A one-way ticket to better business

  • 2004-02-26
As president and CEO of airBaltic, Bertolt Flick has steered the company forward through several significant changes in its pricing system and heavier passenger traffic. In 2003 alone the airline's profits nearly tripled. Flick recently sat down with Roxanne Khamsi to discuss airBaltic's new strategies and fare structures.

AirBaltic witnessed a 28 percent increase in the number of passengers it carried in 2003. What do you think contributed to this considerable growth?
There are basically two reasons. For one, we opened four new destinations: Hamburg, Minsk, Brussels and Amsterdam. But much more important was that we started to introduce one-way fares starting at relatively low [price] levels on a number of destinations in the course of 2003. And growth really happens mostly on fare levels that are very, very low.

So the routes that you saw the biggest growth in were the ones that had this low fare scheme for one-way?
One-way low fare - those routes showed actually the growth. Routes with traditional fare structure, some have shown relatively good growth - but not excessive - and some have been relatively stagnant.

Maybe you could explain how the idea came about for airBaltic to introduce one-way fares and how this fits in the greater trends within the industry.
The one-way fares have been really forcefully introduced, first by EasyJet in the U.K., and then RyanAir copied EasyJet in this model in 2001. So it's very recent. And all of the new airlines that have been set are introducing one-way fares. What's the big difference? The big difference is that you don't have as before conditions attached to the tickets - minimum stay, maximum stay, advanced purchase and so on - you simply buy your ticket at a given point in time for a given date. This gives a lot more flexibility to the customer, and I think this is what makes those tickets attractive to the customer. They don't have to become a tourism specialist to buy a ticket like it used to be with the old fare structure.

So what percentage, then, of your routes have this pricing?
After May 1, all of our routes will have this pricing with two exceptions, that is Kiev and Moscow. And that is not because we don't want to change it there but because of regulatory reasons. It's not related really to the European Union or something like this, it is just that we do it step-by-step.

Would you be able to say why?
It's the same reasons. It's a question of having more tickets in the market that are available at relatively low fares, plus we will open four new destinations in spring: London, Dublin, Oslo and Milan. And this, of course, adds more capacity and automatically leads to an increase.

With regards to these new destinations, I wondered how you select which ones to include. For instance, Milan sparked my curiosity. How do you go ahead and choose these places?
In this case every destination of course has a difference rational. There is a lot of travel between Latvia and Dublin, and we know that this is a particularly price-sensitive kind of travel, so we thought that Dublin was a good destination to start. London is obviously the biggest city pair out of Riga, so eventually one has to take a look at serving London also.

Why did you feel ready now to add these routes?
Because we now have the appropriate equipment so we can fly to London. With our previous equipment it would not have been economical to operate [flights to] London at low fare levels.
And then Oslo, of course, is right in our strategy... regional travel, from Riga to Norway. This is a destination that we can already say will be a popular route. Milan, as you already mentioned, is sort of the odd one out. What we have looked at is a destination in the Mediterranean, and Milan is, from Riga, one of the closest Mediterranean destinations that we can reach. There is travel both ways, and I think what is most important is that we provide Latvians with a possibility to get to the Mediterranean in a relatively economical way. This is definitely not something that for us is as close to the core as Olso, but it is a supplement to our traffic program to offer a holiday destination [to Latvians].

How would you say that airBaltic's strategy has evolved recently? Would you say that what we've been talking about has been the primary strategy change?
There are quite a number of aspects to this. How we assess the market, our view has changed with the experiences we have gained with introducing different fare structures because we can see now that the markets that were marginal at best actually can be served if you do go on a different pricing concept. So of course this gives us quite a bit of room for thought on assessing markets. The other question is one of appropriate equipment. There are things you can do with a certain type of aircraft economically that you cannot do with others.

So you've been looking to further expand the fleet?
I think not so much to expand the fleet, but we are in an extensive program of fleet change. We will replace our regional jets with Boeing 737 in the course of this year.

It's been a number of years that you've been part of the Eurobonus program. Would you explain what airBaltic gains from being part of this?
I think for the business traveler, bonus systems are very attractive because first of all they collect quite a number of points and of course get a number of benefits back. For the tourism traveler who is looking for very low-price tickets, I think it is something he gets really as a bonus but it is not so much an incentive to use a certain airline.

I do get the impression that you have more business-purpose travelers than tourists.

Do you see this changing at all? How would you describe these groups as expanding or decreasing?
I would have expected to have seen a shift in proportion much stronger already than say two years ago or last year, but what really is happening because of the strong economic growth in Latvia is that we see proportions stay almost the same, but both groups are growing very fast.

If a low-cost airline were to come to this region, I was wondering how airBaltic might respond to that kind of change.
I'm sure actually that if not this summer then next summer there might be some of the new carriers looking at the Baltics. Where, when and from which destinations it's hard to say, but I'm sure that there will be interest. But in a way I think that airBaltic is, without labeling ourselves as such, a low-cost carrier. We are very much developing in that direction, definitely in terms of our cost structure and definitely also from our fare structure.
Of course some of those new airlines are huge airlines that also can afford to fly to a destination and loose a lot of money over an extended period of time, so anyone coming in will increase the competition in the market. That's part of a liberalized market.

So what's the big picture?
Despite the fact that we have some new destinations that are exotic, like Milan, our real focus is the Baltic Sea region, [including] travel to Stockholm, Tallinn, Helsinki, Copenhagen, Olso and Vilnius from Riga. High frequency, low-fare travel in the region: this is really what we are focusing on.