Over the years, Riga-based airBaltic has had to be nimble with its business model. Since launching operations in 1995, the carrier has reinvented itself from a regional feeder airline
to a narrowbody point-to-point carrier to a hub operation.
Now, once again, it is shifting focus back to point-to-point
Tis is because the Ukraine crisis has taken its toll,
reducing both transfer traffic and revenues. AirBaltic
CEO Martin Gauss said the effect became “worse and
worse” throughout 2014, although it stabilized toward
the end of the year.
“Every month, we were well below the revenue
we planned to have,” Gauss told ATW in Istanbul.
“Revenues are about 10% down, which is a lot for
us, but on the other hand we took out costs, too.”
AirBaltic responded by reallocating capacity to the
west, downgrading aircraft size from Boeing 737s
to Bombardier Q400s on some frequencies and
consolidating flights with weak demand. “We did
this very, very strictly to maintain EBIT. We didn’t
dump the ticket price; we just didn’t fly,” he said.
Despite the toll on revenues, airBaltic remains
ahead of schedule with the cost-cutting program
and Gauss is confident the carrier will post a profit for
2014. “Te bottom line is that we will end up with a
better result than last year—so we will be profitable—
but that is because of one-off effects,” he explained.
AirBaltic was only 50% fuel-hedged for 2014, so lower
fuel prices should also boost its year-end result.
While airBaltic’s capacity to the east could quickly
be restored if things pick up, Gauss believes traffic flows
may have permanently shifted. “I don’t think we will
see that eastern transfer traffic coming back until at least
the middle of 2015. Even if the crisis ended tomorrow,
the transfer pattern has changed. We have more and
more low-cost carriers flying direct—overflying our
mini-hub—and that is something we are addressing in
our schedules. We will still offer hub functionality at
Riga, but there will be a clear shift in the percentage of
point-to-point versus transfer traffic.”
To counter increasing competition from the likes of
Norwegian, Ryanair and Wizz Air, airBaltic is repositioning itself as the carrier for the Baltic region, not just
Latvia. Tis approach has seen it open services from
the capitals of two neighboring countries, Estonia and
Lithuania, to third-country destinations. AirBaltic has
already announced three direct routes from Tallinn
(Berlin, Paris and Vienna) and Vilnius-Amsterdam,
building on its existing network of 60 destinations from
the Riga home base.
“Tis is the first time, since I became CEO, that we
have opened routes which do not fly into Riga,” Gauss
said. “Tey link into our system, so we fly Riga-Vilnius
and then Vilnius-Amsterdam, or Riga-Tallinn-Paris. We
can then fly Paris back to Riga, or Paris back to Tallinn.
We have not opened bases [there].”
AirBaltic is also launching flights from Frankfurt and
forced to change
its business model
because of the war
in Ukraine, but the
airline remains on
BY VICTORIA MOORES Baltic Remodeling