Martin Gauss — Chairman & CEO of AirBaltic
On Wednesday, November 2nd I had the privilege to interview Martin Gauss. Mr. Gauss is the Chairman and CEO of AirBaltic. He has over 27 years of experience in the aviation industry working for Deutsche BA and Air Baltic. Previously, he served as Managing Director of Deutsche BA where he led the airline to profitability and was sold to Air Berlin in 2006. This interview has been edited for length and clarity.
Joshua Kupietzky (JK): What is your background in the aviation industry?
Martin Gauss: I studied to be a pilot from 1990 until 1992, and then I started my first position with British Airways subsidiary Deutsche BA in 1992 as a first officer. Following that, I did internal management training within British Airways over many years and reached the level of director. After the company [Deutsche BA] was sold, I became a managing director. Since that time, and for 11 years now, I have been the CEO of AirBaltic.
JK: How do you view the main changes that have come about in the aviation sector because of the pandemic? For example, a lot of flyers think about change fees. Many airlines have waived them. Do you think change fees are gone for good, and how would you adapt that part of your business if they were?
MG: The pandemic had a big impact on us. We in other areas of the world struggled differently. Asia is still struggling, Europe is coming out of it, and the United States has come out of it. Charging change fees is a specific area of income for airlines. I see that they will stay because we have also come back to normal behavior of tickets and bookings. But of course, there are so many different airline models today in the world that different airlines do different things. There are no change fees on tickets that are changeable all the time because, for example, classically, a business class ticket has no change fee. A low priced, or ultra low cost, airline ticket would come with a change fee because the model behind it is to offer passengers the optimum price. However, if that seat, which the airline reserved for that dedicated flight, is not taken, there would be a change fee because the result could be an empty seat that had been saved for that passenger. So, it depends on the airline models, and that varies a lot all over the world. But overall change fees are something which will be there depending on the model.
JK: AirBaltic, like all carriers, has retooled its network since the start of the pandemic. What has worked and what hasn't? Do you see your network targeting more business or VFR (visiting family and relatives) travelers as you continue to emerge from the pandemic? What lessons has the pandemic taught you about its network and the mix of leisure and business travel?
MG: We have seen, like most carriers, a larger demand for leisure flying and slowly business travel is returning. But what we see is that the demand for leisure is higher than before [the pandemic]. After being locked into their houses and flats, people are going on more trips. That of course is leisure, but also business travel is coming back. What we have learned is that, if something like this would ever happen again, and people would not be allowed to travel afterwards, there would be a large demand for air travel. Overall, this is good for our industry. It's good that people want to travel more. So, we will see more travel around the globe, which means the forecasts about increase in passengers traveling all over the world will continue. People want to move; they want to connect, visit places, and visit friends. That is the learning we get out of any crisis. People will start traveling again.
JK: As airlines emerged from the pandemic there was a shift towards more alliances and partnerships. Would you join one of these alliances completely, or do you prefer to have a foot in each of them?
MG: We are better off with codeshares. We have 24 different airlines with codeshares amongst all of them, and with the major carriers in Europe. For us, that is the better model. If we were to join an alliance, we would probably have to give up a couple of the codeshare agreements and that would not work. So therefore, we are not intending to join an alliance today.
JK: Why did you choose the Airbus A220 over other airframes and why are the aircraft a perfect fit for you?
MG: We made a decision in 2012 between an A319neo, 737-700 MAX, and what was called a Bombardier CS 300 and is today the Airbus A220. The economic decision at the time when we compare these aircraft was for the Bombardier CS 300. We were looking for a replacement for a 150 seater. These three aircraft were available and, if we look today, the decision was right because economically the A220 beats the other two models by far. At that time, those three aircraft were not developed, but today they are established. Looking at it now, we made the right decision to replace our fleet with A220s.
JK: With the higher density 149-seat A220 approved, do you plan to bring in this seat configuration to AirBaltic’s fleet?
MG: Of course, we already have 148 seats, and that's what we're going to do. We use the maximum, or nearly the maximum, capacity on our aircraft, and most of the fleet is already changed.
JK: I know AirBaltic is one of the most environmentally sustainable airlines and has set an ambitious goal of getting to net-zero emissions by 2050. How do you plan to achieve this goal?
MG: We have the youngest fleet in Europe. We have the most modern aircraft in its category so we are delivering a big part of the fuel and emissions savings with a 25% reduction in emissions by just using that new aircraft. We also have the largest fleet of the A220-300s in the world. With that, we've taken a big step and the next steps are using more sustainable aviation fuel as it is available. On top of that, we're putting forth a lot of initiatives. For example, the company has only electric cars, so the cars we're using for maintenance, for the ground operations, or even the management cars are all electric. We are also looking toward the future in whatever development comes. Looking at that means we are strong supporters of small electric aircraft of Lilium drone technology, coming in the future as a passenger kind of drone aircraft. We are following these developments in that category and on large aircraft. We are hoping for a technology, maybe hydrogen, which will then lead us to order new aircraft types beyond 2035, bringing us to net zero. Overall, we are following our goal to net zero as other airlines are. We have the advantage of starting early with having already done the biggest step by simply having the latest technology.
JK: AirBaltic’s fleet consists of just Airbus A220 aircraft. Do you see AirBaltic acquiring the Airbus A321 XLR in the near future to serve long-haul destinations such as New York and Toronto?
MG: We are looking at that aircraft. In the past, it was quoted that [the A321XLR] would be the only other aircraft we would be seeing to add to the fleet of A220s, but this is changing as we are looking at the aircraft. To date, it is not available before 2025, and we are evaluating what routes we will be able to serve with such aircraft. So, that's correct. We are looking at it, but we have not yet announced that we would acquire or lease such aircraft.
JK: Currently the Latvian government is a majority stakeholder in AirBaltic but there has been some talk that an IPO is potentially a prospect in 2022. Will AirBaltic stay private, or will it have an IPO, and if so, when?
MG: The earliest it will go public is in 2024. The shift here is because of COVID. We had to get out of COVID first, and we have to go public because we have to repay the temporary equity injection from our government shareholder by 2027 at the latest. That’s the roadmap to an IPO. We are preparing for it. The earliest we will be doing it is by the end of 2024.
JK: What are your goals for AirBaltic for short and long-term?
MG: One goal is to develop the sustainability growth paths that we have started. The next target is to take the airline to the stock exchange, then the IPO. Then to focus on the product we have, which is a quality, low cost product. These kinds of developments are the immediate targets for the next few years: to do the IPO and, at the same time, grow sustainable, because if we grow we have to do it in a sustainable way to reach the target in 2050.
JK: AirBaltic is quality low-cost. How were you able to have a quality product while being a low-cost carrier?
MG: I would say the best way to describe that is that we save where the passengers don't see it or feel it. If we identify all these items we can deliver quality, and that is mainly on the service side. We also have a full service business class and ultra low cost economy cabin. We combined both because both products are demanded, and it works very well for us, so why would we treat someone from the service perspective differently, apart from what he or she gets as a meal? We treat all of our passengers with the quality that we offer in business class. We do not treat our passengers differently from the service perspective apart from the meals or seats. We are very well known for the high quality of service we deliver on board our aircraft, and therefore, we see ourselves as a quality, low cost airline.
JK: What do you anticipate happening to the airline industry in the next decade? What would you like to see happen?
MG: The biggest change now is that we all need to go back to profitability, to earn back the losses. And with that, investing into new aircraft and new technology to deliver the fuel and emission savings is the challenge. For the next 10 years, all the airlines which have not changed yet to more sustainable aircraft, or newer versions of the others, will have to do that, and that is investment. However, these steps will help airline companies to grow out of the crisis and reach profit levels, which will make it sustainable for them to survive into the future.
JK: AirBaltic’s hub at Riga Airport has certainly grown following the pandemic. Norwegian is planning to base aircraft there, and Ryanair bases two aircraft there. Have you been able to capitalize on this new travel demand towards Riga, and have you added more routes and destinations from Riga?
MG: We just announced the biggest route expansion with 18 new routes next year. We are still the market leaders and even with competitors coming in, we still control about 50% at Riga Airport. Next year we're going to go back to the levels we had in 2019 trafficwise, and with that, we are also adding a lot of new routes there to stay competitive. Of course, in today's world we will have competitors coming and going. We've seen that in the last 27 years, and we'll see it in the future as we are the only airline using Riga as a hub. It helps us because we do not have the same pressure on the point-to-point that other carriers have. We are still able to transport a lot of the passengers through the hub system.
JK: We started this interview talking about your background in the aviation industry. What advice do you have for young people trying to start a career in the aviation industry?
MG: Take any position you can get in this industry because it is a dynamic technology driven industry. It is very interesting, and it is a global industry. You will not find an airline where they don't speak English, regardless of where in the world, because that's the language of the airlines. Whatever position you can get in an airline requires English. Keep learning. Whatever you do there, keep learning and take your chances and choose the right path for you. A career will pop up while you put in your work and effort. So, if you want to follow the path, your path will come as a young person in this industry because there are multiple ways of reaching whatever target you have in an airline. I can only highly recommend to anybody who wants to join the aviation industry to do it at any position. After that, it will develop toward wherever life takes you. If you are willing to keep learning, never stop learning, and then the path will be shown to you.
