airBaltic: focused on Baltic air connectivity. IPO may slip into 2025
In spite of slipping to a net loss in 1H2024 from positive results last year, airBaltic remains positive. The loss arose mainly from expected one-off costs, while operational and traffic developments were satisfactory.
Moreover, the state-owned Latvian flag carrier continues to plan for the future. In mid Aug-2024 it exercised options to purchase 10 more Airbus A220-300 aircraft. It anticipates more than doubling its fleet to almost 100 A220s by 2030.
airBaltic has been aiming for a 2H2024 stock market flotation. However, its 1H2024 loss and declining prices for many European airline shares since the start of this year could delay this aim.
Almost 13 years into his role, airBaltic CEO Martin Gauss understands the value of patience. He has said that market timing and finances need to be right for an IPO.
Meanwhile, airBaltic remains focused on fulfilling its aim to provide the Baltic States with the best connectivity.
- airBaltic reported a net loss in 1H2024, but record revenue and EBITDAR, after a profit in 1H2023 and in FY2023.
- Passenger numbers in 7M2024 were 1% below 2019 levels, but could exceed 2019 for the full year 2024.
- The fleet has grown to 49 aircraft, versus 39 in 2019, now focused on A220-300s. The airline plans to fly close to 100 A220s by 2030.
- It has also added routes since 2019, driven by bases at Tallinn and Vilnius. It is almost entirely focused on Europe, but codeshare partners offer global connectivity.
- airBaltic has been aiming for a 2H2024 IPO, but timing is everything.
airBaltic reported a net loss in 1H2024, but record revenue and EBITDAR…
In 1H2024 airBaltic reported a net loss of EUR88.8 million, compared to a profit of EUR14.6 million in the same period of last year (1H2023).
A half-year loss was sustained, in spite of revenue growth of 16.5% year-on-year to a record level of EUR339.3 million, and a record adjusted EBITDAR of EUR76.5 million.
…after a profit in 1H2023 and in FY2023
The half-year loss followed a return to a positive net result for the full year in 2023, when airBaltic reported a profit of EUR34 million, with revenue up 34%, to EUR668 million.
CEO Martin Gauss attributed the loss to the Pratt & Whitney engine shortages this year (2024), accelerated depreciation costs due to engines undergoing full interval shop visits ahead of schedule and currency depreciation, and one-off costs in connection with early repayment of a bond.
He said: "We continue to see strong performance aligned with our expectations, and our focus on operational excellence and strategic flexibility positions us well for a successful year."
Traffic and load factor increased in 1H2024 as expected
Operationally, and in terms of traffic, the airline was happy with its performance in 1H2024.
Passenger numbers grew by 11.1%, to 2.2 million, and load factor gained 2.4ppts to reach 76.9%. This load factor was almost 5ppts better than 1H2019's level of 72%.
Traffic growth was not even from 1Q2024 to 2Q2024. In the first three months of the year, passenger numbers increased by 20.4% year-on-year, but this slowed to 5.4% in 2Q2024.
In Jul-2024, the first month of 3Q2024, traffic grew by 8.8%.
Passenger numbers in 7M2024 were 1% below 2019 levels
By comparison with 2019, the last year before the COVID-19 pandemic and airBaltic's record traffic year, passenger numbers were 13% higher in 1Q2024, but 9% lower in 2Q2024 (versus the same quarter of 2019).
However, the trend is improving once more.
Jul-2024 traffic was only 3% below Jul-2019, and passenger numbers for 7M2024 were only 1% down on the equivalent period of 2019.
airBaltic: annual passenger numbers, 2008 to 2023 and 7M2024
airBaltic could exceed 2019 passenger numbers in 2024
airBaltic's seat capacity for the full year 2024 is scheduled to be just over 6.8 million, or 98% of its 2019 level.
However, this would keep open the possibility of exceeding 2019's record passenger total of 5.0 million, since its load factor this year has been better than in 2019.
The fleet has grown to 49 aircraft, versus 39 in 2019…
One measure where airBaltic is ahead of 2019 is the size of its fleet.
At the end of 2019 it had 39 aircraft, consisting of 22 Airbus A220-300s, five Boeing 737s and 12 Bombardier DHC-8 turboprops.
Its current fleet total at 19-Aug-2024 is 49 aircraft, all Airbus, and with no more turboprops (the last Dash-8 exited the fleet in 2023).
…now focused on A220-300s
The fleet now comprises 48 A220-300s and one A320-200, with an overall average age of 4.3 years, according to the CAPA - Centre for Aviation Fleet Database.
The larger average aircraft size in the fleet today versus 2019 means that airBaltic carried close to 7M2019 passenger numbers with only 74% of the number of flights in 7M2024.
Its 48 A220-300s make it the largest operator of the type in the world. It was the launch operator after its first delivery in 2016.
Following its Aug-2024 exercise of 10 more A220-300 options, it now has a further 42 of the aircraft on order (and 10 more purchase rights, if it chooses to exercise them).
This reinforces its position as the largest A220 customer in Europe.
It plans close to 100 A220s by 2030
airBaltic plans to operate close to 100 of the aircraft by 2030, which suggests that it will exercise its remaining purchase options.
According to Mr Gauss, the A220-300 "has proven its operational capabilities and value - it has been the backbone of our operations and has played an integral role in the international success story of airBaltic".
airBaltic: aircraft numbers at month end, Jul-2014 to Aug-2024*
It has also grown its route network compared with 2019…
Fleet size is not the only measure on which the airline is ahead of 2019.
In the week of 19-Aug-2024 airBaltic is scheduled to operate 105 routes, compared with 83 in the equivalent week of 2019.
Its Aug-2024 network includes 69 routes to/from its main base in the Latvian capital Riga - only one more than in 2019.
…driven by bases at Tallinn and Vilnius
However, the growth in its network has come from its bases in the other two Baltic capitals.
It now also has 21 routes to/from the Estonian capital Tallinn, compared with 12 five years ago.
It has 14 routes to/from the Lithuanian capital Vilnius, up from 6 in 2019.
It reported its highest ever passenger numbers at Tallinn and Vilnius in Jul-2024. Estonia base passengers increased 14%, to 92,000, and passengers at the Lithuania base increased 24%, to 80,000.
In addition, it has a smaller base at Tampere in Finland, with six routes compared with one in 2019.
In the northern winter schedule it also operates a base at Gran Canaria, in Spain's Canary Islands, serving eight airports in the Baltic and Nordic countries.
Taking account of routes that operate only in either the summer or the winter, airBaltic expects to fly 130 routes in 2024, of which 20 are new in 2024.
airBaltic's network is almost entirely focused on Europe…
In the week of 19-Aug-2024, 99% of international departing seats are to Europe, with 1% to the Middle East.
In the first full week of the winter 2024/2025 season in early Nov-2024, this will become 97% to Europe, with 2% to Middle East and 1% to North Africa.
…but codeshare partners offer global connectivity
However, together with 24 codeshare partners, the airline fulfils its objective of offering the best connectivity between the Baltics and the rest of the world.
Codeshare partners with global networks include Air France, British Airways, Delta Air Lines, Emirates Airline, Iberia, KLM, Lufthansa and Turkish Airlines.
airBaltic has been aiming for a 2H2024 IPO…
airBaltic has long planned to float its shares on the stock market via an initial public offering (IPO). It first had to emerge from a restructuring in the last decade and then had to deal with the COVID-19 pandemic.
Having re-established profitability in 2023, it had been planning an IPO for 2H2024.
A stock market flotation will enable the Latvian state to be repaid the investment it made in the airline during the depths of the COVID-19 crisis.
…but timing is everything
airBaltic's net loss for 1H2024 may lead to a delay, since investors are likely first to want to see consistent profitability, even if the net loss was not related to the airline's fundamental operating performance.
Moreover, the signals emerging this summer from other European airlines with stock market listings indicate a more challenging environment, particularly for yields, than over the past couple of years.
A company has only one shot at an IPO, and timing is everything.
In the case of airBaltic, it would be the first IPO by an established European airline (as opposed to recent start-ups such as PLAY and Norse Atlantic) for many years, and so would likely be the subject of close scrutiny.
Mr Gauss has waited several years for the right moment to float the company's shares, and understands that there is no need to rush.
In late Jul-2024 he reiterated the intention to float in 2H2024, but also said that if the business model is not understood by investors, the IPO could be postponed to 1H2025.
Meanwhile, airBaltic is focused on its core objectives
Regardless of the timing of the IPO, airBaltic remains focused on its core objectives.
As Mr Gauss said in airBaltic's 1H2024 results release on 14-Aug-2024, these are "to ensure the best connectivity from the Baltics, as well as to enhance the passenger experience and deliver a fundamental contribution to the economy".