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''The A220-300 is Now Proven to be a Very Efficient Aircraft''

Issue 24 - 2024
''The A220-300 is Now Proven to be a Very Efficient Aircraft''

President and Chief Executive Officer (CEO) of airBaltic, Mr. Martin Gauss shared with us how did they see Türkiye's position in airBaltic’s future business projection

Aviation Turkey: First of all, thank you for sparing time for our readers. Can we start our interview by getting an overview of 2023 from airBaltic's point of view? Can you elaborate on airBaltic's performance in terms of the number of passengers, revenues, profitability, destinations and fleet? 

Martin GAUSS: We're not reporting the full-year figures, but I can give guidance on the passenger side. Our nine-month results were 3,4 million passengers, and we will go about 4 million, of course, by the end of this year. However, what we had formally for the nine-month result was 3.4 million passengers. We gave guidance that it will be more than 4 million and, in this number, the important part is we also fly more than a million passengers for other airlines leased out for Lufthansa group as we did last year and will also do this year, so our productivity is significantly higher. The total passenger carried by us is larger than that. On the revenue side, we exceeded for the first time in the nine months €502 Million, and we gave guidance that it would be more than €650 Million in revenue before the full year. The final numbers here will come when the full-year results in March 2024. 

On the flights, we had reported 32,000, and these are only the commercial flights in the first nine months, which will also be significantly higher because of all the flights we did for others. On destinations, we have more than 100 destinations now it rises between summer and winter, but always more than 100 destinations and more than 120 routes from our four bases, well five now because we have a temporary base in Gran Canaria and our fleet, reached 46 only Airbus A220-300 by the end. We announced at the Dubai Airshow another 30 + 20 orders, which took us to the largest A220-300 operator in the world. That was a big announcement for us from a small country. This was because we would have our 50th aircraft coming already this year, and then we would have no more aircraft to come in the future as we have a very successful business model. It was natural that we would, going forward, order more aircraft, and as we focus only on the A220-300 as the only aircraft we want to operate, with that limiting, of course, our business model to the range of this aircraft. We decided to order another 30 + 20 purchase, enabling us to grow to 100 aircraft by 2029. So that's the current plan.

We had other highlights last year, of course, impacted still by the war between Russia and Ukraine as being at the border of Belarus and Russia, and we need to circumnavigate already now since the war broke out all the areas, which makes flying significantly longer to everything we fly southeast. We have our own, airBaltic-operated flights to and from Istanbul and they are in codeshare with Turkish Airlines. We have a long history in Türkiye, a long history of passenger transport, and a long history in Istanbul because we had it in 2005 and reopened it now, but we fly a lot of charters. It's a very popular destination. So that is something new here. On the passenger side, last year, we had thousands of passengers on the Istanbul route, where the majority of the passengers sit in Turkish. They have a higher frequency than us, but we are happy with the route because the coach gives us the point of traffic. Most importantly, Istanbul is now one of the key hubs where you can transfer. It's very popular among passengers who use Istanbul as a transfer hub, so it is a must-have destination today if you are a European carrier. We have that destination, and we are very happy with it. 

The war still impacts us, and then another big highlight last year was when we started wet-lease out operations with our A220-300, and this wet-lease out is not done as a white-label aircraft. We have the airBaltic aircraft flying; for example, we had an aircraft in Zurich flying Swiss, Lufthansa group member, and it is our crew in their uniform. It is our aircraft; we just do the on-board services as the Swiss would do it, and our crews are a maximum of one week in operation for the partner airline, which means they are trained to do our service, and seamlessly they can do the other service as well, and that helps us. We established ourselves as a premium wet-lease provider because we have a business class cabinet in the front of the aircraft, a full-service business class cabin to European standards, and an ultra-low-cost cabin in the back. That's why when we fly for SAS and Lufthansa group for their premium brand, we have the ability to do that to a very high satisfaction because we get feedback from the wet-lease partners that we serve. We are doing this at a very high level. We keep this business because the aircraft is a 150-seater, which is perfect for a lot of areas because they normally don't have aircraft of this size. Either they have smaller ones or their standard equipment is larger, and therefore, we operate with a unique aircraft type in a market that is significantly growing. If we look at our order book, we see that the biggest part of that market is secured because we have 150 seaters in our fleet.

On top of that, if you normally do a wet-lease operation today, then you get an 18-year-old 737 or a 20-year-old A320 flying for you, which comes with significantly higher fuel and emission costs. And suppose you fly with an airBaltic as a wet-lease. In that case, you get the most modern aircraft with a 30% reduction in fuel and emissions, which means the cost of operating it for the partner is also significantly cheaper comparing it to another 150 seater, which today would be a A319ceo. Because the A319ceo, or 737-300, would be equivalent, and I don't think there are any 737-300s around anymore, or even a 700 would not be as fuel efficient. 

So that second arm was the very profitable one for airBaltic last year. Overall, as far as we know it, it has been a record year and will be a record year for airBaltic, so we know detailed numbers will be available after the audit, but we know it was a record year for us in our history, 28 years. We are now focusing on a potential listing of the company at the stock exchange, which is maybe then, historically, the biggest thing we have done as it comes with growth. But it also comes with new shareholders and equity where people say, OK, we like that business model and continue to invest

Aviation Turkey: How did airBaltic manage to achieve its positive results in 2023, despite the problems experienced with the PW1500G engines and the negative impacts of the Russia-Ukraine War?

Martin GAUSS: So, on the war impact, in 2022, we did a calculation of how much money we lost because of the war breaking out, and at that time, it was just a direct impact of €72 Million to our revenues, so very significant as we had at that time 10% of our revenues coming from Russia and Ukraine. We had the aircraft. We were flying Odesa, Kyiv, and Lviv in Ukraine, and in Russia, we were serving high frequency to San Petersburg, Moscow, Sochi, and Kaliningrad. This all stopped but did not prevented the growth of taking on aircraft. Then, we opened more destinations to the west, which was difficult to start in 2022. But it worked very well in 2023, and we gave aircraft to others and started the wet-lease operation. So, not completely, but it offset the impact. We haven't reached the passenger numbers we had in 2019 because of the missing passengers from the east, on top of the direct missing passengers with all the transfers we used to carry from Riga to these eastern destinations. We also couldn't fly to Yerevan and Baku in 2022, but all of that came back in 2023, helping us because these are connecting routes from Riga. So, if you come from Scandinavia or you're coming from southwest Europe, then sometimes we have the best connectivity to these places geographically, and therefore, they are back. Most of them are back. 

The engine issue actually got worse last year compared to the year before. We were missing more engines in the peak summer than expected and had to ground up to 14 aircraft. We stopped leasing aircraft ourselves while giving our aircraft to others. Because the short-term needs of not having sufficient engines back then can only be offset with a short-term wet-lease. People ask me in public why I am flying my new aircraft in Lufthansa Group, and then I'm bringing these old aircraft to fly in airBaltic. We had a lot of complaints from the passengers because of that. Until October, when the winter schedule came, we got a lot more engines. We came to a point where we only have three aircraft on the ground compared to 14 last year in the summer, but we are already going into the summer knowing that the engine situation will worsen again. We know that because of additional problems on the PW engines, which over the next two years will have to be modified, that affects not only the A220 but also the A320 family even more. However, it is part of our business plan, and last year, we had to offset this with a costly wet-lease operation. That is disturbing profitability. Without that, we would have had much better results.

This engine issue will be fixed one day, just like any aircraft that has issues. These engineering issues will be fixed one day. Then you can imagine if you would have even better results in these times and how good the results will be in the future. Therefore, we are very positive and able to explain to investors that, 'Look, we are already performing at a very good level with these issues. Can you imagine how good we would be if these issues were solved?' That helps us to sell our model. Because the model is unique in Europe, and it works very well for us. So yes, it was tough last year but still a record year, and I'm very proud, honestly, to have steered the airline out of Covid and out of the war to make it now the largest A220-300 operator in the world with high recognition. If we look at the operating margins, we are ranked in the world as one of the top 20 airlines. So, somehow, we did a lot of things right, and I hope we can build on that success in 2024 and then take the airline to a proper capitalization because our negative equity is still there. It can't be fixed by our current shareholder because, according to EU rules, that would be state aid. Therefore, we will have to go through private capitalization with an IPO and, with that, finally fix the equity issue.

Aviation Turkey: While answering our first question, you underlined that you currently have 46 aircraft in your fleet, and you will get the remaining four by the end of this year. What can you tell us about airBaltic's targeted fleet structure and number of destinations for the end of 2024?

Martin GAUSS: We will fly more than 50 aircraft because we are already trying to bring outsourced aircraft. It is not finalized, but that is to bridge the gap until our new order comes, so we have an RFP (Request for Proposal) out there for leasing companies, and we expect more than 50 aircraft already this year. Usable aircraft will be less because of engine issues, so we will also seek wet-leasing capacity from others for the peak summer so that we can fulfill our business plan. The destinations will grow. The final numbers, I can say, are only at the end of the year because we normally announce new seasonal destinations. Not all of them have been published yet, but we will be well above 100, and it will be more than it was in the year 2023. We have not announced anything other than our three Baltic bases, Vilnius, Tallinn, and Riga which is a hub. We will continue Tampere, and Gran Canaria was a winter base that will finish in April. That is as a temporary base. Otherwise, we have also contracted out aircraft to fly wet-lease for others here in the Lufthansa Group as last year. With this, we are set up to go, and now, the first week of the year, it is about getting the organizations. I think every organization is warming up for the beginning of the year, and very soon, we will see the traditional increase in booking performance in European airlines around February and March, which will give a good base for the summer to come.

Aviation Turkey: When will the first delivery of your second order of 30 aircraft take place?

Martin GAUSS: The first one is at the end of 2026. Q4 for 2026, and then they will come pretty fast. So, we are getting aircraft, and now, assuming that we agree with the lease source, we will have a continuous stream of aircraft coming in.

Aviation Turkey: So, you will lease aircraft from other sources to close that gap?

Martin GAUSS:Yes, but usually, what we do with the aircraft we purchase is we lease it back like the standard today in the world. However, we will also do a lease source with new A220 aircraft orders coming from them. For the public, there is no difference, right? It's an airBaltic aircraft, leased normally for 12 years. Whether it is a lease back or a direct lease from us, it's the same; the total number of aircraft targets is 100 by 2030.

Aviation Turkey: You have been at the helm of the Latvian flag carrier airBaltic for 12 years, and during this period, you have made several impactful decisions that led the airline to become a profitable company. One of those impactful decisions was for the airline to become a single-fleet operator by placing an order for the then-Bombardier CSeries CS300 (now A220) to replace Boeing 737 and Q400 aircraft in the fleet. What can you tell us about the consequences of your decision to become a single-fleet operator? Are you satisfied with this decision and Airbus A220, and will you continue this practice in the coming period? In one of your preview interviews, you underlined that there is a requirement for 100 aircraft in your fleet. So, do you plan to procure more A220 aircraft or other types of aircraft in the future?

Martin GAUSS: I'm happy with the decision of A220-300 because it gave us the chance to demonstrate the cost space that we have today, and it would not have been possible if we had taken a larger aircraft. I mean, of course, there is peak summer. We could have up to 10 aircraft, which are larger and could fill them in the peak summer, but we would not be able to fly the profitable all year round because of the model we fly. While our main competitor, is flying larger aircraft. One of the reasons why we can compete so well against them is having the right size aircraft. Therefore, the decision to purchase a 150-seater aircraft was very good. The A220-300 is now proven to be a very efficient aircraft. If we look at engine issues, something that is present in all new aircraft to a certain extent, Even if we look at the 737 Max, after they had all the aircraft grounded, the problem was that they had no issues on engines because the aircraft wasn't flying. So they could build engines and engines. Now, while the aircraft is flying more and more, the new engine technology needs to be modified. So, all new aircraft have a similar situation. Also, from that perspective, the A220 was the right decision because the alternative would have been the 737 Max, which nobody would buy or hardly anybody buys, or the A319, which also is not sold. So, I think we made the right decision here because no alternative is being sold. 

Aviation Turkey: Do you plan to procure the Airbus A321XLR or a stretched version of the A220, such as the A220-500?

Martin GAUSS: We said we are interested in if Airbus develops a stretched version because that could help us fly the same type with more seats. But there is no commitment, and there is no clear timeline. On the A321XLR, that discussion comes up again and again because of direct access to the US, mainly New York, which is missing from the Baltic states. There is no direct flight from the Baltic States to the US, and we see from the numbers today that we could operate that route with the right aircraft. The problem is that the A321XLR, as it stands today, would not be unrestricted and able to fly that route. So, we are still in a situation where there is no aircraft type that is good for that route, and therefore, the discussion always comes up on the A321XLR. Even the Riga, New York, is a little bit too long for that aircraft to be flying with the configuration we would need. So, the only alternative would be a wide body, which does not make sense because the businesses wouldn't work. That's why the discussion is there. So, if you ask me now, is there any plan to change the fleet? No, we continue flying the aircraft the way we do today. But of course, we've seen in the last years so many changes from the outside nearly every year, a major change, starting with, first, the financial crisis, then Covid, then the war. Now we have even two wars in Gaza and in Ukraine. So, we don't know what the future holds, and therefore, we need to be able to adjust, which means we have a very clear plan. We have an order book to continue what we do today, but we also showed that we could adjust in a very fast time. Therefore, I would say when the need arises for a different aircraft type, then that would be a need coming from outside, something we don't know today.

Aviation Turkey: airBaltic commenced its round-trip flights connecting iGA Istanbul Airport and Riga International Airport on Sunday, April 2, 2023. You mentioned that Istanbul is one of the key hubs and a must-see destination for you. Do you plan to open new destinations in Türkiye in 2024?

Martin GAUSS: We cannot do that because of the bilateral restrictions. The countries would have to agree on opening new destinations, such as Latvia based on the Riga. There wouldn't be an interest, I assume, from Turkish Airlines (THY) or another Turkish airline to operate to another destination in Latvia, and therefore, we are restricted to Istanbul as a destination. Apart from flying charters, of course, which we do to different destinations. There is no option for us due to bilateral restrictions. 

Aviation Turkey: airBaltic first launched flights between Riga and Istanbul in March 2005, initially on a four times weekly basis using a Boeing 737-500. Could you give us a projection of your experience in Türkiye, Istanbul, since 2005? 

Martin GAUSS: The load factor was not yet the lowest factor you have for an established route. It has been 70-75%. This route will have to be profitable for us; otherwise, we will have to stop it. But if you look at the development of Istanbul Airport and the connectivity there, I have no doubt until geopolitical issues put a break to it. I use the airport myself a lot. It is a perfect gateway similar to Dubai and Qatar, and with the positive development of Turkish Airlines there, we will have more and more connectivity for passengers. As we fly in codeshare with Turkish Airlines, I think the product on the Riga-Istanbul route is very good, and that should enable all carriers on that route to grow their passenger. So, that's our expectation, and of course, I hope that the year 2024 is the second year, we will also benefit from the growth on that route. But the first year, as we started in April, was not yet at the load factor which we expected. However, that's normal because it is a new route, and there is competition while at the same time a coacher partner, which means that they are also trying to sell the tickets, which is normal. And you can of course buy a ticket for Turkish Airlines or airBaltic. Also, Turkish Airlines, operating on the route for a longer time, has a better market share, and probably because they fly more frequently, they will continue. They also have more seats. 

Aviation Turkey: Can you elaborate on your short- and long-term objectives and vision for Türkiye? 

Martin GAUSS: Actually, there is no further vision possible because we can only increase frequencies as the route performs better. However, we cannot take another destination into consideration. But I think the perspective of Istanbul as a strong hub to the east for us, that is, not us flying but the Turkish Airlines flying as our partner, is something we want to develop further. That means the discussions with Turkish Airlines on putting the code on having passengers transferring in Istanbul is a discussion. We want it to happen with that route. On the other hand, we see the demand for the charter traffic to Türkiye depending on the charter operators. Of course, we continue on a seasonal basis. This is mainly for Antalya and İzmir, which we do as charter operators. But Turkey is a growing nation. It's a large country, and of course, we are serving it. We connect Latvia to Türkiye very well. We are a small country connecting to a very large country and it works very well.

Aviation Turkey: How do you see Türkiye's position in your company's future business projection? What are your expectations from Türkiye and Turkish passengers to meet your plans and expectations?

Martin GAUSS:We expect Turkish passengers to book us and fly with us. I hope that they like our product, that they like our price structure, and they like the Baltics. So, come to the Baltics. Because we not only bring people to Istanbul but also carry the people coming to the Baltic states. I think a lot of people don't know the Baltic states and their beautiful nature, and I hope that tourism here will also benefit from it as we have that connectivity. Also, we're talking about cargo, which we carry in our bellies. Whenever an airline flies a route, it normally develops the countries' economies, even if they are small. So, in our business plan. We have that route as a profitable route going long term, and it was a prosperous development for both countries. We see the traffic developing. We saw what happens if airlines don't fly during Covid. I think airlines are there to connect people and countries, and I hope we can continue this in as many places as possible. Looking forward to peace in the countries which we don't connect today so that also there you can connect again. At the end of the day, our industry is to connect people and places, and that's what we want to do. We're not doing any politics.

Aviation Turkey: Can you elaborate on airBaltic's efforts and projects that focused on safe and sustainable aerospace? How would you summarize airBaltic's ongoing sustainability projects?

Martin GAUSS: Of course, by flying one of the youngest fleets in Europe and one of the most modern fleets on emissions, we have taken a big step ahead of many others who still need to change their fleet. But we don't stop there. We increase the usage of sustainable aviation fuel where it is available year by year. The problem is that it is not available, for example, at Riga Airport yet, but we are also looking at diversity in very different ways. We have changed our car fleet, completely technician cars, ground operations, and even management cars; they're all fully electric. So, we no longer have combustion cars. We are trying to do waste management in a different way. We got an award from IATA for diversity and inclusion two years ago, being number one in the world by having a 50% male and female workforce at airBaltic, including the management. So, we are taking lots of steps to promote diversity and sustainability. The long-term future needs to be a new technology. So, our aircraft technology, plus using SAF fuel, is one step toward zero-emission flying. We will need different technologies for aircraft engines, whether electric, hydrogen, or something else. We don't know today. 

As we are always at the forefront of technology in airBaltic, we are also trying to commit to new technologies at a very early stage and engage ourselves in the development of new technologies. We are not necessarily buying them in the experimental phase, but we would definitely want to be there at the very beginning to benefit from any of these developments later, similar to the A220-300 development. As a technology-driven organization, we are very keen on this because our target is clear. The public pressure on airlines to show sustainable behavior is very big, and we want we want to do our part. Looking at our sustainability efforts, we've made a big step with the fleet, which is the biggest one. We are still using a lot of emissions, of course, as we are an airline, but I think we are leading in this process. If we look at all the things we have done and with that, if you're leading in an area, you can only get better. So, I hope that in the next 10-15 years, we will find the right technology so that aircraft no longer burn fossil fuels. Engine manufacturers have to come up with something that powers aircraft without fossil fuels.

The 'Green Deal' of the EU, of course, also forces us to use 2% by 2025, but for a couple of years, we have already been using it. So, depending on the destination, you are already forced to do so. For example, if you fly to Oslo in Norway, you have to use SAF. So, airBaltic is increasing its Sustainable Aviation Fuel every year. We also offer passengers an extra €2.99 to compensate and buy SAF, which means we use that money exclusively to buy Sustainable Aviation Fuel as an option. Unfortunately, all these compensation schemes that you offer to passengers don't really work, and that's what all airlines say. Passengers are not clicking on the bottom to say, 'OK, I want to pay extra because I'm going to save the planet.' This is nothing we see yet. Maybe it's changing in the future. But today, when it comes to booking a ticket, you have the option to click and pay extra for SAF, and even the younger generation, which says, 'OK, this is something we want to have,' doesn't choose it. So, not today, but maybe tomorrow. It's natural; it's in our biology. We are humans, and nobody goes into a shop and says oh, this costs only €7.99, let's pay €10. Therefore, we need to fix it with technology, not by asking somebody to pay extra for a ticket than they would have to pay. 

Aviation Turkey: Thank you very much. Would you like to add anything in the way of a message for our readers?

Martin GAUSS: I believe we have a round interview. I'm very happy, and I hope your readers like it. It was a pleasure talking to you. 

• Editor’s Note: In a press conference held in Riga on March 5, 2024 Latvian carrier airBaltic has announced impressive performance figures for 2023, confirming that the Riga-based carrier continues to go from strength to strength. According to disclosed official figures in 2023 airBaltic recorded the highest profit in its 29-year history. The company reported profits of €34 Million (US$37.4 million) for the year. Additionally, the airline concluded 2023 with the historically highest revenue of €668 Million ($734.8 Million), which represents an increase of 34% compared to 2022. In 2023, airBaltic performed a total of 65,500 flights (represents 30% increase compared to 2022) and the number of passengers carried by the airline soared by 36% to 4,5 million passengers. The airline forecasts more for 2024 

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