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airBaltic is the Latvian national carrier (80% state ownership) and a hybrid-LCC. It is the first national flag carrier airline to market itself as an LCC. The carrier is based in the Latvian capital Riga and also operates bases in the other Baltic capitals of Vilnius (Lithuania) and Tallinn (Estonia). The airline has also moved away from offering mostly point-to-point services in the Baltic region, and now pursues a network strategy, with Riga International the main hub. Until Jan-2009, airBaltic was 47.2% owned by Scandinavian flag SAS, which Air Baltic Corporation purchased. airBaltic maintains close links with SAS, operating frequent services to the latter's hubs in Copenhagen, Oslo and Stockholm thereby operating a ‘dual hub’ system with Riga. The airline operates scheduled services to destinations in Europe, the Middle East and the CIS. Following a share capital increase, the Latvian State holds an 80% in airBaltic, with the remaining stake of approximately 20% owned by Aircraft Leasing 1 SIA.
Location of airBaltic main hub (Riga International Airport)
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider airBaltic fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
28 total articles
CAPA Airlines in Transition. How FSCs can regain short haul share from LCCs Part 1: at the coal face
From the time when the penny finally dropped for full service airlines – that LCCs were not in fact going away – full service airlines have sought many ways, usually without great success, to counter the erosion of their short haul operations by the new entrant, lower-cost, specialist point-to-point airlines. The impact has been not only on their regional operations, but usually also on their global network, since short haul services feed into their hubs, fattening long haul loads.
This was more or less tolerable while the competition on long haul transferring over their hub was stable and their alliances, global and bilateral, were able to protect them. Then the super connectors (Gulf airlines and Turkish) came along disturbing the comfortable equilibrium, and in turn placing renewed importance on short haul.
At the CAPA Airlines in Transition conference in Dublin on 10 and 11-Mar-2016, a "Board" under the chairmanship of Professor Rigas Doganis considered how a full service airline's board should respond to the loss of short haul share. Their deliberations were then voted on by delegates. This is the first part of two reports on the issues raised.
There are few countries where an outright charter carrier is the de facto national flag carrier.
But that is the case in Lithuania where a succession of failed scheduled carriers contrasts with a relatively new airline that sells seats exclusively to tour operators, in several countries across continents, is expanding almost exponentially, has one of the lowest CASKs in Europe, isn't highly leveraged, and is profitable.
That is far from the only surprising thing about Lithuania though, a country that is privatising its airports without really privatising them and which, is only just beginning to wake up to its tourism potential.
airBaltic settles into Etihad partnership for Africa, Middle East & Asia – North America may be next
airBaltic is quietly pleased with initial performance from its partnership with Etihad Airways, under which airBaltic commenced Riga-Abu Dhabi service in Dec-2013. Less than three months on, airBaltic is still observing trends in the proportion of local versus connecting traffic, but Bangkok is an early popular onward destination. CEO Martin Gauss told CAPA that Latvia's growing portfolio of air service agreements can expand the number of codeshares it can place on Etihad flights, enabling airBaltic to sell flights from Riga to the Middle East, Africa and Asia – a potentially huge area it previously had no access to, with its local market base instead using competing airlines.
As Etihad rapidly digests its Darwin Airline and Jet Airways equity stakes and evaluates Alitalia, speculation has mounted on airBaltic being a potential equity partner. Mr Gauss says the first priority for the airline is growing the codeshare – which so far is more important to airBaltic than Etihad – but he does not rule out any possibilities. More concretely in the medium term is gaining better access to North America, with airBaltic considering if a North American carrier can serve Riga and partner with airBaltic, or if airBaltic should serve North America with its own metal. The trans-Atlantic market is appealing but also competitive with joint ventures, and Mr Gauss is not rushing to enter.
AirBaltic commenced a new codeshare with Etihad Airways on 16-Dec-2013, launching a four times weekly A319 service and linking its Riga hub with Etihad’s in Abu Dhabi. Riga is the Baltic region’s principal transfer point – the airport says that 33% of passengers in 2013 are transit/transfer traffic – and Abu Dhabi is rapidly emerging as an important hub for travellers flying between Europe and Asia.
Following airBaltic’s near bankruptcy in 2011 and its subsequent renationalisation and investment from the Latvian Government, the state has been on the look out for a private sector investor. Meanwhile, CEO Martin Gauss has been focusing on the carrier’s restructuring programme and expects to restore profitability in 2014 after achieving better than expected results for 9M2013.
An EU investigation into state aid received in 2011 is ongoing and could potentially lead to the carrier having to repay the funds received from the state. This would increase the pressure to secure fresh investment. Some observers have suggested that the Etihad partnership could be a stepping stone to a future equity relationship. The codeshare attests to some meeting of minds already.
Latvia’s national carrier airBaltic recently reported a narrowing of its net loss in 2012, with RASK up 15%. The carrier is just over a year into a five year profit improvement plan. It says that it is surpassing its original turnaround plans and is on track to achieve targeted profitability by 2014. Network restructuring, improved revenue management and the relative economic health of the Baltic region compared with other parts of Europe are providing tail winds.
With only modest capacity growth planned for 2013 and monthly profitability exceeding management’s plan for the first three months of the year, there may be potential for airBaltic to improve on its 2013 target of stable RASK and perhaps to reach a positive net result ahead of schedule.
Nevertheless, its unit costs are not as low as the LCCs with whom it increasingly competes and labour productivity lags peers. Its fleet modernisation programme should help to narrow the unit cost gap, but management will be hoping it can retain its current pricing power.
Estonia’s national carrier has dropped its ambitions to develop extensive hub operations at Tallinn Airport and appointed Jan Palmér as the new CEO to scale down the airline’s network and halt mounting losses. The small regional carrier in 2011 adopted a new network model, shifting its traditional focus on point-to-point markets to a network strategy based around feeding transfer traffic within Europe and to and from the Commonwealth of Independent States (CIS) region. The core goal was twofold: to increase the number of destinations and frequencies from Estonia, and to do so with a sustainable profit in the medium term.
To underpin Estonian Air’s new strategy, the Estonian government in Dec-2011 decided to invest an additional EUR30 million in the airline, increasing its ownership from 90% to 97.34%. It also endorsed the revamp of the carrier’s entire fleet of narrowbody and regional jets with Embraer E-Jets.