One airline's future

Bertolt Flick took over as the president of airBaltic earlier this year, four months after the events of Sept. 11. Ilze Arklina talked to Flick about the future of the Baltic carrier and its role in a turbulent airline industry.

The events of Sept. 11 and their aftermath have forever changed the airline industry. Most major airlines were rocked by an air travel crisis.

But some airlines, including Latvia's airBaltic, managed to turn a small profit last year, the first since the company's founding in 1995. Passenger numbers were also up, albeit slightly, over 2000.

Are you happy to have a profit after the events of last year?

Of course we are very happy about that. The last quarter of 2001 was not exactly the best we had so far due to the overall crisis in the aviation industry. The crisis probably has not affected us as much as the other airlines, but it affected us. We have lost a lot of money due to the events of Sept. 11. That's why we are very proud of still being in the black. Of course, what is very important is that we continue like this.

This year is also going to be a very, very difficult one, as the market slowly recovers. But I am confident that we will finish this year with a profit.

Your parent company, SAS, posted a substantial loss in 2001. How did you manage to come out with a profit?

We were affected in a totally different manner than SAS. But SAS is an excellent and very strong company, and they will be the winners after this crisis is over.

What exactly was the effect of Sept. 11 on your company?

There was a tremendous slowdown in passenger growth. Over the last years we had a significant growth and, of course, that slowed down due to Sept. 11. Plus the average yield or income per passenger has steadily decreased industry-wide over the last 15-18 months, even before Sept. 11. Of course that had to be compensated by volume and this process was slowed down by Sept. 11.

What are your plans in order to boost passenger volumes?

What we are doing at the moment is opening new destinations, which gives us the opportunity to address different market segments we were not addressing before. It's is the tourism segment, particularly with our new flights to Vienna and Berlin. The first results from bookings to these new destinations are extremely encouraging. We have already sold out some Berlin flights even though the route hasn't started (operating) yet.

We had problems getting our fares approved in Vienna and Helsinki because in both cases the respective countries' aviation authorities considered our fares to be too low. Now we have our fares approved.

In Austria they were surprised that we could operate on such fares. But they are economical to us.

We have designed these two flights, to Vienna and Berlin, as tourism-class products and we have based our calculations on this. These are not dumping prices. In both cases I was a bit surprised that, in a time when everybody is talking about cheap airline prices, the authorities even considered telling an airline to keep its prices up.

Airlines are designing certain products for certain destinations. When you have a high number of (frequent flyers) and your customer group are business travelers you have a totally different product design than if you design it for the tourism market.

So, there are reasons why there may be price differences. But we are very confident about what we are doing and the market response is just confirming that the market is ready for this.

Why have you chosen Vienna and Berlin as the new destinations?

Berlin has become the German capital, and it is one of the most exciting cities in Europe now. For Latvians it certainly is an attractive destination. Vice versa, there are strong cultural ties and great historical interest in the Baltics from the German side.

So we expect Austrian and German tourists to come here. The first flight from Germany is virtually sold out.

We have been successful in bringing press attention to the fact that we are starting up. And this must have filled the market niche at this moment because the interest to come to Riga is surprisingly strong.

AirBaltic doesn't have a name in Berlin, no one knows us, and if in such a short period of time you create such interest, there must be a receptive market for this.

The Baltics seem to be a top subject now. Wherever you go, the doors seem to be open for tourism to the Baltics.

The same is happening in Vienna. The people are interested. And probably what was lacking so far was a cheap means of transportation to the Baltics. Before, to get to and from these destinations cost about twice as much.

Also, tourists coming from Germany and Austria want to go on a quality airline. I think we can offer that.

Why do you think the quality airline matters so much? Now people prefer cheap airlines where the price is low and there's little comfort.

I think no comfort is no problem, if the price is right. For many people safety is the most important item. And the traditional airline also has a standard of reliability that is very hard to match.

After the crisis, prices fell dramatically, including on traditional airlines. And there is a very small price difference between traditional airlines and the so-called cheap airlines.

They have managed to create the impression that all tickets they are selling are worth 9 pounds. They are not. Just try to make a booking on them.

Their trick is that they are not on the general reservation systems, which makes it difficult for the customer to compare the different offers.

For example, our Riga-London flight is currently cheaper than Stockholm-London on these cheap airlines. AirBaltic is also cheaper when going to Helsinki and Germany. I think there is a lot of hype about these cheap airlines.

But what the cheap airlines have taught us is that there are totally untapped marked segments of air travelers, and we can have totally different volumes than we expected before. And we are looking into it.

We saw that even in mature markets like the United Kingdom, Scandinavia, Germany, people are extremely price sensitive.

How have people's attitudes toward flying changed since Sept. 11?

A lot of companies, particularly after Sept. 11, have changed their travel policies. They have reviewed how many times (their employees) have to travel by plane. And if they have reviewed their policies they are not going to change because people start to feel safe about air travel again.

The policy will stay in place for a long period of time. People are using other ways to communicate, from e-mail to video conferences. They have cut down on business travel. Also - very visibly - conference travel has been cut down severely.

With the conferences it will come back. But as for the willingness to pay high prices, that will not come back.

The airline industry has changed for good. Lots of airlines are working on new concepts. SAS is introducing a new idea - SAS Direct - which is a one-class concept on (domestic) flights. All major airlines are now reevaluating what they are doing. There are a lot of conflicting tendencies at the moment,k and we will see which strategies will win.

There will not be, in my opinion, simply enlargement of airlines into even larger conglomerates. We will see an immense diversity of air travel. And I'm very convinced that air travel as such has a fantastic future, and it will grow at a high rate over the next few years.