CEO of Nordica Jaan Tamm says that the company does not want to be an economy option that offers tickets for €49 but is forced to close shop a year from now. Luckily, enough Estonians have realized cheap tickets aren’t everything, he says.
You recently moved into the former offices of Estonian Air. Is it not a bad omen?
Our new office is tip-top and favorably located. We grew out of our previous space. Any connection to Estonian Air is far-fetched at best. We could just as easily say that Estonian Air flew out of the same airport and operated in the same country.
How do you plan to avoid Estonian Air’s fate?
The history of Estonian Air is long, but if I had to sum it up in one sentence, I’d say the problem was changing strategies too often. The airline was owned by the state, then it wasn’t, and then it was again. It operated as a strategic partner for another airline, then undertook a major independent expansion, then pulled back again, and eventually simply tried to keep its head above water.
The state and politicians have given us more freedom in building a stable business. Nordica’s concept is based on its business plan from 2015. We have observed it with surprising precision.
If one of the intermediate strategies of Estonian Air was to turn Tallinn into a hub for people traveling to Europe from Rovaniemi and Kajaani, we go to the client. We fly for LOT, SAS, and some European local governments using our own planes.
Estonian Air operated for 24 years, while we’ve only been around for two and are already bigger than they were.
A state-owned airline last made a profit 12 years ago. Will Nordica close 2017 in the black?
We will turn a profit. We are going after seven figures.
Profit is nice, but we cannot allow it to make us giddy. Estonia held the EU presidency last year. Its effect on our revenue could easily have been €3 million at least. Fuel was cheap. Summer weather was disappointing, and people wanted to travel more. The economy is growing. It all contributed.
We will continue to maintain a conservative line. It will not be straight shooting from here. Our business plan still prescribes a deficit of €3 million for this year. We do not want expectations to get out of hand.
Profit cannot be the only measure of Nordica’s success. Our role goes beyond that – from offering connections others do not to keeping prices in check. Also, developing Estonian aviation know-how and skills.
You’ve said that 2017 was a year of dizzying growth. Did it cost you anything?
That is true. Growth came a little too quickly. We had black Sundays (in September and October when a lot of Nordica flights were delayed and canceled – ed.). We are not planning such growth for this year. We will rather aim for quality. We will procure one or two backup aircraft for emergency situations.
A lot of people I know say that they could fly with you if only your prices were more reasonable. What can you tell them?
Prices are determined by supply and demand. It is not our goal to offer clients cheap tickets only to have to close shop a year on.
Again, we want to fly abroad, work as a subcontractor to maintain a sensible level of prices in Estonia and ensure longevity. If we tried to earn all our money in Estonia, our tickets would be even more expensive.
I would emphasize how Nordica keeps the prices of other airlines flying out of Tallinn low. Its disappearance would considerably hike prices.
We can see the effect of Nordica’s absence on a miniature scale when we look at the Tallinn-Copenhagen line. SAS is currently charging up to €500 per ticket! We will start servicing that connection in spring, and then we’ll see what the price will be.
People also say that while you advertise tickets for €49, they still end up paying €200. Why is that?
If we advertise €49 tickets, then I’m sure they exist. Tickets come up for sale in groups. To illustrate: we might sell the first 100 tickets for €49, the following 100 for €69, and the rest for €190 or €290. It is the practice of all airlines.
If people leave buying tickets to the last minute, they will not get them cheap. Ticket prices also depend on the date and passenger load factor. If we sold all our tickets for €49, we’d be out of business in year.
Many people fly through Riga. They fly or take a bus to Riga and board flights there. Have you let something slip through your fingers?
Tallinn Airport passenger statistics suggest otherwise. The number of passengers is growing. Nordica has roughly 28 percent of the Tallinn market. We could go as high as 30-40 percent.
As concerns Riga, they have more departures because the city has twice the population of Tallinn. AirBaltic has had ten times as long to develop themselves and sport a different strategy more akin to a hub.
People’s priorities play a big part in their choice of airline. People who value their time do not take the bus to Riga.
How closely are you competing with airBaltic? It seems quite fierce from the outside?
I do not want to badmouth our competition. The competition can go about their business, and we’ll go about ours. They love to give their opinion on what we should or should not do. I will not tell them what they should do. I will remain civil without giving them good advice.
Has the Estonian client warmed up to Nordica?
Trust will take years. We have only flown for 18 months under our own brand. Our business is to offer good destinations, service, and have our marketing reach people. We value the Estonian client.
You do not feel indignation over Estonian Air has somehow been transferred to you?
It has not! Why? Why would Estonians be cross with Estonian Air?
Because the taxpayer poured €80 million into it only for it to go bankrupt in the end.
(Raises his voice.) First, it spanned years! How many passengers were serviced in that time, how many people had jobs, what did the company give Estonia!
I believe we can find dozens of examples of far more inefficient use of taxpayer money.
Secondly, the amount of money put in has been overemphasized. Sums spent on ferry and air connections with the Western Estonian islands, road construction, public transport in rural areas equal or surpass it. I agree that perhaps Estonian Air’s money was not put to the best possible use.
Air connections have great significance. Every passenger that comes here leaves us money. Every Estonian who flies somewhere expands their horizons. Calculations differ, but air connections bring the society hundreds of millions of euros in indirect benefits every year.
Let us take the Rail Baltic project the indirect effect of which has been measured in hundreds of millions of euros. If Nordica could declare all the socioeconomic benefit it creates as profit, we would have it made (smiles).
Nordica wants to make it on its own?
European Union state aid regulations do not allow the government to support us. So yes, our goal is to make it on our own.
That said, there would be nothing wrong with a little help from the state. It would help improve services and lower ticket prices. Would people fly to Saaremaa if it cost €100? I think not. That is roughly how much it would cost without state subsidies.
It is regional policy. To support flights to Saaremaa or Germany – or perhaps both? We are a part of regional policy in that sense.
That is why we could have reasonable support from the government. Not to burn money, but to give people the best possible connections.