< PreviousJuly 2019 · AVIATION BUSINESS 20 www.aviationbusinessme.com A/S AIR BALTIC CORPORATION The current airBaltic fl eet consists of 39 aircraft – 19 Airbus A220-300s, 8 Boeing 737s and 12 Bombardier Q400Next Gen aircraft. Meeting of the side lines of last month’s International Air Transpor t Association (IATA) Annual General Meeting in Seoul, South Korea, AVB got the chance to sit down and connect with Mar tin Gauss, CEO of Latvian airline airBaltic. The fl ag carrier of Latvia and a rising star within the European market, air- Baltic has experienced a strong period of growth over the past couple of years, a remarkable achievement considering the fi nancial woes it faced back in the early-2010s. In fact, the airline has just emerged from a record-setting year, in which it recorded for the fi rst time in its histor y over $455m (EUR 400m) in revenues. In addition, as we are in the Baltics, we have the neighbouring country Estonia, where we are also the number one carrier now with a market share of 20%, and we are the number three in terms of market share in Luthuania.” At the same time, airBaltic’s net in- come also increased by more than 40% compared to 2017, reaching $6.1m (EUR 5.4 million). Other key fi gures for the year in- clude a 12% increase in fl ights from 50,093 to 56,261, along with a 17% increase in the number of passengers carried from 3.5 million to 4.1 million. A study from Roland Berger, a busi- ness strategy consultant, found that air- Baltic contributed 2.5% to Latvia’s GDP in 2018 and supported to 30,000 jobs. While there are a number of factors that contributed to the company’s turn- around in recent years, which included a cost-cutting programme that focused on returning the airline to profi tability back in 2014, one compelling reason lies with airBaltic’s decision to adopt 21 July 2019 · AVIATION BUSINESS www.aviationbusinessme.com A/S AIR BALTIC CORPORATION the Airbus A220-300 as its preferred aircraft of choice. To date, airBaltic operates a fl eet that includes eight Boeing 737s and 12 Bombardier Q400Next Gen air- craft but is currently in the process of transitioning to an all-Airbus A220 fl eet. Receiving its 19th A220 jet back in May, it was the fi fth aircraft of that type that it has received for 2019. While another three A220s are scheduled to be added by the close of the year, airBaltic is set to cease its Boeing 737 fl eet operations by this Autumn, a full year ahead of the original schedule. “The key to our business plan, which is called Destination 2025 was to place an order for a signifi cant amount of a single aircraft type. We placed an order for up to 80 A220-300s … we operate today 19 of these. We were the launch operator of that air- craft and we hold 71% of all European orders for that aircraft today,” explained Gauss. “The business model that we fl y is that we have a full-ser vice business class in the front of the cabin with hot meal ser vice, beverages, dedicated cabin crew, and the middle seat is kept free. But it’s the same seat as in economy. Behind the curtain, we fl y an ultra-low-cost cabin. “That’s the hybrid model that we fl y. It is a unique model that we oper- ate, and we are doing well on it. We have grown over the last two year — around 20% … We are targeting fi ve million passengers this year. By 2025, we want to reach 15 million passen- gers and 1.5bn in revenues.” The CEO went on to add that the A220 has performed beyond the airline’s expectations, delivering an improved overall experience, along with better fuel effi ciency. As one of the ‘greenest’ commercial aircraft currently in operation, the A220 is also helping the airline meets its sustainability tar- gets by reducing CO2 and NOX emis- sions by 20% and 50%, respectively. Another big draw of the aircraft AirBaltic has added a new pre-order meal service, which allows passengers to select their meals before fl ying. 21 www.aviationbusinessme.com is the enhanced infl ight experience from the passenger side. For start- ers, the narrow-body aircraft boasts ample room in its aisles, washrooms, and overhead bins, similar to what one might expect from a widebody aircraft. A moodlight system has also been deployed across all aircraft, which is a feature that is typically found on long- haul carriers. Additionally, the middle seat in each row is designed to be the widest, pro- viding passengers with more space to stretch out and utilise. AirBaltic’s aircraft now also features a new seat design that is able to offer 30-inch pitch, a small change that the HYBRID MODEL Founded in 1995, Latvian airline A/S Air Baltic Corporation (airBaltic) is majority held by the Latvian state, which holds 80.05% of its stock, while Lars Thuesen holds around 20% through his fully owned Aircraft Leasing 1 SIA. Adopting a hybrid approach, the carrier has embraced the best practices from both traditional network airlines and the model utilised by low-cost carriers. Back in 2008, airBaltic transformed its operating model from a point-to-point carrier to a network airline. This resulted in Riga becoming a connecting hub between the East and the West.July 2019 · AVIATION BUSINESS 22 www.aviationbusinessme.com A/S AIR BALTIC CORPORATION Gauss points out is, “unusual for a low- cost environment”. It is typically the case to have 29 or 28-inch pitch. One other change to the ser vice is the addition of a new meal pre-order menu. With an extensive selection of 70 meals to choose from, passengers travelling from Riga on the Baltic car- rier will be able to order meals up to 24 hours before departure. Eight popular meal options are also available during online check-in up to an hour before departure from Riga. Gauss: We defi ne the list of destinations by the range of the aircraft, which is seven hours. That is it. The selection is wide enough to ac- commodate meals for a variety of di- etar y and religious requirements. When asked about the airline’s tar- get growth markets and its progress, Gauss shared that just this past May, airBaltic managed to secure 60% mar- ket share in Riga, which is operated in what he described as “a hub in a four- wave structure”. “Half of the passengers that we ser ve in Riga are transfer passengers. Going from one destination to another and we have markets spanning all over Europe. We come all the way over from Lisbon, but then we are also taking them [pas- sengers] to Abu Dhabi … so destina- tions that are longer fl ights, but we also have within the vicinity fl ights that only take 40 minutes,” he explained. “In addition, as we are in the Baltics, we have the neighbouring countr y Estonia, where we are also the number one carrier now with a market share of 20%, and we are number three in terms of market share in Lithuania, where we are expanding and also tr ying to be- come number one.” In terms of new destinations added to its network in the past year, air- Baltic recently launched three new fl ights from Tallinn headed to Malaga, Copenhagen and Brussels. The fourth fl ight from Tallinn to Salzburg in Austria is expected to be announced in the fourth quarter of 2019, which would be the total number of direct ser vices out of the capital of Estonia to 13. Other new additions include a num- ber of newly launched summer desti- nations from Riga, such as fl ights to Dublin, Stuttgart and Liv, along with Kos and Menorca. According to the CEO, airBatlic to- CURRENT PROGRESS Over the course of the first three months of 2019, airBaltic transported 818,129 passengers, a 12% increase compared to the same period in 2018. Transporting passengers to destinations all over Europe, Scandinavia, Russia, CIS and the Middle East, the airline operated 12,740 flights in the first quarter of 2019, a 10% increase over 2018 figures at that point. The Baltic carrier also noted that its 15-minute flight punctuality indicator for the period reached a level of 89.9%. What this equated to was that every 89 out of 100 airBaltic flights departed as its assigned departure schedule or endured a delay of no more than 15 minutes.23 July 2019 · AVIATION BUSINESS www.aviationbusinessme.com A/S AIR BALTIC CORPORATION Recent additions to the fl ag carrier’s network include fl ights to Dublin, Stuttgart, Liv, Kos and Menorca. AirBaltic recently added three new fl ights from Tallinn to Malaga, Copenhagen and Brussels. A fourth fl ight to Salzburg is expected to be added in Q42019. day operates 80 routes and along with its codeshare partners, which includes the likes of KLM, SAS, Air France, Iberia, Aerofl ot, Air Italia, Austrian Airlines, and Etihad, to name a few, the Latvian carrier offers around 300 desti- nations in its portfolio. “We defi ne the list of destinations by the range of the aircraft, which is seven hours. That is it. Whatever airport we can reach within seven hours, is a po- tential new route,” added Gauss. Switching gears to discuss the current market challenges, airBal- tic’s CEO shares that the chief issue amongst airlines at the moment lies with sustainability and tackling carbon emissions. Addressing this issue was one of the factors the airline consid- ered when it selected Airbus’ A220 to ser ve as its primar y aircraft type. In addition to the aircraft choice though, airBaltic has also invested in reducing its carbon footprint on the ground, such as maintaining an en- vironmentally friendly headquarters on the home front, as well converting ground support vehicles to electric. Another key issue that airlines in Europe have to contend with is the cur- rent state of air traffi c control in the region. “A big thing in Europe is air traffi c control. Unfortunately, the Europeans can’t agree on how to structure air- space properly, therefore we have all these delays and that again contributes to the Co2 emissions. We had 19.1 mil- lion minutes delay last year, because of an insuffi cient air traffi c control struc- ture, so that’s another challenge we have,” he concluded. Another big thing in Europe is air traffic control. Unfortunately, the Europeans can›t agree on how to structure an airspace properly, therefore we have all these delays and that again contributes to the Co2 emissions.”PARIS AIR SHOW 2019 July 2019 · AVIATION BUSINESS 24 www.aviationbusinessme.com Once again gracing the summer skies over Paris–Le Bourget Airport, the biannual Paris Air Show returned to full form this year drawing 316,470 visitors under its banner. Comprising of both 176,630 members of the general public, as well as 139,840 professionals representing 185 countries, the event also played host to 276 offi cial delegations from 98 countries and seven international organisations. A total of 2,453 exhibitors were present at the Paris Air Show, which included 1,185 French exhibitors from 12 regions across France, along with 1,268 exhibitors from 48 countries. Of that number, 150 startups from 21 coun- tries were present. Twenty-six national pavilions were erected for the event with the biggest representation hailing from Germany, Italy, United Kingdom, Belgium and the USA. The site of the show featured 125,00sqm of exhibition space, which included 52,00sqm of stands, along with 38,000sqm of exhibitor’s outdoor space. A separate 35,000sqm of built area was allocated for 335 Chalets. A WEEK IN PARIS The biannual air show reportedly drew over 316,000 visitors, 2,400 exhibitors from across the world, featured a total of 140 aircraft, and saw the successful signing of $140bn in orders Finally, a group of 2,700 accredited journalists from across 87 countries were present and covering the biannual event. Airbus takes the cake Walking away as the ‘Big Winner’ as the show was Airbus. Over the course of the Paris Air Show, the French Aerospace We are truly honoured and humbled by the leadership at International Airlines Group for placing their trust and confidence in the 737 MAX and, ultimately, in the people of Boeing and our deep commitment to quality and safety above all else.” A 140 aircraft were showcased during the air show and over $140bn in deals and orders were penned.PARIS AIR SHOW 2019 25 July 2019 · AVIATION BUSINESS www.aviationbusinessme.com Airbus’ newest A321XLR won orders for 48 aircraft, commitments for a further 79 aircraft and 99 conversions from A321 to XLR. manufacturer secured new business for 363 commercial aircraft, which included 149 fi rm orders and 214 commitments. In addition to these totals, airlines and lessors used the opportunity of the air show to covert 352 existing aircraft orders. This mostly consisted of con- versions of the company’s A320 single- aisle aircraft up to the larger A321neo, as well as the newly revealed A321XLR. Building upon the success story of the A321LR, the XLR is now the longest- range single-aisle aircraft available on the market boasting a range of 4,700nm. Featuring a rear centre tank (RCT) for more fuel volume, along with modifi ed landing gear for increased maximum take-off weight (MTOW) of 101 met- ric tonnes, the aircraft will reportedly achieve 30% lower fuel burn per seat than last-generation competitor aircraft. Airbus’ newest model won orders for 48 aircraft, commitments for a further 79 aircraft and 99 conversions from A321 to XLR. Boeing recovers lost ground While Boeing didn’t secure as many new orders as its chief competitor, the US aerospace manufacturer did secure over 290 in commercial orders, commitments and letters of intent. Highlights of its order list include a sizeable commitment from Korean Air to purchase new 787-10s and 10 additional 787-9 aeroplanes valued at $6.3bn at current list prices. The national carrier of the Republic of Korea also revealed that it will lease 10 787-10s from the Air Lease Corporation, bringing the total of new 787 Dreamliner aircraft to its fl eet to 30. Both ASL Aviation Holdings and GECAS moved to add a sizeable number of con- verted Boeing 737-800 freighters to their respective portfolios, though the total val- ues of those deals were not disclosed. Boeing’s most successful deal of the show came from the International Airlines Group (IAG), who announced its intention to purchase 200 737 MAX jetliners. The parent company of Aer Lingus, British Airways, Iberia, Vueling and LEVEL, IAG signed a letter of intent with the Boeing Corporation in a deal that is estimated to value more than $24bn per list prices. Viewed by many as a show of confi - dence in the Boeing 737 MAX aircraft, IAG’s letter of intent is the fi rst follow- ing the 737 MAXs groundings back in March 2019. “We are truly honoured and hum- bled by the leadership at International Airlines Group for placing their trust and confi dence in the 737 MAX and, ultimate- ly, in the people of Boeing and our deep commitment to quality and safety above all else,” said Kevin McAllister, Boeing Commercial Airplanes President & CEO. “We are delighted that the IAG team recognized the superior qualities of the 737 MAX and has indicated an intention to return to the Boeing 737 family. We look for ward to building on our long-standing partnership with IAG for many years to come.” PARIS AIR SHOW 2019 July 2019 · AVIATION BUSINESS 26 www.aviationbusinessme.comPARIS AIR SHOW 2019 27 July 2019 · AVIATION BUSINESS www.aviationbusinessme.comLast month, the International Air Transport Association (IATA) hosted its 75th IATA Annual General Meeting (AGM) and World Air Transport Summit (WATS) in Seoul. Running from the 1 – 3 June, this marked the fi rst time that Korean Air played host to the AGM and the fi rst time the event has been held in the Republic of Korea. Over 300 hundred of the world’s press attended, along with representatives from among IATA’s 290 member airlines. Under the theme of The Vision for the Future, the 75th IATA AGM touched on a number of topics, which included increasing demand for connectivity, air- line digital transformation, infrastruc- ture capacity, sustainability, as well as the future workforce. The event concluded with both the announcement of Lufthansa Group CEO Carsten Spohr’s appointment VISITING THE LAND OF THE MORNING CALM Aviation Business travelled to Seoul to attend last month’s I ATA A nnual General Meeting, discovering the latest developments with the global air transport market, as well as the challenges the industry is facing in 2019 28 www.aviationbusinessme.com July 2019 · AVIATION BUSINESS 75TH IATA ANNUAL GENERAL MEETINGas Chairman of the IATA Board of Governors (BoG) and that the 76th IATA AGM will be hosted by KLM Royal Dutch Airlines in Amsterdam, The Netherlands. Downgrade in the works During the opening of the an- nual general meeting, Alexandre de Juniac, IATA’s director general and CEO, painted a cautious state of the global air transport market, sharing that the organisation had downgrad- ed its 2019 outlook. The association has projected $28bn profi t for the global air transport in- dustry for 2019, down from $35.5bn forecasted back in December 2018. Additionally, IATA noted that is a de- cline on 2018 net post-tax profi ts, which the association estimates at $30bn. Factors that are negatively affect- ing the business environment in- cludes the increase in fuel prices, as well as a decrease in global trade. In the case of the former, the high price of fuel from 2018, which was record- ed as $71.6/barrel Brent, is expected to continue well into 2019 with an average cost of $70.00/barrel Brent expected. This is 27.5% higher than the $54.9/barrel Brent recorded back in 2017. The airline association expected that fuel costs will account for 25% of total operating costs, a one and half percentage point increase over the 2018 fi gure. Over the course of 2019, overall costs are projected to increase by 7.4%, surpassing a 6.5% increase in revenues. This, in turn, will likely squeeze net margins down from the 3.7% recorded to 2018, to 3.2% for the current year. Additionally, IATA expects a profi t per passenger will decline from $6.85 recorded in 2018 to $6.12 for 2019. “This year will be the tenth con- secutive year in the black for the air- line industry. But margins are being squeezed by rising costs right across the board—including labour, fuel, and infrastructure. Stiff competition among airlines keeps yields from ris- ing,” said de Juniac. “Weakening of global trade is likely to continue as the US-China trade war intensifi es. This primarily im- pacts the cargo business, but passen- ger traffi c could also be impacted as tensions rise. Airlines will still turn a profi t this year, but there is no easy money to be made.” Other projections from IATA point to a decline in return on invested capital earned. According to the asso- ciation, the return on invested capital earned will drop by 0.5 percentage points from last year’s fi gure of 7.9%. While exceeding the average cost of capital that is estimated at 7.3%, IATA notes that the buff er is quite narrow. Despite eff orts to instil “fi nancial resilience” throughout the global in- dustry, there remains a substantial gap between the performance of carriers in North America, Europe and Asia-Pacifi c and those that are based in Africa, Latin America and the Middle East. “The good news is that airlines have broken the boom-and-bust cycle. A downturn in the trading environment no longer plunges the industry into a deep crisis. But under current circum- stances, the great achievement of the industry—creating value for investors with normal levels of profi tability is at risk. Airlines will still create value for investors in 2019 with above cost- of-capital returns, but only just,” said de Juniac. Challenges for the Middle East Over in the Middle East, IATA noted that Middle East-based carriers are Pieter Elbers’ KLM Royal Airlines will play host to the 76th IATA AGM in 2020. This year will be the tenth consecutive year in the black for the airline industry. But mar- gins are being squeezed by rising costs right across the board.” Alexandre de Juniac 29 www.aviationbusinessme.com July 2019 · AVIATION BUSINESS 75TH IATA ANNUAL GENERAL MEETINGNext >