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Latvia’s aviation industry is composed of two large civil aviation companies and several small flight and airport operators, as well as airport service companies. The sector is expanding on the basis of an increasing number of airport services and private airports. The national carrier is the majority state-owned airBaltic, based at Riga International Airport, which operates services to destinations throughout Europe and to the CIS.
Airports in Latvia
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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.
Russia is seeing increasing low-cost airline activity with a number of recent developments pointing to the opening of the eastern nation’s LCC market. Since the collapse of the country’s only LCCs Avianova and Sky Express in Oct-2011, there has been no domestic low-cost traffic but there has been growth in international low-cost traffic from foreign carriers.
The domestic market would also receive a boost if Russia authorises foreign LCCs to compete domestically, which is currently being considered. Such a change in policy could lead to domestic services being introduced by leading European LCC groups such as easyJet and Ryanair as well as lead to the launch of new LCC subsidiaries from Russian full service airline groups such as Aeroflot and Transaero.
easyJet has unveiled plans to enter the Russian market in early 2013, initially with flights from London Gatwick to Moscow but the carrier is also interested in several other international routes from the UK and Switzerland to Russsia. Ryanair is also interested in entering the Russian market and has applied for traffic rights in the UK-Russia market.
Latvian national airline airBaltic is set to become an all Bombardier operator following its decision to replace its aging 737 fleet with Bombardier’s CSeries as it forges ahead with a restructuring plan to return to profitability. airBaltic has signed a letter of intent (LOI) to acquire 10 CS300 jetliners and take purchase rights on a further 10 CS300s with the first of the new aircraft scheduled to arrive at the airline’s base in Riga in 4Q2015.
An airBaltic spokesperson told CAPA that the company aims to sign a firm agreement with Bombardier “shortly” and that pre-delivery payments will come from the company’s own cash flow. airBaltic Corp’s supervisory board, which includes members of its primary shareholder, the Latvian state (which has owned 99.8% of the company’s shares since the end of 2011), has endorsed the CSeries order.
International Airlines Group (IAG), formed by the merger of British Airways (BA) and Iberia in Jan-2011, is facing increased Spanish headwinds as its largest single shareholder is in need of a massive bailout from the Spanish Government. Bankia’s parent company Banco Financiero y de Ahorros (BFA) holds 12.09% of the share capital of IAG and has asked the Spanish Government for a EUR23.5 billion rescue to cover exposures to real estate, deteriorating loans and accounting discrepancies. The embattled banking conglomerate has already announced it will divest several assets and its IAG shareholding is one of the assets being considered for sale.
At the closing the London Stock Exchange on 30-May-2012 IAG’s market capitalisation was GBP2.6 billion (EUR3.2 billion), valuing the BFA-Bankia stake in the airline group at GBP312 million (EUR390 million).