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Less than a month after making a big tease — that his airline might expand beyond its Eastern European roots into Scandinavia — Air Baltic CEO Martin Gauss confronted a different reality. Air Baltic’s majority owner, the Latvian government, banned all scheduled international flights, effectively grounding his company.
Air Baltic, which temporarily laid off many of its employees, shut down passenger operations on March 17, instead concentrating on repatriation and cargo flights. As of Monday, it was supposed to resume operations in a couple of weeks, but on a limited basis. (This week, Latvia signaled it might extend it state of emergency, suggesting Air Baltic’s grounding may last longer.)
No one knows what the future brings. But by later this year, Air Baltic almost certainly will be a smaller airline than before, when it had 38 aircraft, including 22 Airbus A220s. Its four Boeing 737s and its dozen Bombardier Q400 turboprops now are gone, leaving it as an all-A220 operator.
We caught up with Gauss on Monday to ask him how he’s handling the situation, and to learn why he’s not sure demand will return until some time in 2022, and why he expects this crisis will spur some unusual airline mergers.
Note: This interview has been condensed and edited.
Skift: Is this the biggest shock you’ve seen in your career?
Gauss: I understand it is the worst shock in the 101 years aviation has existed.
Skift: You’re grounded as an airline, right?
Gauss: Latvia took a decision to ban all international scheduled airline transportation. We were only doing repatriation flights. But we have have done the last one last week. Now, we do cargo and mail flights, but no scheduled passenger flights.
Skift: What kind of cargo is still moving?
Gauss: Mainly medical supplies. The last one was when we flew direct to China and brought back one million masks on the A220. We’re going do the same this week.
We are delighted for the opportunity to carry to Latvia almost one million face masks and respirators for our medical staff. We performed the 4815 km flight from Ürümqi Diwopu International Airport in China in 6 hours and 35 minutes with our @Airbus A220-300 registered as YL-CSI. pic.twitter.com/xEIMRCyj3H
— airBaltic (@airBaltic) March 29, 2020
Skift: Can you make money with that type of flying?
Gauss: We are a national carrier, so we are not making profits on it. We fly at cost plus risk, but we are not trying to monetize this one.
Skift: Last week, you said you’re cutting 50 percent of flights through Oct. 31. That’s more than six months away, further than many airlines have cut. Are you telling us demand may not bounce back quickly?
Gauss: This is to our best knowledge now, and what we believe we can offer looking at current demand. But as this is changing every week, it depends on how different countries change their procedures or lock down. We also planned it in a way where we can start flying only with five aircraft, and then gradually, when we can start again, we then add one aircraft per week.
Skift: When will we have an idea of when demand will return?
Gauss: It depends a lot on the different countries. Are they accessible in the way they were accessible before? If an airport is locked or city is locked, there is hardly any demand.
Skift: So there’s no quick fix for airlines?
Gauss: We’re talking about four weeks now of lockdown in Europe, maybe three weeks, and the economy itself has not yet taken the full hit because at the moment the hit comes from the virus. But the economy will follow even when the virus is cleared.
Therefore, with all the supply chain broken, plus hotels, restaurants, and all of this — the economic impact will come in the next months, and that will lead into this recession. There was the optimistic scenario in the first quarter that things will go back to normal. I think most of the analysts have given that up and said, ‘OK, this year is gone. Let’s try to focus on ’21. I would say that also ’21 will be still heavily impacted from this crisis.
Skift: Do you think some European airlines might go out of business? Or will there be more consolidation?
Gauss: The funny thing is before the crisis there were lots of insolvencies in Europe and since the crisis there is no insolvency. This is a very interesting. Most of the airlines are more or less on the ground and nobody goes insolvent. Everybody wants to start again. What we will see after the start, very quickly, is that airlines will be running out of money if they have not sufficient support.
That will lead to consolidation — but not like it was before, where the big ones decide and the small ones go. It will be interesting constellations of airlines, which nobody would see merging. They will be merging because they need to.
Skift: Eventually people will fly again. How will it be different?
Gauss: We will be having a lot of changes, especially initially. Some countries will have restrictions — maybe you’ll need certificates, or maybe temperature measures or a test. All these things will come just to protect against the second wave for the airline industry.
Skift: Are you expecting Air Baltic will change standards to ensure heath safety?
Gauss: We have already voluntarily conducted all the repatriation flights according to Chinese standards, handing out masks to the passengers and having our crew in these full suits and equipment. That was not mandatory. That was voluntary.
We are now talking and saying if we start again with scheduled operations, we could think about a lot of measures before boarding an aircraft. For example, there is a premium grocery store in Latvia, a chain. And that chain has a mandatory temperature measure before you enter the store. People like it. It doesn’t take long, but people feel comfortable and I wouldn’t mind having that kind of scenario before you board a plane.
Skift: There’s some talk that even when things improve and it safe to move about people won’t fly as much. Maybe people realized they can live with less face-to-face contact. Is this a concern?
Gauss: That’s important and I can speak for our airline now. I think we all need to come back to enjoy our life and to see that the air infrastructure is something needed in the world. There will be a debate about this also because of sustainability, which is healthy, but we should not in a public debate accept that flying is not needed.
Now, you see in Europe, a lot of airlines are parked and most of the flying is gone. And it looks like yes, we can deal with it. But I don’t think that the development of economies can, long-term, deal without aviation. I hope people see this industry as positive and start flying again as they need to.