LAL hopes to survive wait for EU nod

 - May 15, 2008, 8:55 AM

Lietuvos Avialinijos, better known as Lithuanian Airlines (LAL), was established in 1991 when Lithuania won its independence after the collapse of the Soviet Union. Over the last 10 years LAL has changed its fleet and has been earmarked for privatization. But its weak market (Lithuania’s population is 3.7 million) could mean it must wait for its expected entry into the European Union in 2004 or 2005 for a real takeoff.

Since LAL broke away from Aeroflot, the Soviet airline network, it has abandoned its routes from Vilnius, Lithuania’s capital, to former Soviet central Asian republics in favor of Western European destinations. LAL still flies to Moscow and Kiev, in addition to a dozen Western European cities such as Copenhagen, Amsterdam, London, Rome, Stockholm and Paris. Between 1999 and 2000, its three-times-weekly service to Paris carried 13,000 passengers, an 86-percent leap.

But September 11 has already taken its toll on traffic–especially business passengers, which account for 70 percent of its business. For example, in January it reduced its Vilnius-Amsterdam service from 10 to seven flights weekly. There has so far been little effect on the airline’s charter activity–mostly to Mediterranean destinations, especially Turkey–from which it derives 10 percent of its revenue.

Four Years of Losses

According to Vidas Zvinys, LAL’s director of strategy, before September 11 overall passenger volume had increased 10 percent since January last year. Despite better traffic results–a 21-percent passenger increase to 294,900 in 2000 and an 8-percent increase in the first 10 months of last year–the fourth quarter is expected to show a 7-percent fall in passengers compared with the same period in 2000. He said LAL had not shown a profit since the Russian economic crisis of 1998. But losses at the end of last year stood at 8.2 million Litas ($2.08 million), down from 11.85
million Litas ($3 million) a year earlier.

LAL’s market share from Vilnius has fallen to about 50 percent, due mainly to competition from members of the Star Alliance–Germany’s Lufthansa, Austrian Airlines and Scandinavia’s SAS. SAS is especially interested in bringing passengers to its main hubs of Stockholm-Arlanda and Copenhagen, and the region’s businesses are particularly active in Lithuania and the other Baltic countries of Latvia and Estonia. There is also some competition from Air Lithuania, which since 1997 has operated regular flights to Germany and Scandinavia from Kaunas, the former capital.

The Lithuanian government has compelled LAL to downsize its 1,100-strong workforce by one-fifth as part of a restructuring plan. But little needs to be done in the short term regarding its fleet, which in the last decade has undergone a radical transformation from 16 Tupolev Tu-134s and 12 Yakolev Yak-42s to two Saab 340Bs, two Saab 2000s, two Boeing 737-200s and a 737-300. It still has two Yak-42s, though they are up for sale. In the medium term LAL wants to sell its B737-200s because of environmental restrictions and is considering replacing them “around 2006” with  new 70-seat Fairchild Dornier 728s to cater to its business-passenger clientele.