Wednesday, December 21, 2011

Addiction to Ryanair

by Vija Pakalkaite

A Ryanair story takes place in a tiny airport of Kaunas which is the second largest city in Lithuania. This story could be compared to drug addiction in such a way that it provides euphoria (region is quickly developing), but has its costs (the “health” of a country Lithuania is weakening – people are emigrating).

Short history
Ryanair came to Lithuania in 2005 and chose Kaunas airport to operate. Due to an economically successful launch in 2005, in 2010 Ryanair decided to establish an airplane base in Kaunas airport, which means, that planes not only land-take passengers-leave, but also stay overnight. In addition, Ryanair announced its plans to establish an aircraft technical maintenance center in Kaunas in years to come.

In May 2011 Ryanair announced a very unpleasant surprise to the Kaunas airport (but pleasant to the residents of Vilnius), by announcing it will begin to provide flights from the capital city Vilnius airport as well. However, once a dull and uninteresting Kaunas airport now is full of life. It is planned that in 2011 this airport will serve around 850,000 passengers.

What to expect
Theoretically, if transportation costs are high, the spreading forces would dominate and different sites would try to do all economic activities within the teritorry instead of importing some. As transport costs fall, agglomeration forces will take over. It becomes possible to take advantage of a scale economy and then transport good cheaply to the other sites. This could be applied to the transportation of labor force as well. When flights become cheaper  people would use them to move to the larger cities which already have many residetns and labour. The entry of Ryanair to the Lithuanian airline market was one example of rapidly falling transportation costs to the consumer.

In addition, one of the features of the low-fare airlines is that they choose airports that are not of primary importance to provide their services. Such airports usually charge airlines with no or low fare and expect to gather benefits by providing additional services to the travelers. So they expect that the regional economy around the airports will expand, and airport facilities as well would be expanded.

Special shuttles soon were established
Until Ryanair‘s decision to fly from Vilnius,Kaunas airport was the only „window“ to the world where one could catch a low-fare airplane in Lithuania. As a result, all  passengers who wishedto use Ryanair had to reach Kaunas airport first. This was not so easy for passangers especialy during the night. The entry of Ryanair increased the demand of easing possibilities to reach Kaunas airport, and the supply was subsequently provided.

Special shuttle services were soon provided both in between Kaunas airport and Kaunas city, as well as other largest cities, including Riga which is the capital of Latvia. The former shuttle takes people from the Kaunas airport and brings them to hotels and other places in the Kaunas city then back to the airport. It is a special bus route which schedule is adjusted to the flight schedule. Besides, a “special prolonged stop” in the shopping town “Urmas” with more than 70.000 square meters of retail space was incorporated in the route of the shuttle service. The latter ones, for example, a Lithuanian shuttle taxi operator „Ollex“ bring passengers from Vilnius directly to Kaunas airport (price 11 EUR) and from the seacost city Klaipėda too (price 18 EUR), the schedules of the shuttle are as well tied to the schedules of the Ryanair flights.
Regional development

There were new cafeterias  established in the vicinity of Kaunas airport, some of them even in local residencies. A pizzeria was opened and a couple of bed-and-breakfast places in a nearby disctrict. Near the airport a shopping center is being built as well as a hotel inside the Kaunas airport. When Ryanair opened a base in Kaunas airport in 2010, Kaunas hotels became booked 80% of the time. In the city of Kaunas itself a bunch of new bars was opened, and the existing bars are full of foreigners.

Establishement of Ryanair base also revitalizedthe flat rent business in Kaunas, because pilots and fligh crews  are  renting flats in Kaunas. There are 100 employers in the base, and it is calculated that the establishment of the base directly or indirectly created a thousand of work places in the region.
How Lithuanians “agglomerated” London

However, not everything was so picture perfect. Once a nation of 3.5 million Lithuania now has just 3, 045,000 residents. The country in ten years since 2001 lost 12% of population, out of which 76% because of emigration. The acceptance to the European Union, visa-free Schengen zone and low-fare airlines decreased the price of travelling. During ten years, the region of Kaunas lost around 13% of its residents – similar to the entire average of Lithuania. Most popular destinations to emigrate for Lithuanians are United Kingdom, Ireland, Spain, and now, since it opened borders to the labor from new EU members, Germany. It is believed, that in London and nearby it around 100,000 Lithuanians are settled.

This being said, Ryanair routes are adjusted to the emigration habits of Lithuanians. There are 15 routes from Kaunas, out of which 8 fly to various destinations in the UK, one in Ireland, and one in Germany. The rest half dozen of flights go to the Netherlands, Belgium, Norway, France and Finland which could be considered to be more for tourism.

Short conclusion
Ryanair entry to Lithuania via Kaunas indeed gave positive stimulation to the economy of the Kaunas region, but many of the economic activities are directly related with the presence of Ryanair itself. If this airline ever decided to leave Kaunas airport many of the positive effects would soon disappear. Ryanair could have contributed as transportation means for many of the Lithuanians to emigrate and it still does so. However, if not as a result of this airline, a Lithuanian who truly wanted to leave the country would find a way to do it. 

When Irish low-fare company Ryanair decides upon the routes it probably first thinks about the profits it will earn, and only then about the impact to the economy of a region or a country. In this photo you can see the author of the blog post and Ryanair CEO Michael O'Leary in 2010, when he decided to establish a plane base in Kaunas airport.


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