CEO Interview: airBaltic's Restructuring from Red to Green

DALLAS — In recent weeks, airBaltic (BT) posted profit along with its highest-ever H1 revenue in its history, and the carrier is in the process of launching its IPO. “I’m focusing on taking the airline to the stock exchange,” states Martin Gauss, CEO of airBaltic.

Back in 2011, the airline was in a very different state, in terms of value provided, fleet, and, most importantly, finances. It was struggling, and restructuring at the earliest was imperative. Martin Gauss took over as the CEO of airBaltic in 2011 and worked with shareholders on a new restructuring program called “ReShape”, which aimed at taking the company to profitability.

Airways‘ Siddharth Ganesh meets with Martin Gauss in an exchange about project ‘ReShape’ and what it took to turn an airline from the red to the green.

SG: You joined airBaltic in 2011 during its financially troubling time. ‘Reshape’ was the structuring plan brought to bring the airline back to profitability. What were your first thoughts and how did you want to proceed on joining BT?

MG: When I came in I didn’t have the complete picture of what had happened and found out in the first weeks. I came up with a strategy how to fix the issue after four weeks and presented it to the cabinet. We had a suggestion to shrink the airline and bring it back to profits rather than shutting it down completely. We hired consults to help bring about ReShape and we used that to restructure.

Personally, what I realized when I just came was that too many tickets were sold at too low prices and the costs were not covered. This was going on for years and it was too much. Too many cheap tickets out there.

Photo: airBaltic

Reshape was a very detailed document of hundreds of pages that covered several areas of the airline like revenue management, distribution, and ground ops. Etc. it was built to transform the airline.

Martin Gauss, airBaltic CEO

So it was too many cheap tickets and not external factors like high fuel prices?

It was no outside factors just too many tickets sold at too little a price. Besides, the multi-fleet for such a small airline was not viable as well.

What was your vision for BT besides profitability?

I wanted to have a carrier that would connect the Baltic regions to as many places as possible direct or indirect, with the right aircraft that fits the market. If we go back 12 years, we were flying the Boeing 757, Fokker 50, Q400, and the Boeing 737 classic, and I defined that a 150-seater airplane was the right size for us (at that time, it was the 737-300).

The turboprops were too small and the 757 was too big. We had long leases with them so we had to get them out over time and also find the right aircraft for the future.

Photo: https://commons.wikimedia.org/wiki/File:Boeing_757-256_Air_Baltic_YL-BDB,DUS_D%C3%BCsseldorf%28Duesseldorf_International%29,_Germany_PP1373191871.jpg

You’ve fostered a well-performing hub and spoke at Riga today. Comment?

We have successfully created Riga as a hub and we are protecting the home market (The Baltics). We have a sufficient feed and this model works for us only in Riga. We were not able to replicate it elsewhere. The others are only point-point.

The hub will always be Riga but as we grow we will have more bases. Tallinn, Estonia is the largest, followed by Vilnius. We see our future in more Nordic cities. On the other hand, Gran Canaria is a winter base with two aircraft for example. Wizz Air (W6) and Ryanair (FR) are our competitors.

One of your key drivers of profitability beyond numbers and cutting costs was the dynamic and diverse team. Comment?

We have a very unique culture – very diverse. Our people come from 36 nationalities, It’s very different with so many nationalities. It starts with language but goes much further with how people see life. We have very young people from Gen Z and boomers like me. It’s a mix to make us unique. We are very open.

airBaltic achieved a net profit of €1m in 2013 after a €27m loss in 2012. The airline was profitable from 2013 until 2019.

Several employees were made redundant to cut costs during that period, how many of them are back at the airline today?

In 2012, all of them who wanted to be back were back. The same situation happened even during COVID. Today we have more people than ever, approximately 2400. Everybody who wanted to come back has come back.

Photo: airBaltic

Back to the present day, airBaltic’s ACMI venture seems to be doing well. How are you different from the rest?

Our ACMI is a very different one to anybody else’s in the world. First, we offer the Airbus A220, a brand-new aircraft. Next, you get our crew along with business and economy cabins. Finally, we’re a premium 150-seater provider. Nobody can copy us because nobody has what we have.

There are many who want to have us at the moment but can’t have us because we don’t have enough airplanes. It’s a good business we want to develop further to a certain extent but our backbone will remain airBaltic as a scheduled airline.

Our ACMI customers are the Lufthansa Group and SAS.

Martin Gauss, airBaltic CEO

Photo: Airways/ Fabrizio Spicuglia

Back to ReShape, you had a big decision to make – finding an aircraft to replace the 737-300 and offering 150 seats and you ended up with the A220. Comment?

So we had to select between the A319 Neo, 737-7, and the CS300 (present-day A220). None of them existed when we had to make a decision. We studied them all, and they all had around 150 seats.

We understood that the A319neo and 737 Max were based on the older built A320 and 737 but the CS300 was made with newer material, composites, etc which made it lighter. The weight difference was 5 tons to an A319Neo, for the same number of seats. 3.5 tons to the 737-7. These were all back then on paper.

The range stated by the CS300 was incredible. We took the right decision based purely on economic data as none existed. We are only limited to two airports in Europe with the A220-300 – London City and Florence as the -300 doesn’t have the ability to make steep approaches. But, the overall economics of the airplane work very well for us.


Featured image: Featured Image:Daniel Crawford/Airways

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Article source: https://airwaysmag.com/airbaltic-ceo-int-restructuring-green/

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