airBaltic unveils its five-year plan

By bne IntelliNews March 12, 2012

Mike Collier in Riga -

Scheduling is a topic with which all airlines have to contend, but with Latvian flag-carrier airBaltic, it was a case of unforeseen circumstances on March 6 when a press conference planned for March 7 had to be moved forward at short notice to prevent employees hearing about job losses from media instead of their managers.

Around 150 of the airline's 1200 employees will be departing as part of a new business plan that envisages the company saving up to LVL330m over six years. The fleet will be modernised and reduced in size from 34 to 26 planes (Boeing and Airbus are both in advanced stages of wooing on fleet renewal with a decision in favour of one of them by the summer), leasing deals will be renegotiated and the flight network has already been reigned in from 70 destinations to 60.

The plan is officially known as "airBalticReShape", so it comes as no surprise it is the work of a consultancy, in this case Boston Consulting Group. But even more eye-watering than that trendy title is the scale of the turnaround required for a company that has seen more than its fair share of drama in recent years, following the colourful antics of German former CEO Bertolt Flick to the opaque financial backing of Russian oligarch Vladimir Antonov, currently fighting Lithuanian attempts to extradite him from the UK to face charges relating to the collapse of Snoras bank and its Latvian subsidiary Krajbanka.

Another German is in charge at airBaltic now in the form of Martin Gauss, formerly of Hungarian airline Malev which itself spectacularly bit the dust in February. If his predecessor Flick was known for his red hair and fiery temper, Gauss is a calmer character despite the size of the challenge facing him: the company lost a whopping €109m in 2011 and expects to leak another €54m this year. In 2013 losses will be trimmed to €22m before hitting parity in 2014 - if all goes to plan.

Perhaps the figure that best sums up the long-term intention of the plan is a projection that Ebit of minus €77m 2011 will be transformed into €20m in 2016. "Growth will be coming volume-wise mainly from the west and percentage-wise more from the east," Gauss told the press conference. "That's based on independent forecasts which foresee 7 % growth over the next five years for this region. With airBaltic we already have a product in place which supports this. We offer prices from the very lowest range to business class fares so we are well placed for future growth."

"I expect that the local carriers will increase their market share. Independent analysts say the segment will grow twice as fast as the traditional segment... But in the next five years we will see a different competitive environment all over Europe," he added.

Speaking to bne after the press conference, Gauss said he hadn't waited long before shaking things up. "There was one issue I immediately changed," he laughs. "We were not allowing passengers to switch on their mobile phones before they had left the aircraft. We now have an announcement which says you can switch on your mobile phone after landing. Passengers appreciated it and that was my first thing."

"We will get better," he asserts. "We have a good product already in the back and we have business class in the front. We've tried with the frequencies to make that class more attractive by going double daily to some destinations where we were going once a day."

Speculation is always in the air that airBaltic is looking for new financial backers, but Gauss is giving little away about a forthcoming trip to the Gulf States. "I'm going with a government delegation. We'll be telling the airlines what we do to attract potential partnerships. We're open on other discussions but mainly we'll be discussing partnerships with the Middle East carriers as they are serving other destinations we fly to and we would like to connect to these carriers in the Gulf States," Gauss says.

He's equally tight lipped on the prospect of listing airBaltic stock on the Baltic bourses as a way to raise capital: "We do not foresee this in the business plan. Of course it's an option at a later stage. We're not excluding it when we're successful again."

Gauss also believes that long though the runway ahead of him is, the airline will eventually rise again. "This business plan is intended to become profitable according to what we do today and that's a European-wide short-haul network. I do not believe that you can't earn money on short haul as some of the most successful companies at the moment in Europe are making their money on short-haul."

Adding extra wings to the dogfight taking place over Baltic skies are rumours that a new Lithuanian airline may be on the drawing board with the backing of Vilnius mayor Arturas Zuokas. Meanwhile Estonian Air has undergone an impressive resurgence under former airBaltic man Tero Taskila. "In our name it clearly says that we are covering the Baltic states and we intend to do so in the future. We will always watch any new development," Gauss contends. "We are the strongest carrier in the Baltics by far... I hear our competitor from Estonia is flying to Riga this summer so of course we will be looking at it and offer a good product to our Estonian customers."

airBaltic unveils its five-year plan

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