By journalist Inga Karlinska.
The Latvian flag carrier airBaltic recently announced that it is cancelling 4,670 flights this summer. This has affected 67,160 passengers who, because of this decision, are forced to change their travel plans. It may also cause negative consequences for the company’s operations, particularly in terms of plans to attract potential investors during an initial public offer (IPO) on the stock exchange. This is not the first time that the company’s careless communications with the public and with experts have created justified concerns about the transparency and strategic planning of the airBaltic management system. Concerns have also been raised by the fact that the Latvian Corruption Prevention and Combatting Bureau (KNAB) has launched an investigation into whether the board chairman of airBaltic, Martin Gauss, has been involved in a conflict of interest because the airline has had a long business relationship with a company in which a firm which Gauss owns a stake.
Summer is holiday time, and there is great demand for various tourism services, including airline services. When Latvia’s flag carrier announced that it is cutting 5% of its 2025 routes on January 2 of this year – the first business day of the year, that was a crack of lightning from the clear, blue sky. More than 67,000 passengers have been affected. The fact is that airBaltic notified the Transport Ministry, which is the leading government institution in the field of transport, including airline transport, of its plans to cut flights on December 30, which was a day off. What followed was the New Year’s holiday, which meant that the ministry had no chance to review the mooted plans, let alone give its approval. airBaltic shareholders are scheduled to meet on January 21 to evaluate the work of the company’s council.
How close is airBaltic’s partnership with Lufthansa?
The president of the Latvian Association of Hotels and Restaurants, Andris Kalniņš: “Given that airBaltic is largely owned by the state, it has a key role to play in the development of Latvia’s tourism and economics growth. This decision will certainly have to be agreed with the Transportation Ministry so as to avoid risks to reputation and ensure that the decisions are in line with the country’s strategic goals, not just the company’s short-term needs.” Kalniņš adds that the decision was probably based on a desire to optimise resources and to cut losses of less demanded routes – something that would be understandable from the perspective of business. At the same time, however, people and the sector must have clear and consistent information, because the contradictory statements that have been coming about the company’s situation and about its possible need for additional financing will create questions about the transparency of governance and about strategic planning.
The airBaltic Corporate Communications Division has said that the cancelled flights are because of unexpected delays in engine maintenance by the manufacturer Pratt & Whitney. “The inability of the manufacturer to offer timely maintenance of engines has influenced airBaltic’s Airbus A220-300 fleet, which has meant an adjustment to the network of routes and the schedule of flights during this summer from all of the airline’s hubs,” the airline declared in a statement. The delays basically mean that airBaltic has a shortage of airplanes (Gauss has said publicly that there are only three (!) planes for some of the routes). At the same time, however, airBaltic last year concluded a three-year agreement with the Lufthansa Group on the leasing of 21 A220-300 aircraft for Lufthansa flights along its own route. This means that Latvia’s flag carrier will be helping Lufthansa to offer flights this summer whilst cancelling its own flights! Data which underpin this agreement have not been made public, so it is hard to know who is the winner and who is the loser in this case. What is clear is that Lufthansa has been mentioned in the past as the potential strategic investor in airBaltic, with the airline considering the purchase of around 10% of shares in Latvia’s flag carrier before the airline’s IPO. This was reported by the Bloomberg business news agency, which was quoting informed sources.
No complaints so far from passengers
The airBaltic Corporate Communications Division also says that the airline has processed some 80% of requests from passengers who had tickets for the cancelled flights. There is not yet data about how many of these passengers were given seats on other airBaltic flights, how many were diverted to other airlines, and how many simply received a refund of the money that they had spent. True, Gauss has said in the past that the airline is going to have pay more than EUR 1 million to passengers who have asked for a refund of the money that they spent on tickets for flights that have been cancelled.
“Cutting flights during the tourism season may well reduce passenger trust, particularly if communications about the matter have been so unclear,” Kalniņš says. “If airBaltic wants to regain passenger loyalty, it needs to offer detailed explanations of the decision, ensure alternatives and insist that its main routes will not change. Client service quality is of decisive importance when it comes to the loyalty of passengers.”
Latvia’s Consumer Rights Protection Centre (PTAC) is monitoring the situation at airBaltic to make sure that regulatory requirements are observed vis-à-vis the rights of passengers whose flights have been cancelled. The PTAC will make sure that all passengers receive a refund or are given an advantageous alternative flight. “Right now we have no suggestion that the airline is ignoring its regulatory obligations,” says the director of the PTACT Consumer Support, Public Information and Communications Division, Sanita Gerkmane.
Latvia’s budget may also suffer
The decision by airBaltic to eliminate 19 routes and to cut flight numbers during the summer will have an effect on the Rīga International Airport, as well as on travel companies. Ilze Salna from the airport has said in the past that the cancellation of airBaltic flights will mostly affect the airport’s above-ground services and the number of flights, which will also reduce budget revenues. Specific numbers are not yet known at this time, nor it is clear whether the state will have to pump in financial support for airBaltic so as to ensure a successful IPO. Behind closed doors on August 30 of last year, the Cabinet of Ministers decided that airBaltic equity capital will be reduced by EUR 571.293 million in preparation for the IPO and that the company’s share structure will be simplified. It was also decided that after the IPO, the state will have to keep 25% plus one share in airBaltic in place of the 97.97% that it owns now.
“Reputation risks are the key here,” says Kalniņš. “Unclear statements and instability can create concerns among potential investors about the ability of corporate management to ensure stability and long-term growth. Of particular importance is a clear public answer to the question of whether the airline will require additional support from the state to ensure a successful IPO. If the issue is not handled transparently and in a considered way, that may well hinder the IPO process and diminish investor trust.”
A sales director at the Novatours travel firm, Liāna Pudule Indāne says that her company diversifies its services from destination offers to the final destination to partnerships, and for that reason, the airBaltic decision is of no real importance. “All of our planned flights this year are without any changes,” she says.
Kalniņš is less optimistic about Latvia’s tourism and hospitality industry: “Such announcements create uncertainty and an weaken Latvia’s image as a trustworthy tourist destination. That, in turn, influences the hospitality sector. Because airBaltic is a company of national strategic importance, it is critical to ensure its long-term stability. There must be an immediate answer to the question of whether additional financing will be needed from the state for a successful IPO, and the company’s financial situation must be explained to the public so as to reduce speculations and to create security among market participants and the public at large.”