According to M. Gauss, the determining factor for the survival of airBaltic in the Covid-19 crisis is the optimal size, which was determined before the Covid-19 crisis. On the one hand, the airline is big enough. “Many small airlines will disappear. In turn, the strongest airlines -“ Ryanair ”,“ Wizzair ”, major airlines, also“ airBaltic ”- will return”, the words of M. Gauss were spread by the LETA agency. side, the airline is small enough not to incur excessive losses. The smaller the airline and whichever company is, the lower the fixed costs for maintaining the company during downtime. To this extent, Mr. Gauss agrees, but explains no matter why, in the case of airBaltic, the downtime costs, which he described as ‘burning money’, were lower for airBaltic than for the larger airlines, not only in absolute terms, but even more in terms of total costs: “In addition, airBaltic also has a lower share compared to the industry as a whole as we have a relatively small cost base,” said the CEO.
There are many risk factors
While it is too late for Mr. Gauss’s calculations to be accurate, it is necessary to point out a number of factors that further narrow the eye of the needle through which airBaltic must pass. First of all, airBaltic’s size and structure, or its maintenance costs, predate the arrival of Covid-19. It will only be a coincidence that the duration of the Covid-19 crisis and other parameters specific to air transport will prove strong enough to destroy some of airBaltic’s competitors, but still weak or short enough to finish ahead of the money . airBaltic ”is now on, as Gauss calls it. Second, the coincidence between the Covid-19 force and the Latvian state’s ability to get money for “combustion” must be just as successful. Third, there is a mutual suspicion that Covid-19 is being used to eliminate intrusive competitors from leading players in air transport and other sectors. It may be that the aviation giants Ryanair and Wizzair, named by Gauss, would rather wipe out each other and then tolerate airBaltic than redistribute airBaltic’s legacy. However, these are just assumptions and expectations. It is not publicly known why the rules introduced in the name of the fight against Covid-19 in air transport could prove to be more beneficial for airBaltic than for other airlines, or if Latvia would be able to influence these events and not to lose its investment in airBaltic.
In the spring of this year, the Latvian state released airBaltic from its obligation to return the 35 million euros already lent to the state and deposited a further 250 million euros into the company’s share capital in the summer. Now Gauss has calculated how long the company will “burn” this money. This deadline is called something like next spring. At least if air transport starts to recover, then airBaltic will not demand the next investment from the state. If there are new restrictions and restrictions on flights, airBaltic will ask for money in the winter.
Currently, airBaltic operates more than 300 flights a week from Riga, Vilnius and Tallinn with 10 to 15 thousand passengers. The flights will earn the carrier between 1.1 and 1.5 million euros, which is enough to cover the direct costs of the flight, but the company’s maintenance costs over and above direct costs require an additional 3.5 to 4 million euros per week. The costs are currently lower than at the beginning of the year, when airBaltic had to refund 80 million euros in ticket money for missed flights and pay severance payments to 700 employees.
There is no clear benefit to airBaltic in terms of the fixed cost to total cost ratio as the company is currently replacing its fleet with completely new aircraft. On September 20, the company announced that it had welcomed its 23rd Airbus A220-300 of the 50 airBaltic ordered aircraft. This means that the company must pay interest on a loan (lease or the name of the financing scheme does not matter) for the purchase of stationary aircraft. Obviously, a lower share of the fixed costs will be borne by airlines using even 30 year old planes, which can be more expensive to operate than brand new planes, but parked at the edge of the airport is very cheap as it aircraft has already been bought back from manufacturers or financial intermediaries. .
Aircraft need an aerodrome
AirBaltic can fulfill its obligations to aircraft suppliers with the support of the Latvian state, which in turn has agreed with the European Commission. It was quickly agreed that Latvia was borrowing money, which was immediately returned for non-flying aircraft, but was too late to approve a € 50 million investment at Riga airport. The airport would also need money to continue serving the masses in the future. Such a task cannot be accomplished with the airport’s own revenues, which have decreased in proportion to the decrease in the number of passengers served by it in the 11 months of this year by 5.2 million or 72.9% in compared to the 11 months of 2019. Of which the November indicator is -90.9%. The number of passengers remaining in 11 months of this year was 1.95 million, of which 50.2 thousand in November.
Four airlines (including Finnair, Lufthansa and Ryanair) currently connect Riga with 25 destinations. According to various indicators, the workload at the airport has decreased by 5-10 times compared to the end of last year and even at the beginning of this year. The official version continues to return air transport volumes to 2019, either without a deadline, whether it will take place in 2021, 2023 or perhaps as late as 2025. Round 6 of the airport extension, project to be completed by next spring, has not been officially canceled. It is clear that Round 6 itself will be divided into several rounds, but the implementation of the project will be determined by the situation in the aviation sector. The airport is working with the builders of Rail Baltica, who are currently participating in the survey of the construction site of the train station.
It is equally possible to find arguments why Riga Airport’s future in 2019 will not be a return and no further growth above the then recorded indicators. Without much investment, the airport could be adapted to handle a few flights a day, allowing officials and politicians to travel to the EU and NATO headquarters in Brussels on instruction. The decision by the Latvian government to allocate half a million euros for the application of the airport for the needs of NATO forces, identified this week, hints at possible changes towards the decline in the total number of passengers and change of composition.