CAPA Live: airBaltic plans strong environmental focus post-COVID
Talking at the CAPALive on 9-Dec-2020, airBaltic’s CEO Martin Gauss spoke with CAPA’s chairman emeritus Peter Harbison.
Some of the key verbatim highlights are provided below.
AirBaltic's Mr Gauss believes the A220 is the right aircraft for their low cost hub operations, and that the focus will shift back to the environment, so they are positioning themselves in preparation for that time post COVID-19.
The airline has retired all Boeing and Q400s and is focusing entirely on the A220, which has ‘exceeded all expectations’.
Beyond 2025 airBaltic will look to expand operations with point-to-point operations into the Nordics, but for now is focussing on its hub operations from Riga.
We realised that when we start to fly again the next big thing will be the environment – even stronger than before. Aircraft with zero emissions are the future
“When we were the only airline which had to stop flying completely for 62 days, we used that time to say, 'Okay, first we need to stay'. That was to fight for the financial support that we could continue because we didn't know how long it would take. But then when that was clear, we said we need to change the product, and we need to make sure that when we fly again that the next big thing coming will be the environment again, much stronger than before. And I still believe that this is the case."
“So we focused on what we were doing. We have the right aircraft, A220 is the greenest aircraft in its category. We come from a country, Latvia, which is one of the greenest in Europe. So we try to combine this and what we see now, of course, in the media and Europe, sustainability environment is not so much an issue because COVID is all over, but there will be the day when COVID will be the secondary news after the environment. And whatever we do in airBaltic is trying to capture all these elements so that we are ready when it comes, and the fleet decision we took only for the Airbus A220 three years ahead of our plan shows that, and actually we are taking more of these aircraft in to be able to have an aircraft which delivers."
“Environment will be bigger than it was before. It has just been killed off because of the virus, but there was already a strong tendency. There was no other subject if we go back, but then it has been stopped. Once we come back into the air immediately, that's the number one topic, and we do everything here to take that into consideration with all the steps. We changed our fare policy so we also have green fares now. And we are working on a couple of projects which, when traffic comes back, we will announce which go then in line with that aim."
“The responsibility for us as airlines is there, and we will deliver. Also Airbus... the announcements of aircraft coming in the future which will have zero emission. That is something our industry will have to focus on. But again, in Europe, we are still a little bit behind that because we need to get back to normal behaviour on traffic and that.”
“I wish we would have a different debate in the media here, but if you open any news channel, all it is about COVID, COVID, COVID because that is very, very difficult situation still in Europe. But once that is done, we will have that discussion again and looking forward to it because I think everybody's looking forward also the public that there's another discussion than COVID and the environment is a very good one because this time is used by a lot of people to prepare for the future.”
When we stopped in March we retired all Boeing aircraft and the entire turboprop fleet to focus entirely on the Airbus A220, with 50 firm orders and 30 options
“When we stopped the airline in March, we went to retire the Boeing aircraft which we still were flying at that time earlier. That has happened. And all the turboprop fleet, we had 12 Q400s, they are parked out here. We also stopped that operation to focus only on the Airbus A220 and on our orders, we have 50 firm and 30 options. Right this week, we are taking two aircraft in Montreal and bringing them to Riga. We took one already two months ago, and we continue doing so next year, so because we need to of course have sufficient aircraft at all to rebuild our network, but it will be all A220s."
“That aircraft will be now with us for four years this December, and it has changed airBaltic completely. It is much, much better than what we expected when we ordered it in 2012. It has exceeded all of our expectations and now four years into service, I think the world sees that that aircraft from an economic point of view, from an environmental point of view is the best you can have if it's the right size. After that crisis to have a 150-seater which can go more than seven hours if you want to is the perfect vehicle for us in our markets here. So, we are very, very happy, and we continue focusing only on the Airbus A220.”
We are focussing on Riga as a hub for now, but beyond 2025 we see potential outside the Baltics into the Nordics. Our GDP is currently 44% down due to airBaltic not flying, so there is huge tourism potential
“We have, from a business plan until 2025, a very clear statement and that plan is unchanged from what we had before. We focus on Riga as a hub, and 50% of our traffic to Riga or from Riga is hub traffic. That will stay also in the future. But we do also fly to the other two Baltic States, Lithuania and Estonia. And from both capitals, we became now in this crisis time a market leader in all three airports. And by 2025, when we have a minimum of 50 Airbuses, the majority will serve Riga hub, but there will be several aircraft based in Talinn and in Vilnius and the two other capitals. And from there, we do only point to point."
“And then beyond 2025, we made it very clear that the point-to-point model will then be taken outside into the Nordics where we will be basing aircraft outside the Baltics. But the focus now we see the potential for the Baltics, of operating 50 aircraft in the Baltics. And then everything beyond that will be outside the Baltics, and that will not be a hub operation.
"That will be point-to-point because the aircraft... in Riga, to do what we do with the population and the size of Riga, you couldn't do just a point-to-point operation. There's just not enough demand here today, but with the hub and the way we operate that hub, we have seen in the past that when the year started 2020, we were exceeding our own expectations on it, so therefore we see that that will be coming back and that is the focus. A hub somewhere else, we do not see at the moment."
“We had already 40 aircraft flying before we stopped with COVID, a couple of aircraft in Vilnius, in Talinn, and the majority in Riga. So what we're doing, we are just adding 10 aircraft over five years in total. What we do, of course, changing from a turboprop to a jet, also then adding capacity, but we do not see a problem at all for 50 aircraft in the Baltics because that would be 10 million passengers, and we had in Riga nearly 7 million.
"So if we just go back to old levels, we can already fly 40 aircraft, but then with normal growth, 50 aircraft in the Baltics is for the next five years possible, so that the inbound trip airBaltic is bringing last year, we had more than 5 million passengers already. And the majority of these passengers are flying via Riga."
"There's so much development potential just for the three Baltic states that we do not see a problem at all operating 50 Airbuses."
“And again, half of our passengers are transferring in Riga, but instead of inbound, we bring them to the Baltics - and because of all the environmental discussion of a different tourism coming and also an effect of COVID - we see in the demand for the Baltic States being green and different tourism. We see that is picking up, especially for markets like Germany where you see a surge at the moment for request for future travel to come to the Baltics. While traditionally the Germans, the biggest market in Europe, have gone to the south to Spain, Italy, Greece, now there's a high interest now to go to nature, to go to the Baltic states. And there's so much development potential just for the three Baltic states that we do not see a problem at all operating 50 Airbuses."
“It came out just now from Oxford Research that the GDP drop in Latvia, which is happening at the moment, is 44% down to airBaltic not being able to fly. So the total GDP drop just caused by the airline is 44%, and that shows how important the airline is for the economy here.
And it is, of course, not as much in the two neighbouring States, but we are a huge factor for all three States, not only on tourism, also activity because the Baltic States do not have a road system connecting to Europe, nor do they have a rail system. And then there's a lot of sea around us, so to connect to the Baltics for the foreseeable future, the airplane is key and airBaltic being the largest carrier in the Baltics, of course, wields that advantage, and we will grow, combining all of the things I said earlier.”
We planned an IPO, and that is still the target to repay the State for their investment
“Before the crisis, 80% shareholding of the Latvian state that was going back to the time after the privatisation. The State had to bail the airline out before I came, or when I came in 2011, to keep the airline. We then did that turnaround which was a big success and, I think, recognised all over the world. And the airline was on track this spring to earn that money again and then to do an IPO, so that finally the airline would be private, and that was the target, and that is the target."
“Now we had to ask for COVID support, according to the EU rules which we got, which means the State had put in the equity into the company, but that comes with the condition like with all other European airlines that you have to repay it. And in our case, it's defined in the plan that is going through an IPO. That means the business plan shows that the airline is repaying that State support, and the State has to sell enough shares to regain the 250 million investment.
"And therefore, if we reconnect to the success story from before, which I think we will do, then it shouldn't be a problem for the State to sell the shares at an IPO. That was the plan before, now we had to delay it because we need to go through this year and then see what is the right time for the IPO in Europe."
“In Europe, there hasn't been an IPO from an airline since Wizz Air, so we would be, from today's point of view, the next one coming. And I think with all the environmental stuff, our green approach, Latvia being a very green country, very, very good story behind it, but we need to get through this COVID time first before we can focus again on writing that story."
Winter is going to be unpleasant because of strict emergency measures, but we already see a demand for bookings for next spring and summer. People are betting on the vaccine arriving
“It's very unpleasant because the different states, Baltic states, but also Germany and other important States having very strict measures with emergency laws, lockdowns. They are changing them on a weekly base, making them stricter, stronger. Basically, it has killed the demand because if you travel, then you have to self-isolate or you have to go into quarantine in nearly all States now, and these quarantine rules make it very difficult to travel. And until the vaccine has started to be delivered and to be used, this will suppress the demand. We see a slide up for December, but that is only because of people reconnecting with their families."
“We then have for January and February still a very negative forecast, but we do see a demand in group bookings for next spring and summer in Europe. We see that demand, so people are hoping or betting on the vaccine to arrive. And that is also our calculation that next spring we'll see a surge because of the vaccine being there and enough people receiving it. That doesn't mean COVID is over, but I think we need to go through these next 100 days before we see a significant change.”
It seems that Europe can’t get its act together with it comes to common rules, but once the media amends their headlines from COVID to Vaccine, we will see change
“I have to say that Europe States haven't done a good job in maintaining travel because each State came up with different rules on how you can get to that State if it's by air. It's much easier on the ground, but by air the controls or the restrictions are so different that you, every day, have to study what is changing. So if that is not changing, that Europe can't get their act together to come up with common rules, we will have these difficulties. But again and I think some of my colleagues from the low cost world see it the same way, once the media changes their headlines from COVID, COVID, COVID, which is the only thing you can read, to The Vaccine Is There, It Works, and It Gives You a Certain Freedom, then we will see already something."
“The cash burn will exist, of course, because we won't get back to old levels, but on short haul Europe, there's so much demand because people haven't travelled then for a year. So, even if COVID is still there, there will be the demand from businesses, from tourism, to open up. And if it's via corridors or it's then common procedures, but they will ease things because there comes an end to how long you can say that COVID, COVID, COVID."
“I think people now are waiting for the news on the vaccine in Europe, and the demand is there. The Zooms, all the online stuff, as good as it is, it will also take some market share, but I do believe this industry will return to its growth paths as it always did."
“It's always in crisis, our industry, and I'm 30 years now in this industry, always in crisis. We see it all so bad, but then afterwards, we're all surprised at how good it goes. And I'm of this opinion that we were so good, and we are so well prepared now as an industry that we will focus and with a new strength, all coming out of that crisis, we will see some positive surprises afterwards. But of course, now we have to accept that everybody sees it very dark. I don't personally see it so dark because the humans are very smart when it is about finding solutions to do what they like to do, and travel is an essential thing humans like to do, so it will return.”
Being a low fare, point -to-point operator with green credentials does set us up nicely for the next couple of years
“For us for the next at least two years, we have the perfect setup because what you don't want to have [is] a 230-seater aircraft. We have a 145-seat aircraft with unbeatable economics, if we look at that size aircraft. And with that, you have a natural advantage. We have a very low cost space at airBaltic."
“We don't have the same base as Wizz Air and Ryanair, but we will be when the fleet transition is complete we'll have an equivalent to an easyJet cost space, but then we have an aircraft which you can fly for seven hours or more, so we can fly interesting destinations if needed, if it's very thin markets, but on our very short sectors, the aircraft is good for flying high frequencies. Also not only for airBaltic, we have 21 co-chair partners, and all the big airlines are co-chair partners with us, and we are flying into their hubs. So with that aircraft, we can do a good job on connecting to these hubs as well."
“So I think the business, how we have set it up over the last years, if there's an economic downturn coming, we will have the right aircraft. I never thought that that kind of downturn comes, but we are definitely having now the right aircraft. I think, and you hear this in the industry, a lot of people are looking at that size of aircraft. And when we see what is coming in here, then the other carriers who are serving Riga using their smallest equipment because that makes, at the moment, a lot of sense. And yes, if you have very, very high passenger numbers on a city pair, you would rather have a 239-seater aircraft because then your cost per seat go down. But right now we don't see that, and I think for quite a while, these very high passenger numbers on point-to-point are not there, and therefore I'd rather go with a 145-seater."
"So I'm very happy having a business class and an ultra low cost economy combined in one aircraft. I think we are set up very well for this.”
We can reach parts of China, but that’s not our focus right now. We can reach all of the Emirate States and all of Russia, so we are staying within that range for now
“We picked up masks in the beginning from Ürümqi Diwopu, but we can't go further. It's just too long. So the aircraft is not capable of doing a novel service to China. For that, you would go for an A321XLR which is coming in a couple of years, and there's always this speculation that airBaltic might have that aircraft then to do longer routes. I have to say that we really focus now on what the aircraft can do for us, that range from Riga that goes down to daily Addis Ababa. This is the range circle we have. We can do all the Emirate States, and we can go into Russia. So we can go in Russia to basically all places there. This is the potential we have, and then of course, all of Europe, Canary Islands if we go south. We cannot go North Atlantic, or at least we could go, but then only was 30 passengers. So we will stay within that range and not eyeing at the Chinese markets.”