2023 was a rather fruitful year for airBaltic.
Not only has the Riga-based carrier seen its passenger count, revenue and fleet increase significantly, but it has also opened its first bases outside of the Baltic countries and announced a number of innovative initiatives, from blockchain projects to Starlink connectivity, that its CEO expects should give it a technological edge over the years to come.
But perhaps even more crucially, airBaltic has started to prepare for its long-discussed Initial Public Offering (IPO), which, if everything goes according to plan, may get the green light before the year ends.
In September 2023, AeroTime offered its readers an exclusive Executive Spotlight interview with airBaltic’s CEO, Martin Gauss. This time, in the wake of airBaltic releasing its preliminary operational figures for the year 2023, we have called on Mr. Gauss again to take the pulse of the airline’s latest projects and learn more about the outlook for the coming year.
While Mr. Gauss declined to provide an insight into the company’s latest financials – that will have to wait for the firm’s investor conference in March – he anticipated that things are in line with the guidance provided when the latest nine-month results were presented.
While airBaltic still carried fewer passengers last year than it did in 2019 (4.5 vs. 5 million), this is in part because some of the fleet has been wet-leased to other operators – “We would be right above six million passengers if we counted those flights too,” confided Gauss.
Capacity constraints also played a role “If we’d had had more aircraft last year, we could have had even more revenues and better numbers. If we had not had the ongoing engine issues [supply chain issues affected the availability of some Pratt & Whitney engines, forcing airBaltic to ground several aircraft throughout the year 2023 – Ed. Note], the results would also be better. But despite all of these things, despite the war, it was a very successful, record-breaking year.” he added.
On December 21, 2023, airBaltic welcomed its latest Airbus A220 aircraft, the 46th out of a 50 aircraft firm order the airline placed with the European manufacturer. However, these deliveries will just keep happening for a few more years, since airBaltic hasn’t waited to receive all 50 contracted aircraft before exercising its option to acquire 30 more of the type.
This incremental order, which was announced in November 2023 at the Dubai Air Show, will bring the airline’s A220 fleet total to 80, making it the largest operator of the type in Europe.
“We do not see any slowdown in growth. Of course, we are worried about all the geopolitical issues in the world, like all airlines are. But, still, we are going into another record year. As we speak today, it is all good, so we are on the right track,” Gauss explained.
What next for airBaltic?
On the financial front, there are two things that focus Gauss attention at the moment.
One of them is the refinancing of an outstanding €200 bond that is due in July 2024. In this regard, Gauss mentioned how the geopolitical risks have influenced the evolution of credit ratings, nevertheless, he expressed his confidence that the positive performance of the airline will provide a solid basis to sort this out.
The other major topic is the airline’s IPO, with airBaltic setting the mechanisms in motion that will eventually lead to the company’s public listing.
The carrier has already hired financial advisors, although it has yet to take on the bankers. Gauss expects that there should be a pricing range for the shares by early H2 2024, and it is then when the date of the IPO will be decided.
“Normally, you would not talk in public about this IPO, you would just prepare everything and then you take a decision to do an IPO. In our case, as it has been communicated to the European Commission that this is the way we want to solve the COVID aid issue and, as the government is a shareholder, you cannot say publicly that we will not be talking about how we intend to repay the 400 million [the financial support airBaltic received from the Latvian government as emergency support during the COVID pandemic that will eventually need to be repaid – Ed. Note]…So therefore, it’s a public debate and we will have to give certain information (…) We are in this preparation phase, early in the second half of the year, we will be announcing if we do an IPO. If we don’t do it in 2024, then 2025 would be another option. Here locally, this is a big subject, so, every day I give interviews about it, while I should not, but that’s there’s a public need for information. If you’re a large company in the country, then you have a lot of info to give.” he elaborated.
Interestingly, one thing that is not fully defined yet is the amount of public ownership that a publicly listed airBaltic will have. At the moment, the Latvian state holds a majority stake in the airline. Gauss confirmed that the Lithuanian and Estonian governments have also taken an interest in the airline, potentially with a view to also becoming shareholders in the near future.
“I’m looking forward to that process. It’s very interesting. I think the airline has an excellent name, has the right model. Everything is set up. We will also show the right financial numbers. What I think we need to have is the right market conditions, and the right geopolitical conditions. If we look at daily headlines you could say ‘we’re not doing this’, because there’s just this or that conflict now, and it doesn’t make sense to go to the markets. But the plan is to do it and let’s see at the time if we can.” Gauss added.
Gauss highlighted the pan-Baltic character of the airline, which has grown out of its original Riga (RIX) home to open up bases in neighboring Vilnius (VNO) and Tallinn (TLL). Last year, airBaltic ventured even further afield to open a base in Tampere (TMP), Finland’s second largest city, as well as a base in Las Palmas de Gran Canaria (LPA), in Spain’s Canary Islands.
This sub-tropical archipelago has provided airBaltic with a platform to deploy some of its fleet during the winter season, operating flights between the Canary Islands and several destinations in the Nordic and Baltic countries.
“The temporary winter base actually works very well. From there, we are flying with two aircraft into the Nordics, into Norway, into Denmark, and also to the Baltic states. We will very likely do that again next year,” explained Gauss, who nevertheless highlighted that the Baltic countries remain the airline’s core market.
“If we look at our growth, then it is mainly coming from the three Baltic countries. We have grown in the three Baltic countries, not only in terms of production, but also in market share. We have taken market share from our competitors. We are number one in Estonia, number one in Riga and number two in Lithuania.” he added proudly.
Asked about what airBaltic is planning for all of the new aircraft it is going to receive in the coming years, Gauss doesn’t shy away from expressing the company’s plans for opportunistic geographical expansion:
“We have 46 aircraft now and we are going to up to 100 aircraft within the next six years. These aircraft need to be placed and will be so, mainly in the Baltics, but there will be also the number of planes that we are going to wet-lease to other airlines, and some which will be used for new bases. We always say that everything north of Hamburg is our market. This year we also did something new called pop-up flights: if there’s an opportunity to fly somewhere because there’s an event, we go there. We did the first one in Ostrava, in the Czech Republic, for the Ice Hockey World Championship. We launched flights to Ostrava and they sold really, really well. So, we try to stay flexible. And if we go to the east – and hopefully there’s going to be peace one day – Ukraine used to be a very strong market for us and it will be…” Gauss said, before adding: “We don’t have a problem placing aircraft, because we have the flexibility to go to the wet-lease market or to schedule flights. Each season we decide how many of them are placed and where.”.
With our order book we are now the largest A220-300 operator in the world. We have so much expertise with that specific aircraft type. We do already maintenance heavy checks…Today we have Starlink team from Los Angeles, from SpaceX, here in-house, also French engineers working on the Starlink certification…So, the airline is moving forward at a good pace.”
One thing that Gauss isn’t contemplating at the moment is joining any of the major alliances.
“We have 23 codeshare partners now. The beauty of the codeshares is that we are serving more than 300 global cities with one stop from Riga. Basically, any global city is reachable with one stop through the partner airlines. With Delta, the whole of the US is now reachable with one stop [airBaltic and Delta announced a codeshare agreement in November 2023 – Ed. Note].”
Gauss expressed his concern that joining an alliance could somehow constrain the ability of airBaltic to operate with that many partners.
“We have codeshares with all alliances, so many codeshare partners that, if say we now go to Star or to SkyTeam, then we would definitely lose some of these codeshares. It wouldn’t make sense for us, as we are by far the largest carrier in the Baltics. That’s our home market and we are offering to our codeshare partners, with our aircraft and with our network, what they need [access to the Baltic markets– Ed.Note]. They have the benefit of not having to fly a large aircraft to a market, which is too thin for them.“
Nevertheless, Gauss is well aware of the increasing consolidation of the industry taking place in Europe.
“We have now five, six years ahead, where we go to up to 100 aircraft and I’m sure that over the years we’ll see more happening, but right now we are happy. We go in small steps, but we don’t lose sight of the big step, which this year is the IPO and in the longer term, becoming a much larger airline in Europe. And then one day there’s for sure also the discussion about consolidation in Europe…we just saw KLM-Air France and SAS, we saw ITA [which has received an acquisition offer from Lufthansa – Note Ed.] and we will see more consolidation. airBaltic will one day probably also be a target or even itself part of consolidation in Europe. I’m always asked whether the neighboring states can set up their own airline and I think in Europe setting up a full-blown airline in a small country is very difficult, very expensive. It’s a very competitive environment, so it gets more difficult. You need a lot of money to set up an airline today, so we’re very happy that we have an airline of this size, because to grow from here is easier to do than to set it up anew.”
In terms of organic growth, Gauss highlighted how, right now, airBaltic is operating its A220s at the very edge of the type’s range envelope, with seven-hour flights from Riga and Vilnius to Dubai (DXB) and from Finland and the Baltics to destinations such as Tenerife (TFS) and Agadir (AGA), Morocco.
The A220s don’t have the range to operate commercially to the US from its Baltic home bases and, in the East, Russia is now out of bounds. In Africa, places like Nairobi would also be too far. So, short of adding some other destination in the Middle East or North Africa, the geographical framework for further expansion is well defined.
Technology pioneer
Technology is an area of particular interest to Gauss. Under his leadership, airBaltic has launched a number of pioneering tech initiatives such as the ‘Planies’, a collection of airplane-themed NFT cartoons that users can purchase in order to unlock a number of benefits such as frequent flyer miles or access to certain perks, including the free use of an airBaltic-branded disk golf park in Riga [a sport with rules similar to golf, but throwing a disk instead of a ball – Ed. Note].
Gauss admits that it hasn’t been all plain sailing for NFT markets since the project launched, but nevertheless, he counts the ‘Planies’ as a success.
“Close to 8,000 Planies have been minted, mainly by frequent fliers. Planie-owners are joining our frequent flyer club and earning points even when not flying. The program has become so popular that the income just from selling Planies has exceeded $1 million dollars,” Gauss said. “Not only are we making money, the statistics now show that Planie-owners spend more money on airBaltic compared to a normal member of our loyalty program or a non-member,” he added.
If airBaltic was an early adopter of blockchain technology, it has followed a similar approach with Artificial Intelligence (AI), designating an internal cross-functional team to look for ways to get the most out of this new technology. Gauss pointed out that, so far, a number of projects have delivered results. For example, airBaltic has used AI technology to optimize seat sales and to streamline several internal processes, such as the analysis of legal documents or the elaboration of advertising copy.
But if there is one technology project at airBaltic that is likely to grab the headlines very soon and reach out to audiences far beyond its Baltic home region, it’s the fitting of its whole fleet with high-speed Starlink internet connectivity.
airBaltic is set to become the first airline in Europe, and one of the very first in the world, to offer Elon Musk’s satellite-based service onboard its planes – and it will be offering it to all passengers for free.
“It’s a completely change in the way you will use internet onboard. It is always going to be on. You won’t need any login or any identification, you will just have high-speed wifi while you’re onboard the aircraft.” he explained, without hiding his excitement for this major development in the passenger experience.
The Wi-Fi speed should be impressive, too. “Theoretically, 150 passengers could all use Netflix simultaneously, which is unlikely, but you could do it. You will be able to stream, to have Teams calls,” Gauss added.
We asked Gauss whether by offering it for free airBaltic is missing a potential opportunity to generate ancillary revenue from connectivity access, but he dismissed this notion. Gauss sees the availability of high-speed in-flight internet as something that will become a standard feature and one that will give an edge, albeit temporarily, to early adopters.
“It’s very simple. How do we approach it? We have a lot of competition in Europe in what we do, where we fly. Let’s say you booked a ticket with us to fly to Barcelona and we have Starlink on board. Suddenly, you are able to do all the things you want to do. You get off the aircraft and you say ‘oh, that was cool’. When you have to fly again maybe Ryanair is cheaper, so you pick a Ryanair ticket. You are not thinking too much, it’s just cheaper. Now you are flying again to Barcelona and you find out that there’s no connectivity or it’s super complicated to use. The third time you have to buy a ticket, that might make a difference in the decision you take. The convenience of having undisrupted high-speed internet access is something we have everywhere today – in hotels, on the ground – but not when flying…and we bring that, conveniently. It is revolutionary. I hope by the end of the year that everybody can enjoy it,” he stated.
Gauss also mentioned how the universal availability of internet on board will have other upsides. It will provide additional opportunities for the airline to engage with customers, for example, providing real-time updates in case of disruption or facilitating in-flight retail. At an operational level, crews will also be able to streamline some processes that require real time communication with the passengers and with the ground.
Gauss also explained how he views openness to technology as an intrinsic part of airBaltic’s culture:
“I think we’re a tech-driven company, even maybe a tech company and an airline at the same time. It helps that you have these young, energetic people who come up with great ideas all the time. When I look back to 2014, 10 years ago, we started accepting Bitcoin as a form of payment and I remember very well the beginning, what that meant. Today, everybody knows and has heard the word ‘bitcoin’, and this year this airline has a 10-year anniversary of accepting it as a form of payment. That means we have been in blockchain technology, with this kind of thing, for 10 years. With AI, we are now one and a half years into it, and for sure, we will continue to try to see what is the latest in this space. We also fly the most modern aircraft…It goes all together.”
Gauss concluded by detailing the need to keep an open mind and always be on the lookout for new ideas that can be implemented in an airline setting:
“The airline does a lot of things. We tried to keep it very agile, to keep it fit. As the boss, I tried to let younger people come up with these ideas. I think culture is important and we don’t suppress it. I’m 55, I have kids that are the age of my employees, who are coming in and having these new ideas like starting to use TikTok.”
In fact, airBaltic’s TikTok account has become a notable success. “I was very skeptical when we started with it and today we have, I think, 380,000 followers or even more. We are the number one airline on TikTok. So, I had to accept that that is something mainstream. To lead you have to listen to all age groups today, because the coming generations are bringing totally new insights and wisdom from areas, and because there is so much that’s new, you can’t digest it all,” concluded Gauss.
