A/S Air Baltic Corporation

A/S Air Baltic Corporation

Riga International Airport
Riga LV-1053
Latvia
Telephone: +371 720 7069
Fax: +371 7224282
Web site: http://www.airbaltic.com

Private Company
Incorporated: 1995 as Air Baltic Corporation SIA
Employees: 500
Sales: LVL 33.5 million (2003)
NAIC: 481111 Scheduled Passenger Air Transportation

A/S Air Baltic Corporation (airBaltic) is Latvia's national airline. The two main shareholders are the government of Latvia and the Scandinavian airline group SAS AB. airBaltic operates a fleet of about 14 aircraft (Boeing 737 jets and Fokker 50 turboprops). The carrier flies to about 20 European destinations from hubs in Riga, Latvia, and Vilnius, Lithuania. Its primary focus is the Baltic Sea region.

Origins

Latavio, the local branch of Aeroflot, provided air transportation during the Soviet occupation of Latvia, which lasted from 1940 to 1991. At the fall of the Soviet Empire, Latavio had 22 jet aircraft and 14 turboprops, according to Flight International. It employed about 550 people in 1995.

The regional aviation market was attracting interest from outside investors because of its untapped growth potential. In 1991, the American company Baltic International USA (BIUSA) attempted to acquire a share in Latavio. According to Flight International, BIUSA wanted to develop Riga, Latvia, into a regional hub.

These ambitions were temporarily scaled back, however, in the face of resistance from neighboring republics Lithuania and Estonia. While the old Latavio stayed in place, BIUSA launched a smaller project with a pair of the Tupolev Tu-134 airliners to fly to just Germany and Switzerland. Baltic International Airlines, a joint venture between BIUSA (40 percent) and the Latvian state (60 percent), was established in June 1992. Baltic International's fleet grew to include three Western-made jets as the route network expanded to London's Gatwick Airport.

Forming Air Baltic in 1995

Latavio was eventually shut down after a failed privatization attempt. In the meantime, it was relegated to charter flights as another local airline was organized. Air Baltic Corporation SIA (later known as airBaltic) was formed as a limited liability corporation in August 1995. It was a partnership between the Latvian State, which owned 51 percent of shares, the Scandinavian airline group SAS AB, which held 28.5 percent of shares, and three other investors: BIUSA (8 percent), Swedfund International AB (6.2 percent), and IO Danish Investment Fund for Central and Eastern Europe (6.2 percent). AirBaltic was led by a management team from SAS.

The company's first plane was a 30-seat Saab 340 turboprop. The first flight occurred on October 1, 1995. An Avro RJ70 (British Aerospace 146), a small regional jet, was added to the fleet in January 1996. According to Airclaims, airBaltic also used a pair of Boeing 727s from the Baltic International fleet.

AirBaltic employed fewer than 200 people at the time. Reuters reported its most lucrative routes were to Helsinki, Copenhagen, and Stockholm; the latter two routes were operated in cooperation with SAS. Passengers included a higher than average percentage of business travelers.

Weathering Change in the Late 1990s

The company replaced its Saab 340 aircraft with Fokker 50 turboprops in the late 1990s. The Fokkers were a bit larger, with 46 seats each. There were also changes to management personnel. SAS veteran Rudi Schwab was named head of airBaltic in 1997. He succeeded Kjell Fredheim, another Scandinavian executive.

In late 1998, airBaltic's capitalization was boosted from LVL 2.4 million ($4.2 million) to LVL 15.5 million. airBaltic became a joint stock company on January 25, 1999. By this time, the airline had begun direct service to Moscow, and Russia's Transaero Airlines had acquired a 0.35 percent shareholding. SAS had boosted its holdings to 38 percent. This was increased to 49 percent in late 2001 as SAS bought out the other Danish and Swedish investors for a reported SEK 80 million ($9 million).

Russia underwent a major economic crisis in the late 1990s, prompting airBaltic to suspend unprofitable routes such as Minsk, Warsaw, Prague, and Moscow. A couple of joint marketing agreements in 1999 helped airBaltic extend its reach. Hungary's Malev partnered on a Riga-Budapest route, while Estonian Air and airBaltic teamed up to develop Tallinn and Riga as gateways from Scandinavia.

airBaltic posted a net loss of LVL 1.4 million ($2.4 million) on sales of LVL 25 million in 2000, but it made its first operating profit and was showing other signs of progress. The company had a 39 percent market share, and had boosted its load factor (the ratio of seats sold to available seats) from 37 percent to 52 percent.

In the Black in 2001

airBaltic began the millennium with a new headquarters building at Riga International Airport. A new cargo terminal was opened there in 2001. Jens Helmo Larssen was named company president in June of that year. An SAS veteran, he succeeded Christian Kirchainer, who had led airBaltic since 1999. Bertolt M. Flick, a German, became CEO in early 2002.

The company broke even in 2001, posting its first after-tax profit of LVL 56,000 ($88,000) on revenues of LVL 28 million. About 249,000 passengers were carried during the year, an increase of 14 percent. These gains came in spite of the aftereffects of the September 11 terrorist attacks on the United States, including a significant increase in the cost of insurance.

Passenger count rose slightly in 2002, to about 262,000. During the year, the company introduced new Baltic Shuttle fares. For example, noted Britain's Financial Times, one could fly one-way from Riga to Hamburg for EUR 49. Flights to neighboring capitals Vilnius and Tallinn could be had for just EUR 30 one-way. These were popular with passengers but not with some national civil aviation authorities eager to protect their state airlines. Finland and Austria eventually agreed to the fares but Poland refused.

Another European business center, Amsterdam, was added to the network in November 2002. CEO Bertolt Flick told the Baltic Times the company was growing its tourist business by adding new flights to Berlin and Vienna. At the same time, the company withdrew its weekly Frankfurt flight when Lufthansa began flying to Riga on Sundays. Minsk and Brussels were two other new destinations for 2003, the latter inspired by Latvia's impending entrance into the European Union in May 2004.

The first leased Boeing 737 entered the fleet in late 2003. It replaced an Avro RJ 70 on the Riga-Copenhagen route. Another half-dozen 737s were added in 2004. The company posted a profit of LVL 1.1 million on operating income of LVL 33.5 million in 2003.

In the EU in 2004

The airline carried 589,288 passengers in 2004, a hefty 75 percent increase over 2003's 336,000 passengers. New, low one-way fares fueled growth. Another factor was the opening of a second hub in Vilnius, Lithuania. According to company President Bertolt Flick, an increase in passenger volume was necessary to offset the steady fall in ticket prices. The route network continued to expand, adding Dublin, Oslo, and Milan, the latter offered as a holiday destination on the Mediterranean. The new 737s also allowed for economical service to London—historically the highest volume route from Riga.

Latvia's membership in the EU had opened airBaltic to low-cost competition from distant lands, such as Ireland's Ryanair. Flick pointed out to the Baltic Times, however, that airBaltic had already had considerable success of its own using a low-fare model. It remained the dominant player at booming Riga International Airport, which served more than one million passengers in 2004, up 50 percent from the previous year. airBaltic's own passenger count rose a heart-stopping 75 percent during the year, thanks in part to EU-inspired traffic.

Company Perspectives:

airBaltic aims to be a strong regional carrier. The goal is to assure regular air transport between Riga and Vilnius to Europe's major cities, for the prices that are competitive not only with other airlines, but also with the prices of bus, car, train or ferry.

In parallel with direct flights, airBaltic provides convenient connections through Scandinavian transit hubs—Copenhagen and Stockholm.

airBaltic's service priority is to provide business people and tourists with a wide range of travel options.

Alongside business travel, airBaltic wants to increase tourism travel. This sector has a lot of potential to grow, as Baltic countries represent a place worth visiting, not only for cultural aesthetes, but also for those with special interests in nature and history. To develop this sector airline is introducing one-way fare structure with low prices and opening new direct flights for the travellers.

Key Dates:

1995:

A/S Air Baltic Corporation is formed as a joint venture of Latvian State, SAS, and other investors.

1997:

The cargo department is launched.

1999:

airBaltic becomes a joint stock company.

2001:

The company posts its first after-tax profit.

2004:

Latvia's entry into European Union brings opportunity, competition.

airBaltic entered 2005 with a fleet of seven Boeing 737 jets and a half-dozen Fokker 50 turboprops. The route network continued to spread south in the spring of 2005, with scheduled services added to Istanbul and Barcelona. Flick told the Baltic Times, however, that the airline was focused on increasing flight frequency to meet skyrocketing demand rather than adding destinations.

In the spring of 2005, service from Riga to Liepaja, on Latvia's west coast, was reintroduced for the first time in 45 years. It was not expected to be a profitable route. Ventspils and Daugavpils were other domestic destinations under consideration.

Principal Divisions

Cargo.

Principal Competitors

Estonian Air AS; Finnair Oy; Lietuvos Avialinijos (Lithuanian Airlines); Ryanair PLC.

Further Reading

"Advanced Cargo Terminal Sets into Motion in Riga Airport," Baltic News Service, June 12, 2001.

"AirBaltic, Ryanair Set to Go Head-to-Head in 2005," Baltic Times, January 19, 2005.

"Air Baltic's Operation Results Always Lagged Behind," Baltic Business Daily, January 17, 2000.

"Airlines Step Up the Competition," Baltic Times, June 3, 2004.

Arklina, Ilze, "One Airline's Future," Baltic Times, April 18, 2002.

——, "SAS Increases Its Stake in Latvian Airline," Baltic Times, November 1, 2001.

Bray, Roger, "Boom Time for Baltic Carriers," Financial Times (London), March 3, 2005, p. 12.

Ceplis, Kristaps, "AirBaltic Plans on Becoming One of Region's Main Airlines," Latvian News Agency, August 20, 2003.

"Estonian Air and airBaltic Sign Cooperation Agreement," Estonian News Agency, July 6, 1999.

"Finland, Austria Seek to Curb Airline Competition: Latvian Transport Ministry," Baltic News Service, March 22, 2002.

"Flights to Liepaja Return After 60-Year Absence," Baltic Times, March 16, 2005.

George, Nicholas, "Flying High with Much Lower Fares," Financial Times (London), FT Report—Latvia, November 25, 2003, p. 4.

Gravitis, Martinsh, "Interview—Air Baltic Says SAS Happy, Moscow Disappoints," Reuters News, May 26, 1998.

Jeziorski, Andrzej, "Latvian Passenger Tax Hits Air Baltic's Target," Flight International, June 18, 1997, p. 21.

——, "Made for Each Other?," Flight International, July 2, 1997.

Khamsi, Roxanne, "A One-Way Ticket to Better Business," Baltic Times, February 26, 2004.

Lannin, Patrick, "Latvia's Air Baltic Says First Year Below Target," Reuters News, October 1, 1996.

——, "New Latvian Airline Optimistic As Set for Take Off," Reuters News, September 20, 1995.

"Latvian airBaltic Carrier 1.514 Mln Lats in Red in 2000," Baltic News Service, April 24, 2001.

"Latvian Air Company Gets New President," Baltic News Service, June 14, 2001.

"Latvian Airlines Plot New Courses," Flight International, October 18, 1995, p. 13.

"Latvian National Airline AirBaltic Adds Boeing 737 to Its Fleet," Baltic News Service, November 20, 2003.

"Latvian National Airline Sees Passenger Load Soar, 2004 Profits Healthy," Agence France Presse—English, January 17, 2005.

"Latvian National Carrier Sees Improved Results As Efficiency Programme Bears Fruit," Airclaims Airline News, May 4, 2001.

"Latvia's National Air Co. AirBaltic Plans Domestic Flights," Baltic Business Daily, May 11, 2004.

Maslen, Richard, "Strategic Partnerships Key to Profitable AirBaltic Operation," Airclaims, October 6, 2000.

"National Carrier AirBaltic Still Leads in Riga Airport," Baltic Business Daily, November 9, 2004.

Nimmo, Ben, "EU Regulations Bring Boom to Baltic Skies," Baltic Times, March 2, 2005.

Peach, Gary, "AirBaltic, Ministry Rankle Another Competitor," Baltic Times, October 24, 2002.

"The Russians Are Coming," Baltic Times, January 28, 1999.

"SAS Increases Stake in airBaltic," Airline Industry Information, October 26, 2001.

"Six Airlines Still Dominant at Riga Airport," ETA Economic Bulletin, April 14, 2002.

—Frederick C. Ingram