Professor of Macroeconomics, Department of Economic Analysis and Finance
It’s hard to see a reason to continue supporting Estonia’s aviation sector. Past experience has simply led to too much disappointment, writes Karsten Staehr.
I’m a frequent user of Tallinn Airport, as I often travel to attend international conferences, visit my home country, and go on various holidays. Over time, I’ve become an interested observer of Estonia’s aviation sector – an industry that has received public funding and seems to experience more crises than April sunshine. Perhaps it’s time to scale back Estonia’s ambitions and public involvement in aviation?
Estonian Air was originally created from the Estonian branch of Aeroflot. It was initially state-owned but struggled with profitability. The airline was first sold to Maersk Air and later to SAS Scandinavian Airlines, but these privatizations were unsuccessful, and Estonia was eventually found to have subsidized the airline in violation of EU rules. The airline then re-emerged as Nordica/Xfly, once again under state ownership.
Nordica/Xfly has lost significant amounts of money in recent years. Strangely enough, the airline hasn’t had a base in Estonia for years and mainly operates as a subcontractor for SAS in Scandinavia. It’s difficult to understand why the Estonian state should be running business operations in other countries. Taken to the extreme, this logic would suggest that the state might as well run banana plantations in Brazil. While the government plans to privatize the airline, it’s unlikely that the money lost in recent years will be recovered.
The challenges don’t end there. Considerable funds have been invested in the airports of Tartu and Pärnu, yet there are barely any flights. A new route between Tartu and Helsinki has just launched, but it is generously subsidized by Estonian taxpayers.
Some politicians and businesspeople have called on the Estonian government to provide further taxpayer support for the aviation sector.
Some have argued that Estonia should buy a stake in AirBaltic to gain influence over the airline’s choice of destinations, with the goal of bringing more flights to Estonia. Others have suggested that the government could subsidize Tallinn Airport directly, allowing it to lower landing and handling fees and thereby attract more traffic.
It’s difficult to understand why the Estonian state should be running business operations in other countries. Taken to the extreme, this logic would suggest that the state might as well run banana plantations in Brazil.
Airplane in Berlin. Photo: Marge Aliaga
Lessons not learned
It’s hard to see a reason to continue supporting Estonia’s aviation sector. The experience so far has brought too much disappointment, and any additional government funding would likely be lost again, with no meaningful returns. The idea seems especially pointless given Estonia’s current budget deficit and the fact that many sectors are in need of increased funding.
Further state support for aviation also runs counter to the goals of the green transition, which calls for reduced greenhouse gas emissions and a greater focus on sustainability. Is it really sensible for the Estonian government to continue subsidizing one of the most polluting forms of transport?
It is sometimes argued that more flights to and from Tallinn would benefit Estonia’s economy. But business travel has only slowly recovered since the COVID-19 pandemic, and the number of business travelers is likely to remain low due to the availability of electronic communication and video calls. Most passengers at Tallinn Airport are tourists either departing from or arriving in Estonia. Again, it’s questionable whether Estonian taxpayers should be subsidizing leisure travel.
Making mistakes is not a sin – we all make them. What’s concerning is when lessons are not learned. It’s time for Estonia’s policymakers to take heed of past failures and abandon the dream of turning Tallinn into an international aviation hub. Taxpayers should not have to fund unrealistic ambitions and lofty ideas.
It’s time for Estonia’s policymakers to take heed of past failures and abandon the dream of turning Tallinn into an international aviation hub. Taxpayers should not have to fund unrealistic ambitions and lofty ideas.
