AviationSource got the opportunity to sit down with airBaltic CEO Martin Gauss this week.
We discussed the airline’s current position on their 29th birthday, as well as the future of the carrier and the industry overall.
Without further ado, let’s get into it…
Interview With airBaltic CEO Martin Gauss…
JF: Martin, thank you for taking the time to speak to AviationSource. Today, August 28th, is airBaltic’s 29th birthday. Obviously, the 30th anniversary is coming up next year. How excited are you for this milestone?
MG: Of course, I’m very excited because if you look at the European landscape, especially at smaller airlines, a lot has happened in the last 29 years.
airBaltic has been undisrupted here.
The airline never had to go through any restructuring or bankruptcy proceedings.
We went through the difference challenges the industry had and we came out very strong.
We have just reported record results again for our half year. So I’m very proud that airBaltic has developed to what it is today. Looking back at my time in the company, nearly 14 years already, I had a big impact on it, which makes me proud.
JF: On the topic of airline financials, things have been going well, but there have been challenges. Do you have an indication of what the second half of this year will look like for the airline?
MG: What we reported was that we see good bookings going forward, while we see a pressure on yield.
There’s still an impact geopolitically because we are at a border crossing and we can’t cross the airspace there. So that’s a constant impact.
But despite that, we have reached new records and that shows the flexibility that airBaltic has shown in the last few years.
We are doubling in size over the next five years from the order book from 50 aircraft to 100. I think we have a very bright future ahead of us because I think we have found the recipe for success, otherwise we couldn’t show these numbers.
JF: Obviously, a big part of that growth strategy has been the Airbus A220-300. Could you give us a bit more insight in how important this aircraft has been in terms of growth for the airline?
MG: We are the largest operator of the Airbus A220-300 in the world, and we were the launch operator in 2016.
It is the backbone of the success story. It’s a new model which we established in Europe, a hybrid model where we have the scheduled business with a full service business class. The Economy is matching ultra low cost carriers while we have a second business stream where we do wet leases for others.
If we put it together, then this is all done on the same aircraft. This 150-seater aircraft is the most economic aircraft in it’s size in the market.
Our model has been the backbone of the success story because nobody else in Europe is replicating what we do because you would have to have the same aircraft to do what we do because no other 150 seat aircraft can deliver the economics.
JF: Continuing the theme of the Airbus A220, we noticed in the airBaltic financials that you have been having issues with Pratt & Whitney in terms of engines. Has this been a difficult issue to contend with so far?
MG: As you know, this issue has been widely reported. The engine is over performing on the fuel burn in terms of emissions. So the engine is doing a great job. The issue the industry has is a shortage of spare parts for the engine.
And with that, there are very long delays until an engine returns from the shop. If we look at the latest reports here, I think 700 aircraft in the world are affected by that. It’s an impact, right?
Then looking at our results, they are impressive, even with the issues at hand. But what I would also say is the last two years that it has made headlines, we have received guidance from Pratt & Whitney that we see this maybe lasting another year, another two years, and then it will be something the industry will not be talking about.
If we go back in our industry when we had the 787 years ago that had issues with it’s batteries, right?
It was a big issue and you were reading nothing else than that today and now it isn’t an issue at all. It’s fixed.
Yes, there is an issue now, but all we need to do is manage it until it’s solved in the next couple of years.
JF: Shifting to personnel, we saw that airBaltic is recruiting pilots for the Airbus A220-300 type rating, with generous signing bonuses attached to that. Is this down to a pilot shortage for the A220 type rating, or is it just an additional benefit to joining the airline?
MG: There’s several issues.
We have our own pilot academy where we have the flexibility to increase the output, but it’s a two-year delay.
So if I today recruit people to become pilots, it takes two years until they can fly our aircraft, and we just increased or accelerated the orderbook by signing up for purchase rights, which come pretty early.
So we are ramping up to have sufficient personnel as we grow. And that means to get the current situation where the market has a shortage on pilots globally.
We do what others also do to attract individuals to join airBaltic. But overall, our way forward is long term to do it with the Pilot Academy to increase the output. But again, that is always with a delay of two years, and we need to bridge the times when we need more people.
The signing bonus is something in the shortage where you can differentiate your offer to others. We offer a very attractive package I would say, including the signing bonus.
That should help us recruit sufficient pilots going forward. We are already now recruiting for the next year.
JF: Moving away from the A220, there’s obviously been a lot of hype surrounding the upcoming launch of the Airbus A321XLR. With the significant network coverage that airBaltic has already, has there been a temptation for the airline to acquire some units of the aircraft and go further afield beyond your furthest destination of Dubai?
MG: We have a very clear business model.
We are preparing for our potential IPO. In that, we say that the business model is based on the Airbus A220-300 for the foreseeable future.
I like the A321XLR, but airBaltic is focusing on the single fleet A220s.
Personally, I like the aircraft a lot because it is an aircraft which was missing in the market, and I think it’s the right time to bring it in.
JF: I’ve noticed that the likes of Tallinn, Vilnius and Tampere have played a strong part of the airBaltic success story. How important has it been to connect the rest of the Baltics as well as just Riga itself?
MG: It’s part of the strategy to expand. We are now the market leader in Estonia as well, and are effectively like a national carrier there. We offer 25 routes there today with a 28% market share.
In similar venues, we have reached a 16% market share. We are the number three operator there. The reason why we’re not larger yet is we do not have enough aircraft.
With the 50 additional aircraft we have on the way, we will open up temporary and permanent bases around the Baltic states.
If we had more aircraft now, we could do more, because you always need to see that around 30% of our fleet is flying wetlease. We want to keep to 100 aircraft by 2030, of which 30% will still fly for others, and then 70% flying in our network.
JF: As you have briefly touched upon, ACMI seems to be a very strong element to the business as well. How prevalent has this been for the airline and how far do you think you can take that area of the market?
MG: The feedback we get from the market is that we are the premium provider of ACMI.
This year we have been doing this exclusively for the Lufthansa Group, and we have been very successful in this.
We have catapulted ourselves into the number four position in Europe of any wet lease provider, while we are the only scheduled airline doing this and doing it strategically going forward.
And that makes our potential IPO also so unique because we are not going to the markets as an airline which just does scheduled flying because there are a couple of well-established carriers in the market.
We do a mix of high EBITDA margin wet lease business combined with the full service legacy approach that we have.
Having two business streams at airBaltic highlights the unique story we are telling in our operations across Europe. No other airline is doing both businesses to this extent.
JF: Talking specifically about the UK markets, you may have seen news from London City Airport about more departure slots becoming available. As you have alluded, the strategy of the business is based on the Airbus A220-300. Has there been any temptation to go for the -100 in the future so then you can provide such services into airports like that?
MG: In 2012, when we signed the first contract for the A220, we had the option to switch to the -100s as well.
It was always debated in the first years and once the -300 came in 2016 and we started operations, we saw the differences and from our perspective commercially, while London City would be an airport we would love to service, it would not make economic sense for us to do that, just that one airport, with a -100.
I would say that London City should make the runway a bit longer. Maybe if the A220-300 got certified for the airport, we would do it, but we are not looking at the -100s currently.
Otherwise, all airports are doable for us. The economics of the -300 against the -100, with 35 seats more, doesn’t make economic sense unless you’re a sole operator which can use an aircraft to operate to these airports. But then that wouldn’t fit to the overall strategy of airBaltic.
JF: airBaltic already serves Aberdeen and London Gatwick. Are there any plans to expand further into the UK market outside of those two destinations?
MG: It’s always on the list. Gatwick of course is easy because London, you have to serve that destination. And for us it’s Gatwick but all other airports without any exclusions are always on the list of airports to be served.
Our network planning department, like any other airline, has a short list of airports which are coming next.
And once they come up and it turns out to be a profitable route, then we will start it.
So there’s nothing specific about the UK currently. There’s no limitation on opening more routes, but we have nothing to announce currently.
JF: Moving to sustainability, the industry is obviously looking to achieve net-zero by 2050. Do you think that’s a realistic target? And is there anything else the industry needs to do right now to ensure that the longer term goals are met?
MG: I do see the industry achieving this in the next 26 years.
We as an industry today do not have all the answers to the technical solutions because they will be coming from people in the future.
But if we think about the last 26 years, and the technology development the world has seen now, I believe we go for the immediate steps of sustainable aviation fuel and invest in the latest technology aircraft.
Those are the immediate steps, then we progress further from there.
In 2050, we will have a complete different world compared to what we see today. We might not yet have the final solution, but we will have it in 26 years.
JF: Is there anything else you would like to say to our readers?
MG: Something I want to get across is that we are currently in an environment in Europe where see a demand for flying more and more, especially for the generations that fly several times a year. I love that.
I love the ability of people having disposable income to fly. What I would like to remind people is to take each flight as a gift because it comes today at a cost which is really small. Our industry doesn’t have the highest profit margin, but we are still somehow managing, and we want to continue to provide that.
But what I like is whoever flies, they understand that they are transported nearly 1,000 kmh at -56 degrees and sometimes it comes at a cost which is less than the local transportation to get into the city center.
And that is something where everybody who uses an airplane should remind themselves of what a gift it is to be able to use an airline.
We as airlines are providing that freedom to people and we are providing it to the generations to come because we do everything. That’s our industry.
JF: Martin, thank you for taking the time to speak to AviationSource.
MG: Thank you, James.
Overall…
In conclusion, it is clear that airBaltic is a strong case study as a successful European airline that has gone through a lot and has come out the other side stronger.
Furthermore, it is clear that the airline’s decision-making under the leadership of CEO Martin Gauss has enabled the airline to get to the position it is in today.
From utilizing the single-fleet model of the Airbus A220 to expanding their reach into Europe from the Baltic States, it has been impressive.
Looking ahead, all eyes will be on how the airline performs for the rest of the year, as well as into the rest of the decade as they grow from a double-digit fleet to a triple-digit fleet.
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