Although the Baltic markets have been sharply hit by the downturn, Latvian carrier airBaltic is expecting to post improved profits this year after switching its focus to transfer traffic.
AirBaltic chief executive Bertolt Flick says the Baltic States of Estonia, Latvia and Lithuania saw initial signs of the downturn two or three months before western Europe. He adds: "The Baltic markets have been severely impacted by the crisis since September last year. We have seen a downturn of epic proportions."
Flick claims Lithuania's traffic has halved, Estonia's is down 40% and Latvia's local traffic has fallen by around 40%. Lithuania's main carrier, Vilnius-based FlyLAL, ceased operations in January. But Flick says: "Despite the collapse of FlyLAL, we still had to suspend a number of our routes [from Vilnius]. There was no way to sustain them." Today airBaltic has just two Vilnius-based aircraft, down from seven in 2007.
The Lithuanian government has lashed out at the airBaltic cuts, rebuffing the Latvian carrier's claims about the country's disastrous economic situation. It is seeking to fill the gap left by FlyLAL and airBaltic, an opportunity which is being explored by Swedish carrier Skyways.
But airBaltic's strategic shift towards transfer traffic, which it embarked on early last year, has cushioned it against the Baltic crash. As a result, Riga's traffic is increasing. Flick admits the transit strategy has been an unforeseen success: "This was not planned. It began in 2008 and we adapted our network."
In January 2008 transit passengers made up 10% of airBaltic's traffic; during the first quarter of 2009 the proportion rose to 50%. AirBaltic is expecting its passenger numbers to grow from 2.6 million to 3 million this year, with transfer passengers representing up to half of the total.
Its strategy issupported by Riga Airport, which is able to offer a 25 minute minimum connecting time via passenger and luggage ramp transfers.
And, although the government is likely to step back from its €200-250 million ($269-336 million) airport development plan, Flick says airBaltic is considering participating in a scaled-down version of the project, partnering preferred bidder TAV Holdings in place of the state-owned airport.
After independence in 1993, the former Soviet States suffered economic collapse, causing Riga's traffic to drop from 1.8 million in 1991 to 341,000 a year later. By 2003 the three Baltic States had recovered their traffic to around 712,000, but Latvia adopted a proactive aviation policy, introducing incentive schemes at Riga which surged its annual passengers to 3.7 million by 2008.
This year airBaltic is expecting Riga to hit 4 million passengers, while it forecasts that numbers at Vilnius and Talinn will fall to just 1 million (see chart). AirBaltic says: "Riga now has critical mass. It is like a magnet and can suck in passengers from neighbouring countries." In April airBaltic's Riga passenger numbers rose 56%, while its network-wide traffic rose by a fifth.
AirBaltic has cut capacity by 4%, but traffic is up by 12%. Flick says this, combined with its transfer focus and lower fuel prices, mean airBaltic's 2009 financial performance will "definitely be a lot" better than in 2008.
Watch video footage of Flick, discussing airBaltic's strategy and the Baltic market crash here
Source: Airline Business
