Cost cutting and route consolidation benefits beginning to come through (550 words)

Published: 10/24/2000

Air Baltic expects to move in to profit as early next year according to reports from it's strategic partner SAS. A view supported by Kristian Kirchheiner, the President and CEO of the Latvian airline, who is looking for losses of $1.62m for 2000, but given the growth rate of the market remains positive about the possibility of profits in 2001. The return on the investment in the Baltic carrier is reported to be slower than expected by SAS, but the Scandinavian airline is reported to be satisfied with the airline's development, given the steady growth in top line development. The airline has also proved to be a useful feeder to SAS's network. In an effort to improve the airline's profitability Air Baltic has closed unprofitable routes to Minsk, Warsaw, Prague and Moscow, while increasing frequencies on fights into the major SAS hubs of Stockholm and Copenhagen.For SAS, these cuts combined with cost control and traffic increase have been the key to success for the carrier. The airline however, is keen to extend its improvements and according to Kirchheiner, plans to introduce Total Quality Management by the end of 2001, which should enable it to grow revenues without increasing costs or sacrificing increasing customer satisfaction with the service in his view. As part of the integration of the airline into the SAS network, SAS has cancelled its Stockholm-Riga service in this winter's schedule leaving Air Baltic as the sole provider between October 2000 - March 2001. To meet the added demand Air Baltic plans to increase its number of flights from 78 to 94. Kirchheiner however, reiterates that the growth plan for the airline is fewer destinations with greater frequency. As part of this policy the airline plans to launch a new morning flight to Helsinki. For Kirchheiner the future of Air Baltic as a viable airline requires close cooperation with other Baltic carriers and major global airline alliances. The cooperation with carriers of neighbouring countries will however, stop short of merger, but will be used as a means of developing Riga as a regional hub in collaboration with airline such as Estonian Air. Air Baltic also plans closer relations with Finnish carrier Air Botnia, 100% owned by SAS, which has a compatible fleet of Avro regional jets, allowing close cooperation in a number of maintenance and overhaul areas. Currently SAS does not plan to its increase its 38% stake in Air Baltic saying that it is quite satisfied with its holding. Whether this view will continue if the Latvian state disposes of its 51.6% stake in the airline, remains to be seen. The state earmarked the holding for disposal in 1999 and has yet to set a timetable or decide on how much and whom it will be sold. It would seem improbable that SAS would be overly keen to see a competitor take a significant holding. Based in Riga Air Baltic flies from Riga to Stockholm, Copenhagen, Frankfurt, Vilnius, Budapest, Helsinki, Tallinn, and Kiev, with a number of ongoing code share flights to major European centres. The airline, which recently celebrated its 5th anniversary, currently operates a fleet of three Avro RJs and three Fokker F50s in contrast to many of the other carriers in the region operating Russian aircraft.

Article ID: 2146