Downturn? What downturn?

Has nobody told the Baltic States that there’s a recession? Latvia, Lithuania and Estonia, whose airports underwent massive enlargement during the past decade, are considering further expansion programmes, despite the gloomy global economic forecast.

Take Latvia for example. Last month TAV Turkey announced that it would be investing US$378 million to redevelop SJSC Riga International Airport, the largest airport in the Baltics. Already accounting for 45 percent of passenger traffic in the Baltics, it is keen to expand further.

In May next year work on a new passenger terminal will begin and airport officials say that the facility, which currently handles over 3.65 million passengers a year, will be able to accommodate 10 million by 2015, and 30 million by 2025.

Martin Langrats, chief press officer for Riga Airport, says he is hoping that the airport will eventually become a gateway linking the Baltic States to the near-east and far-east, and it is understood that TAV Turkey chairman Seni Sener has a similar vision. He sees Riga International Airport as a staging post between northeast Europe and Asia, and has even hinted that TAV will base its northern European operations at the facility.

But does Riga airport have ambitions above its station? Not according to Nancy Gautier of the ACI, which counts several hundred regional airports among its members.

“Constructors and airport operators don’t enter into large expansion projects without good reason,” she says. “TAV Turkey is aware that the cost of building materials has increased due to the global slowdown. It also understands that freight and cargo demand is down. However TAV Turkey will have carried out detailed analysis and feasibility studies before deciding to give the go-ahead. My guess is that Riga International airport will increase its worldwide operations over time.”

But not everyone is convinced. Stephen McNamara, chief press officer for Ryanair, welcomes the introduction of new routes but thinks that airport expansion in a recession is not always a good idea.

“Blackpool Airport in the UK is currently carrying out a major overhaul of the terminal,” he says. “However it has decided to charge passengers for the expansion. This airline development fee will be levied on all passengers without exception and will substantially increase the cost of travel through this small regional airport, which is totally dependent on low fares for its passenger traffic.”

Latvia’s economists are taking an equally dim view of airport enlargement in a downturn. Andris Vilks, chief economist of the region’s leading banking group, SEB, comments: “We are dropping into a hole faster than we expected. This year GDP could fall as much as 10 percent. Improving the country’s infrastructure at the time is probably not an option.”

But curiously in neighbouring Lithuania, where the economy is expected to contract by nine percent this year, airport expansion programmes are also being mooted. Ariandas Sluipas, general manager of Kaunas Airport, says that the airport will announce ambitious expansion plans if it can entice low-budget airlines to the facility. Last week Sluipas confirmed that the facility is in talks with several European low-cost carriers and says that negotiations are at an “intermediate stage”.

“This month will be crucial for the future of the airport,” he told me. “We are talking to several large low-budget European airlines, and are currently negotiating terms. If the talks are successful, we will expand the main terminal.”

The terminal has capacity to accommodate 700,000 passengers each year, but Sluipas thinks the terminal could be expanded to handle one million passengers each year at a cost of US$7.3 million. “The new terminal, which was built last year, is 7,300m², but if we can attract new business to the airport we will need to expand even further. We would simply extend both ends of the terminal. A second arrivals hall would be constructed as well as extending the airport shopping area. We already have the space and the planning permission to carry out the expansion.”

But what makes Sluipas so confident that Kaunas Airport can continue to do well in the current economic climate? “The airport is exceptionally well placed geographically,” he says. “Kaunas is situated in the centre of Lithuania. Over 1.5 million people live within a 60-minute drive of the airport and our research has shown that many passengers from north-eastern Poland like to use Kaunas Airport to commute to Warsaw. If we can attract low-cost carriers, then even more passengers from the north of Poland will use the airport.”

Amazingly in the country’s capital, Vilnius, airport enlargement is seen by many as a prerequisite for boosting its ailing economy. “Without expansion,” one airport official said, “the situation is unlikely to improve. The government spent US$44 million on upgrading the airport in 2007 but that wasn’t enough. Many of the airport facilities date back to Soviet times.”

To what extent can airport expansion be justified when the national carrier, airLAL, ceased operating in January? Now only nine European capitals can be reached and passengers wishing to fly to major centres like London and Brussels are often forced to break their journey abroad.

But it’s better to change planes than not fly at all. That could be a price that passengers end up paying if the dreams of the region’s airport operators fail to materialise.

James Gordon

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