Latvia’s airBaltic, the leading airline in the Baltic states, has been in the news recently, amid talk of an initial public offering (IPO), with Germany’s Lufthansa taking a stake as a lead investor beforehand. The state-owned airline has confirmed that it is in talks with one strategic investor. To find out what the airline is up to, bne IntelliNews sat down with Martin Gauss, airBaltic’s CEO. 

Gauss shied away from discussing the IPO directly but was keen to talk about  the turnaround story at airBaltic over the past decade. airBaltic currently operates over 130 routes from Riga, Tallinn, Vilnius, Tampere, and seasonally from Gran Canaria, connecting to various destinations across Europe, the Middle East, North Africa, and the Caucasus. It already has code-sharing and wet leasing agreements with Lufthansa.

“Indeed, there is a lot of discussion and talk about our potential IPO, but we are not commenting on it yet, regulation does not permit me to – the earliest time we potentially could do an IPO is the second half of 2024 or in 2025,” Gauss says, emphasising that “it is not happening overnight”,

Your IPO quest comes amid news that airBaltic saw a turnover of €339.3 million in the first half of this year, but you posted a significant loss of €88.8 million, a stark contrast to the same period last year when the company posted a profit of €14.6 million.  Lufthansa, Air France, KLM also saw worse figures in the first half-year. What is this decrease due to? Can we speak of a slight overheating effect in the aviation market?

Generally, we are seeing the opposite – we reported many higher numbers than a year before. We are not seeing the overheating effect. I think that, in general, this year, for the first time, all Europe is coming [back] to the numbers of the pre-pandemic level in 2019.

In fact, airBaltic looks better than many others – we had a higher Ebitda margin. Our airline is definitely in growth, using an aircraft model which does not exist in Europe: The airBaltic fleet consists of a single aircraft type – the Airbus A220-300 – and the airline currently operates 48 aircraft of this type. airBaltic plans to operate a fleet of 100 A220-300s by 2030.

Looking at the first half-year report, I’d also like to pay attention to that, for the first time, we had a breakout between two business segments that recovered. On one hand, we are a full-service legacy kind of airline, with an ultra low-cost environment, which is ensured with the very modern mentioned aircraft. And on the other side, we have wet lease business, which is traditionally done with old aircraft, but, at airBaltic, we do it very successfully using our A220-300s and we do it in the same service concept, which puts us at No4 airline worldwide, considering the number of flights conducted in the segment. So having these two successful sectors combined moves the airBaltic business success story forward.

airBaltic also continues to report growth in its passenger numbers. In August, the airline carried more than half a million passengers, marking a 13 per cent increase compared to the same period last year. In the previous month, airBaltic performed 4,510 flights, showing a 6 per cent increase from August 2023. Furthermore, for the second month in a row, in August airBaltic reached the highest load factor in the company’s history – 89.8 per cent, which is a 6.6 percentage point increase compared to the same period last year.

Interestingly, if we were to look at our growth geography, we will see that [this is happening] mainly out of the Baltic States, where we are leader, and, looking forward, we will certainly see new record passenger numbers. So, overall, as an airline, considering the difficult environment – airlines are reporting not so good numbers now – due to its growth, airBaltic is enjoying a very good position and a very good outlook ahead.

What poses the biggest challenge for the post-pandemic aviation industry?

Of course, the biggest recent challenge was covid, followed by war in Ukraine. Looking wider geographically, the geopolitical impact of the war, as well as the conflict in the Middle East – we had to suspend our flights to Tel Aviv for some time as the result – was significant. 

Also, the economies, which are not growing, pose a challenge. If the European economies will not be growing like the other economies all over the world, the European aviation industry will understandably show worse numbers. But, speaking of the large picture, the industry and especially our airBaltic is enjoying modernisation while going to net zero, meaning cutting carbon emissions. Targeting the goal, with the new modern fleet, we are at the forefront of the industry, a fact that I am very proud of. 

However, there are around 22,000 jets that still need to be replaced with modern ones. On top of that, the industry deals with the issues of supply chain or even the challenge of aircraft deliveries. As far the latter is concerned, we are not affected by it, but, like many others, we are affected by, say, engine supply.

Speaking of sustainability, when will airBaltic will have its maiden electric-powered flight? 

There are no orders for electric aircraft in our order book. Yet we might have an electric aircraft in our own pilot academy in the future. No doubt, the first all-electric aircraft will be way smaller in size, and we are closely following the development. As I said, A220-300 is the latest technology.

I remember the old days when airBaltic prided itself in being the most punctual airline, but, nowadays, it seems all carriers shun the issue, which is still very important to many. Is aircraft punctuality gone for good?

(Grins) It is not true that punctuality is not important anymore. For example, last week [September 2-8], our punctuality was 70 per cent, meaning that, of 100 aircraft, 70 took off on time, which, I think, is not bad. If, say, you go from Frankfurt to Los Angeles, which is a 12-hour flight, and you have one-hour flight delay, but then you fly safe and with comfort and arrive a half hour late and still can do your business as planned, does it matter a lot?  

But, for years, delays, especially in summer in Europe, are mostly driven by shortage of air traffic control staffing, which is primarily related to not having a single European sky – one of the largest issues for the last 25 years. Besides, we’re seeing an increasing issue of labour shortages in the entire service industry, including airports. We can come on time, but we depend on local services in offloading the baggage, there might be not enough staff at the security desk and so on. That’s the European-wide problem, which was especially caused by the covid pandemic, during which many people, due to the travel restrictions, had to look for jobs in other sectors and they kept their new jobs when the pandemic was over.

airBaltic has offered the Lithuanian and Estonian governments to buy its shares. Did you hear back from them?

To be exact, the Lithuanian Ministry of Transport and Communication and a respective Estonian ministry reached out to us, asking us to meet their officials and explain how it would look like if the two Baltic governments were interested in buying our shares. All I said, and I’d say this to anyone who would be interested in our shares, was to get in touch with our shareholders to speak about this. But when we go IPO, this could be done either in the preparation phase after we announce it, or later, after the IPO has been announced, and shares are on the stock exchange. However, speaking of the two governments, their intentions were not further discussed.

What are you proud of most as the airBaltic CEO?

When I came to airBaltic in November 2011, we had a fleet of old and overpriced Boeings and Fokker 50 aircraft.  The airline was little known and, now, it is known internationally and highly profitable, most importantly, the true flagship of Latvia and the entire Baltics.