strategic position as a pan-African carrier presents an impactful opportunity to drive economic growth and prosperity across the continent,

2. 12.11.2015
The View on Estonian Aviation for
the Next 20 Years
20th Estonian Aviation Seminar

3. Agenda
1. Past 20 Years
2. Importance of Aviation
3. Next 20 years
4. Contacts
Estonian Aviation Seminar, 12 November

4. Over the last 20 years we have seen the passenger volumes more than
quadruple with expected 2.1 M passengers in 2015
Estonian Aviation Seminar, 12 November
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Tallinn Airport Statistics
TLL pax OV pax TLL Growth OV Share
Source: Tallinn Airport Statistics, Note- 2015 is 10 month figures

5. The peak in regional airports remain at the time when Estonian Air
operated 33 seater Saab aircraft
Estonian Aviation Seminar, 12 November
Source: Tallinn Airport Statistics, Note- 2015 is 10 month figures
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Estonian Regional Airports Summarized Traffic

6. In the example of Riga Airport base carrier is fundamental to growth and
development of an airport
Estonian Aviation Seminar, 12 November
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
1000000
2000000
3000000
4000000
5000000
6000000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Riga Airport and airBaltic passenger volumes
RIX pax BT pax RIX Growth BT Share

7. Agenda
1. Past 20 Years
2. Importance of Aviation
3. Next 20 years
4. Contacts
Estonian Aviation Seminar, 12 November

8. Airlines have lowest profit margins as landscape is faced with strongest
competition but all other sectors start benefitting immediately
Source: Lufthansa Consulting research
16% 15%
3 %
10%
>30%
Manufacturer Aircraft lessor Airlines Catering Airport
Duopoly:
 Airbus
 Boeing
Two lessors
have 45% of
market share
1500 airlines
despite
overcapacity
and fierce
competition
 Less than
three
providers in
deregulated
markets
 In regulated
markets:
monopolies
and state-
owned
airports
Two providers
dominate 40%
of the market,
7 providers
control 70%
Monopolists  4 providers
dominate
the world
market
 Individual
providers
dominate
single
markets
Computer
Reservation
System
Ground
Handling
11-14% 10-13%
2,6% profit forecast
for 2014 by IATA
Airline concentration in comparison to supplier industries...
...and the impact on operating margin
Estonian Aviation Seminar, 12 November

9. When assesing the value of an airline, there is a wide range of
beneficiaries involved to be considered
Airline
Airport
Ground
handler Caterer
Other
providers
Hotels
Maintenance
providers
IT
Retail
Financial
services
+up to 3% GDP*
Ground
transportation
Direct impact
 Creates jobs (industry average is 60 to 80
airline employees per aircraft)
 Generates payroll
 Increases government revenues from local
taxes
 Produces airport rental fees
- Landing and parking fees
- Gate and hangar space rental
 Increases supplier revenues
- Fuel & Maintenance
- Catering & ground handling services
Tour operators
Note: * Figures based on averages & global benchmarks for illustration purposes only
Utilities
Source: Economic catalytic effects of Air Transport; Oxford Economic Forecasting
Indirect social impact
 Increases tourism expenditures (trade,
restaurants, hotels, local transportation, etc..)
 Facilitates business, import / exports,
government affairs and VFR travel
 Jobs & demand for skilled workers
 Creates publicity for the region
 Link to key world economies
Socio-economic impact
Estonian Aviation Seminar, 12 November

10. Source: Kazakhstan – LCG project in 2013, Latvia – Oxford economis study in 2011, Estonia – Tallinn airport study in 2012
 Direct impact is fairly easy to assess
and gives a good indication of the
developments
 Indirect and catalytic effects are harder
to assess and depend greatly on the
transparency of the economy
 Oxford economics study found following
items:
 10% improvement on Latvian
connectivity would increase 11,5M
euros long-term GDP
 Study found correlation between
increased air connectivity and
increased Foreign Direct
Investment (FDI)
 Latvian aviation sector provides
jobs for roughly 18 600 people
 Carrying passengers is much
more beneficial for economy as
cargo contributed only 1,3%
Air traffic effect on GDP
Review of studies made on air traffic effect on economy revealed
unanimous positive impact
Estonian Aviation Seminar, 12 November

11. Estonia is best in Baltics in infrastructure however low quantity of
international seat kilometers per week hinder further improvement
 The Global Trade Enabling
Report is a good indicator for
expressing willingness to invest
in certain countries
 As Estonia ranks best in port
infrastructure and shipping
connectivity then improvement
in air service connectivity would
potentially further increase
Estonian position in the list
 Best way of improving position
is taking over the risk of
running the airline and hence
making sure that connectivity is
guaranteed
The Global Trade Enabling Report 2014
Lithuania
Estonia
Latvia
Source: The Global Trade Enabling Report 2014
Estonian Aviation Seminar, 12 November

12. Passenger traffic in VNO by carriers (in Millions)
Only national carrier will take care of the market when things get difficult,
adding value for the state and increasing stability amongst investors
Estonian Aviation Seminar, 12 November
2.8
2.6
2.4
2.2
1.2
2.0
1.8
1.6
1.4
1.0
0.8
0.6
0.4
0.2
0.0
2011
2010
2009
2008
Air Baltic
Ryanair
Wizz Air
Lufthansa
Others
2013
2012
Source: Vilnius Airport data, Lufthansa Consulting
 Airlines operating in
Vilnius never
recaptured the
passengers lost when
FlyLAL went
bankruptcy
 Only the stimulation of
the market by Ryanair
and Wizz Air allowed
to recover a decent
traffic
 Would FlyLaL
continued, dynamics
would have been
completely changed
and airport more
profitable for the state
Small Planet
Airlines
Scandinavian
Airlines

13. Even if to import services then carrier without true mission to serve the
area will leave or reduce as seen by the example of Air Baltic
Market share of passenger traffic in VNO by carriers
Source: Vilnius Airport data, Lufthansa Consulting
Estonian Aviation Seminar, 12 November
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2013
2012
2011
2010
2009
2008
Air Baltic
Small Planet Airlines
Ryanair
Others
Wizz Air
Lufthansa
Scandinavian Airlines

14. Agenda
1. Past 20 Years
2. Importance of Aviation
3. Next 20 years
4. Contacts
Estonian Aviation Seminar, 12 November

15. With the optimistic (11%) scenario the growth is exponential and
impossibly high where as pessimistic (2%) growth unsatisfactory
Estonian Aviation Seminar, 12 November
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
Tallinn Airport Passenger Traffic forecast
Base Optimistic Pessimistic
 For the base scenario looking
average growth rate of 4% over
the last 7 years (after
recession) airport volumes
would reach 4.6 M passengers
 For the optimistic scenario of
10% growth rate (last 20 years
average) per year airport would
end up in 2035 with more than
15 M passengers
 In the case of pessimistic
scenario growth will be 2%
(average of last 3 years)
resulting in 3.1 M passengers in
2035
Source: Lufthansa Consulting

16. What will determine which path will follow for Estonia for the next 20
years? The will of people and decision makers
Estonian Aviation Seminar, 12 November
 Sucess/Failure of Nordic Aviation
Group and their strategy and growth
platform
 Ministerial plans for the PSO services
from/to the islands
 Competitive situation around (Finnair,
airBaltic, SAS) and their strategic
decision
 Ability to increase inbound tourism to
Estonia
 State priorities for the long-term
development of the aviation sector:
 Services vs Production
 Maritime vs Aviation
 Road vs Rail

17. Agenda
1. Past 20 Years
2. Importance of Aviation
3. Next 20 years
4. Contact
Estonian Aviation Seminar, 12 November

18. Contacts
Estonian Aviation Seminar, 12 November
Sven Kukemelk
Consultant
Lufthansa Consulting GmbH
FRA ZQ
FAC 1/ Frankfurt Airport Center 1
Building B, 7. OG
Hugo-Eckner-Ring
60546, Frankfurt, Germany
Mob: +49 (0) 151 589 40 567
Fax: +49 69 696 20830
e-mail: Sven.Kukemelk@LHConsulting.com
www.LHConsulting.com