Bertolt Martin Flick (CEO of AirBaltic)

Air Scoop: Could you please present Air Baltic to our readers? What are your specificities compared to other European LCCs? What do you do better than your competitors?
Bertolt Martin Flick: Air Baltic is, in a way, a very unique Low Cost Carrier, if we can call Air Baltic a Low Cost Carrier. The company has been established in 1995 by Latvian Government, investment funds and Scandinavian airlines. Air Baltic is the national carrier of Latvia and combines still some features of very traditional airlines, with business class, full services in business class, as well as connecting flights, combines this with the best practices from Low Cost Carriers. The cost structure of Air Baltic is definitely comparable to any of the best LCCs in Europe. However, we do offer a product which is a very original product on markets which are not served by LCCs.

In Central and Eastern Europe, there are already many low cost carriers (SkyEurope, WizzAir, Estonian Air, CentralWings…), how do you manage competition with so many carriers? Are “Islanders” (Ryanair, easyJet) your main competitors?
A few years ago, Air Baltic was a very traditional company focused on the business travelers, and around 2002-2003, we started to turn around the company to be competitive with LCCs on all destinations. Currently, about a half of our destinations that we fly to Western Europe, we have Low Cost competition. It has been our aim to restructure the company in a way that we can successfully compete with LCCs. So we have competition with Ryanair, easyJet, Aer Lingus and Norwegian on a number of destinations, and actually we do fairly well in direct competition. In most cases, despite the fact that we are a much smaller airline, we get a very fair share of the market and we are highly profitably on all destinations where we fly with direct competition with LCCs. In the future, we expect to have Low Cost competition practically on all destinations to Western Europe. But in the same time, we fly a lot more to the former Soviet Union and to Eastern Europe which are markets which still are not served by LCCs, and obviously we take a very determining step into these markets.

Do you believe that consolidation of the market will lead to 2-3 main LCCs in Europe, or do you think there will always be many LCCs serving niche market?
Neither for the LCCs, nor for the traditional airlines, I see a real consolidation taking place. First of all, there are plenty more markets that can be served by LCCs. A lot of the networks do not overlap. I cannot see us going out of business just because easyJet gets bigger or starts flying in Spain. We do not overlap and where we compete in direct flight, we do very well, and so it goes for many other airlines. I think it is a total myth to assume that the consolidation is a necessity; there’s no proof for this and some of the second rank LCCs are already very substantially airlines. Quite frankly, I think this is just a journalist truth.

All the flights from Eastern Europe to/from Western Europe stop at your Baltic hubs. Do you plan in a near future to offer direct flights between eastern cities and western ones?
There is a very big difference in flying to Western Europe than to the former Soviet Union. The markets outside the EU are fully regulated; you need the designation from the ministry of Transport which you only get when the company is majority nationally owned and controlled, and there’s no open sky to those countries, so we are allowed to operate, for example, to Russia, only from Riga and not even from our base in Vilnius. This is not something that we will significantly change in the case of Russia, Georgia and a number of countries in the near future. There are countries like Ukraine which are developing to an open sky system and it is not totally impossible that once the open sky will be implemented in a country like Ukraine, there could be direct flights from Ukraine to other parts of Western Europe. But for the time being, this is not yet possible. We profit from the fact that the Baltic States, Riga in particular, as a historically part of the former Soviet Union, have a very strong demand to a number of destinations in Russia, Ukraine, Belorussia, as well as Azerbaijan or Georgia.

You operate a “star network”, do you consider serving cities inside “blocks” (inter-cities in the western block, and inter-cities in the eastern block)?
Not everything that is allowed by open sky makes commercial sense. It is for us very important to operate out of our bases. Of course this looks like a star, but this is a question of also developing a certain size in a given market. From a third market to a third market, you have very little marketing power, that’s why it is at the moment not so interesting for us to fly from, let’s say, Roma to Marseille. In Lithuania or in Latvia, we have to develop a certain market presence, and we will rather look at a third place that starts operating flights from third markets to third markets.

Warsaw and Budapest are located between the two “blocks”. Do you plan to convert them into “hubs access points” like Riga or Vilnius?
We have no specific interests in Warsaw or Budapest. If we look at a third base, we look for a place with strong traffic to the Baltic States. The Baltic States being a part of the former Soviet Union have very little trade relationships with Hungary or even with Poland. Warsaw and Budapest are being very served by a number of carriers, and we definitely have no interests in those two places.

Are you focusing more on Business or Leisure passengers?
Depending on the destinations that we serve, we have of course a number of destinations which are primarily for the interest of leisure passengers, and other destinations, like our flights within the Baltic States, will attract more business passengers. What we see in the former years, we used to have 70% business travelers. Nowadays, the share is equally divided which has to do with the kind of destinations we serve and also with the fact that the Baltic States have become more attractive for tourism which was simply not true just ten years ago.

To face strong competition, Air Baltic has adapted its model into a “mix model” which means having LCC and legacy passengers in same flights. How do you manage such model?
Saying we have a mixed model between LCCs and legacy sounds a bit negative. What we really have is a cost base which is lower than most of LCCs. In Economy class, we have no difference between ourselves and most LCCs. Our prices are for one way ticket without any conditions. We also keep the business class, particularly because of the flights to Eastern Europe and also to Western Europe which is of the free choice of the passengers to buy the business class, not like in the earlier days when he was forced by conditions to seat in business class. There is no real management difficulty with this model. However, the LCCs model is easier and simpler, and I will not exclude in the future that we will transfer to a single class model if we see the time for it.

Your routes to the Scandinavian market serve capitals (Helsinki, Stockholm, Oslo). Do you plan to extend your routes network in Scandinavia?
It’s quite clear that initially the traffic even to the capital cities were very limited. We see the traffic to Scandinavia growing very fast and we are definitely considering to look at secondary destinations there. We have already started, we have opened Bergen in Norway, and we are looking at other Norwegian destinations, Swedish destinations, Danish destinations or Finish destinations.

Are you worried about the shortage of pilots and crew hitting LCC market?
I don’t think there is a reason for panic yet concerning pilots. However, within the local market, we do not have a sufficient supply of pilots, that’s why we have to recruit our pilots all over Europe. The pilots in our company come from over 18 countries, and we unfortunately have to pay salaries, which are not comparable to low cost salaries, but which are fully competitive with European salaries.

You already have few partnerships with other carriers (Spanair, Blue1, AtlasJet…), can you tell us what is your strategy with these partnerships? Do you plan to form a low cost carrier’s alliance?
We have one very important strategic partnership with SAS which covers the Scandinavian countries, and with some SAS group companies such as Spanair and Blue1. When we will operate into the former Soviet Union, we try to cooperate with the local partners. Partnerships can have all kinds of depths and shapes; we have a very close partnership now with Aeroflot to serve Moscow, and we have also a partnership with Austrian Airlines to serve Vienna. At the moment, LCCs don’t have a combined nor unified global reservation system. And before there is a link between different airlines systems, I do not see any LCCs alliance making any sense.