Aktsiaselts Tallink Grupp - NASDAQ OMX Baltic

The passenger and ro-ro cargo volumes on the key routes between Finland and Estonia, Finland and Sweden
and Sweden and Estonia between 2002 and 2004 are shown in the below table:
Passengers (million) 1 Ro-ro cargo units (thousands)
Year ended December 31,
2002 2003 2004 2002 2003 2004
Finland—Estonia ...................................... 6.0 5.8 6.2 116 127 164
Finland—Sweden ...................................... 8.7 9.1 9.4 233 243 264
Sweden—Estonia ...................................... 0.4 0.5 0.7 42 52 51
Source: ShipPax statistics
1 A single passenger taking a round-trip is accounted for as two passengers for the purpose of this table.
Cargo transport to and from Estonia has also grown rapidly with the growth of the Estonian economy and,
more recently, with the European Union membership of the Baltic countries. Another factor aiding growth in
cargo volumes is the development of the ‘Via Baltica,’ a 670 km highway running from Tallinn to Poland. The
Via Baltica is the shortest route connecting Finland and parts of Russia with Continental Europe through the
three Baltic countries of Estonia, Latvia and Lithuania. Traffic from more central parts of Europe to Finland (and
also to St. Petersburg and other areas in Northwestern Russia) has traditionally been routed through Denmark and
Sweden or by vessels directly from Germany. We expect that the recent accession to the European Union of
Poland and the Baltic countries, the consequent removal of customs and the ongoing upgrading of local roads
will increase the importance of cargo traffic routed through the Via Baltica in the future. Please refer to the table
above for statistics showing the recent development of ro-ro cargo traffic from Finland and Sweden to Estonia.
Current and Future Tax Status of Onboard Sales
As in several other European mini-cruise and passenger ferry markets, tax-free sales have played an important
economic role in traffic in the Northern Baltic Sea region. Due to regulatory developments within the European
Union, onboard tax-free shop sales (excluding bar and restaurant sales and onboard consumption) on routes between
the European Union member states have ceased. The Finnish province of Åland, however, is exempt from the
relevant European Union regulations. As a result, it has been possible for ferry operators to route ferries between
Sweden and Estonia and between Finland and Sweden through Åland and tax-free shop sales on these particular
routes have accordingly been preserved. The stopover in Åland does not increase journey time significantly. Traffic
on the Kapellskär—Paldiski route is not routed through Åland, and, as a result, tax-free shop sales are not available
on this route. Compared to the Stockholm—Tallinn route, the demand for tax-free sales in shops on the
Kapellskär—Paldiski route is lower and the value that customers place on faster transport between Sweden and
Estonia is greater. As of the date of this offering memorandum, there is no time limitation on Åland’s special status
and we believe that Åland will continue to enjoy such status for the foreseeable future.
Alcohol and tobacco sales have traditionally been subject to a relatively high degree of regulation in Finland
and Sweden. High taxation rates have elevated the price of alcoholic beverages and tobacco in Finland and
Sweden compared to most other countries in the European Union (Swedish and Finnish excise taxes have been
up to ten times higher than the European Union minimum excise tax level of EUR 5.50 per liter of pure alcohol).
Estonia’s lower excise tax rates (Estonia currently has a moderate excise tax level of EUR 9.06 per liter of pure
alcohol) and onboard prices, together with the relaxation of Finnish and Swedish private import quotas for
alcoholic beverages and tobacco, have led to increased sales in onboard shops as well as for shops in Tallinn.
Minor amendments in excise tax rates on alcohol are being considered by the Estonian Parliament in order to
apply the same excise tax rates in respect of wine and fermented beverages (other than beer). It is not yet clear
whether the excise tax on fermented beverages will be increased or the excise tax on wine will be decreased. As
excise taxes on alcohol in Finland and Sweden constitute an important source of tax revenue for both countries,
the Finnish and Swedish governments have, in order to maintain the competitiveness of local prices, engaged in
discussions seeking to reduce unit-specific excise taxes on alcohol in the future. Finland has already implemented
a moderate decrease of these excise taxes as of March 1, 2004.
Competition
In addition to us, the largest companies by revenue that provide mini-cruise and passenger transport services
in the Northern Baltic Sea region are Viking Line, Silja Line, Eckerö Linjen and Birka Line. There are also a
number of smaller ferry companies, such as Nordic Jet Line and Linda Line operating only with high-speed
ferries between Helsinki and Tallinn. For both Viking Line and Silja Line, the majority of revenue originates
from routes between Finland and Sweden on which we do not operate. Eckerö Linjen only operates regular
passenger and cargo traffic between Finland and Estonia and Sweden and Finland, whereas Birka Line primarily
concentrates on traffic to or via Åland. For further discussion concerning the competitive environment, see
“Business—Competition.”
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