is increasing the prices due to inflation.
“We cannot charge the same prices we did five years ago, because the dollar rating, airport charges and fuel prices have gone up. Of course it is expensive to fly, but airlines do not make big profits,” he said.
Eriksen said that Lithuanian Airlines, which is known for its cheap tickets, posts enormous losses. Estonian Air had 9.8 million kroon losses last year, but expects to end this year in the black. The company’s turnover reached 777 million kroons in 2000.
“We are a private enterprise and our shareholders cannot afford losses,” said Eriksen.
The Estonian Competition Board will start investigating the possible agreements between SAS, Estonian Air and the entire aviation market in the fall.
“The consolidations that take place on international aviation markets and their influence on the Estonian market, as well as investigations carried out by the European Commission, have given us a signal that this sector needs more attention,” said Peeter Tammistu, head of the Competition Board.
He said that infringing on the competition law might bring a fine that could reach up to 5 percent of the company’s sales last year.
Toomas Peterson, general director of the Estonian Aviation Administration, admitted that Estonian Air controls some of the routes. But there are not many companies willing to compete with them on the small Estonian market.
“They have a monopoly not because we do not enable anyone to come. It is because no one else wants to come,” he said. “We do not have the ability nor the wish to interfere in the tariff policies of aviation companies. The European market is already very liberal in this regard.”
Jukka Narakka, Vice President of Finnair, said that the cooperation between two airlines does not enable the Estonian Air to raise fares. “But if this kind of cooperation creates a monopoly in any particular market, the fares are likely to go up,” he added.
Narakka said that Finnair is very interested in the Estonian market because of its closeness to Helsinki and because Finnair already has services to all major markets in Europe.
“The competition in Estonia is increasing as the market matures. One has to understand that the market for air travel in Estonia is both very young and relatively small,” said Narakka. According to Narakka the market is basically divided between the Star-Alliance (SAS, Lufthansa, Estonian Air etc.) and Oneworld (Finnair, British Airways etc.).