Baltic Ferry Operator Tallink Looks Past China Turmoil With Bet on Asian Tourists

An illustration of a Tallink LNG-powered ferry now under construction at Meyer Turku. Photo: Meyer Turku

 

By Ott Ummelas

(Bloomberg) — Baltic ferry operator Tallink Grupp AS is benefiting from growing numbers of Asian travelers to Nordic capitals as they’re offsetting weaker leisure demand by Russian clients, Chief Executive Officer Janek Stalmeister said.

The largest listed company in the Baltics sees “a lot of longer-term potential” from Asian tourism, even though it’s too early to say how the recent Chinese economic turmoil may affect Tallink, Stalmeister said in an interview on Monday. Better sales operations and marketing has helped the company boost passenger volumes and market share on key routes this year, including in August, he said.

Transporting people and goods between the capitals of Sweden, Finland, Estonia and Latvia, Tallink has faced growing competition from rivals such as Viking Line Abp in the past few years while it’s also adapting to stricter fuel quality rules. As the regional leisure market is hit by economic difficulties in Finland and the fallout from Russia’s standoff with the U.S. and European Union over the conflict in Ukraine, the company also seeks growth outside its home markets.

“With global tourism growing, the potential difficulties for one or the other economy shouldn’t contradict expectations that traveling will become more popular in Asia, given its population size,” Stalmeister, 41, said in his office on the seaside of Estonian capital Tallinn. “Today, Europe is only visited by a microscopic part of Asian tourists.”

Tallink shares were unchanged at 80 euro cents as of 11:31 a.m., below a six-month high of 85 euro cent seen on Aug. 14 but still up 19 percent this year. The stock trades at a price-to- earnings ratio of 9.7, compared with an average of 26 for its peers, according to data compiled by Bloomberg.

More Tourists

The number of Chinese and Japanese tourists in Finland rose 32 percent and 8 percent, respectively, in June from a year earlier, while visits by Russians plunged 39 percent, according to the Finnish statistics office. Overnight stays by Chinese tourists in Swedish hotels in July, the latest month for which data is available, jumped 41 percent, and rose 8 percent for Japanese visitors, according to the Swedish Statistics Office.

The shipping operator’s earnings worsened in the past two years from the record revenue of 944 million euros and net income of 56 million euros in 2012. Still, its sales of 444 million euros and after-tax profit of 15.2 million euros in the January-June period were a record performance for the seasonally weaker first six months of a year.

While Tallink has some of the most modern vessels in the industry, it commissioned a new LNG-powered cruise vessel in February to address higher spending on fuel in the longer term.

Declining oil prices have offset the impact of regulations requiring lower sulfur content in the ship fuel, meaning expenditure on fuel is largely at last year’s level, Stalmeister said. Financial instruments for hedging fuel costs should be used sparingly as they “may confuse investors,” he added.

The company has achieved better efficiency on the Riga- Stockholm route after passenger volumes rose in the past months even as one of the two vessels servicing the line was transferred to another route. Stalmeister said the company would “ideally” still have two vessels on that line, while no deadlines have been set for the move.

©2015 Bloomberg News