National CarriersThe EU-accession of Eastern European states in 2004 and later in 2007 has broadened the scope of airline liberalisation in the region. Unfortunately however, the increased competition and free market legislation has forced many of these small-sized carriers into precarious financial situations. The looming bankruptcy concerns we are seeing for both Estonian Air and airBaltic come only after the collapse of Air Slovakia, Malév Hungarian Airlines and more recently, Poland’s OLT Express. Other carriers are not faring particularly well either, with Czech Airlines and LOT struggling to turn around after years of ongoing losses and aggressive competition from low cost airlines. Staving off future insolvency could prove a formidable task, but there are certain avenues airlines may take to improve their overall competitiveness.

Prior to EU-accession, most of the state-owned flag carriers of Eastern Europe were either profitable or sustained losses within relatively narrow margins. While EU membership afforded greater network capacity for the airlines, it also led to heightened volatility of annual returns, resulting in record annual losses, including a €1.5bil loss for Czech Airlines in 2009, a €78.0 mil loss for the Romanian carrier, Tarom in 2010 and a €17.3 mil loss for Estonian Air as of last year. Meanwhile, low cost competition from the likes of Ryanair, Wizz Air and EasyJet have procured substantial market share by expanding their activities into the newly opened markets of the East. Indeed, the past five years have shown nothing but ongoing annual losses for the majority of legacy carriers in the region, with a further decline projected unless drastic structural reforms are sought.

‘The current Eurozone crisis has not levelled favourable results among airlines in Europe. It appears however, that Western European airlines have managed to weather the downturn reasonably better. Looking into their developments, one may notice the handful of mergers taking place over recent years, including Air France with KLM in 2004 and British Airways with Iberia in 2011. This has allowed them to achieve economies of density and to rid double marginalisation, generating both competitive fares and lower marginal costs. It is through similar cost synergies as these that airlines in the Eastern states may seek a future revival and regain some of their competitiveness,’ comments the CEO of, Skaiste Knyzaite.

Currently, most airlines in Eastern Europe remain under the ownership and regulation of national institutions. The failure to separate these two functions in the open aviation market of today does not lend well to balancing the books of many of these struggling carriers. Clearly, wide public support still remains in preserving the national interests of these legacy airlines.

For the interim however, airlines in Eastern Europe may seek alternative ways at stemming their growing cost profiles. One of these ways is through outsourcing certain factors, such as recruitment, IT or back office operations. S. Knyzaite asserts that ‘While outsourcing has traditionally been seen as merely a cost cutting exercise, today’s strategic partnerships in the airline industry also serve to achieve ongoing efficiencies and operational improvements. For instance, contract personnel provided through crew leasing agencies affords greater flexibility in line with seasonal variations, thereby avoiding excess staffing costs during the low season. In addition, such partnerships ensure a steady stream of qualified personnel if and when they are needed, enhancing overall competitiveness.

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