Innovative Airlines 2012: #8 airBaltic

Latvia-based airBaltic stands out as an airline whose innovations have been featured many times on In recent years, the carrier has transformed from a point-to-point low-cost carrier into a hybrid LCC, turning its Riga ‘North Hub’ into a transit point for travellers between Northern Europe, Eastern Europe, Southern Europe and Central Asia. AirBaltic offers passengers connecting through Riga 25-minute connection times, while other ‘hybrid’ features of the airline include services that are staple of mainline carriers, such as a separate Business Class cabin, an airport lounge and a frequent flyer program. AirBaltic further boasts a cost per-average seat kilometer that is on par with the likes of Easyjet and Norwegian and 30 to 40 percent lower than Finnair and SAS.

AirBaltic has been growing its network quickly in recent years and currently serves over 60 destinations from Riga. The airline carried around 3.3 million passengers in 2011, compared with 1.4 million in 2006. However, airBaltic’s ambitious hub strategy (50 percent of passengers transits at Riga) has not yet materialized into a profitable operation for the airline. According to airBaltic’s new CEO Martin Gauss, 2011 losses hit more than EUR 85 million. In particular, airBaltic’s relatively older, fuel-inefficient fleet of B737-3/500s and Fokker 50s (the latter will be phased out at the end of 2012) are are a drain on the airline’s operational cost performance. Furthermore, the financial situation of the airline led to a public fight last year between airBaltic’s two shareholders, former CEO Bertolt Flick (who owned 47 percent of airBaltic) and the Latvian government (52 percent share) for control of the airline.

After a long-running saga, Flick resigned from the airline in October 2011 as part of an agreement to increase the company’s share capital by the Latvian government, which also used the bankruptcy of one of Latvia’s banks to take full control of the airline. AirBaltic’s new CEO, former Malev boss Martin Gauss, has just launched a restructuring plan, which will cut costs by reducing the number of aircraft and modernising the carrier’s fleet. AirBaltic will also move away from a stringent focus on transfer traffic over its ‘North Hub Riga’ to a more point-to-point approach. A delegation from Latvia has also recently visited the Gulf Region as part of an investor roadshow to present the airline to potential investors, which included Etihad and Qatar Airways. Other airlines rumoured to be interested in the airline are Turkish Airlines and Hainan Airlines from China.

Despite all internal turmoil, airBaltic continues to churn out attention-grabbing innovations. Along with differentiating its Business Class by serving passengers a 3-course meal based on organic, seasonal products from local Latvian farmers, freshly brewed Nespresso coffee, and complimentary iPads onboard and in its Riga lounge, airBaltic has come up with a host of innovative ancillary products, creative marketing campaigns, and the airline is one of the first carriers to launch a ‘social seating’ service.

Social seating
Following earlier initiatives by KLM and Malaysia Airlines, airBaltic has just launched its own ‘SeatBuddy’ social seating service, allowing like-minded flyers to sit next to each other. On the airline’s website, passengers can opt to choose from their ‘flight mood’ – social (business talk, easy chat) or non-social (work, relax) – and whether they’d like their seat neighbour to be like them or different. The concept uses Facebook, LinkedIn and Twitter to find the best matches, assigns seats and passengers get a message saying what they have in common with their seat pal. Customer information is collected in a secure database and the closest match available on the same flight is identified automatically without disclosing passenger identity or any personal data. For now, social seating servie is free of charge, and airBaltic SVP sales and marketing Michael Grimme said “future commercial potential” is being explored. The first test flights using the service will launch at the end of June 2012.

Ancillary revenues
In recent years, airBaltic has rapidly grown its ancillary revenues. According to airBaltic’s Vice President of Communications Janis Vanags, extra revenue per passenger exceeded EUR 12 last year – compared with as little as EUR 2 in 2007 – and the airline‘s percentage of ancillary revenue as part of total revenues is approaching 15 percent. The main sources of ancillary income for airBaltic are checked bag fees, payment fees, add-on products (insurances, warrantys, hotels), and buy-on-board products.

Travel Megastore
According to Vanags, airBaltic’s approach towards ancillary revenues is to operate as a ‘travel megastore’, where customers can buy everything necessary for the journey before the flight, during the flight, and after the flight. Says Vanags, “As a customer you can buy everything you want in our Travel Megastore. You start with a ticket, then add a hotel booking, car rental and go on to buy sunglasses for your beach holiday, a travel bag or add flowers for your girlfriend 11 km up in the sky.” […] “People can pick up their sunglasses on the plane, as they would in a shop. The flight ticket is just the entrance to the megastore – and the cheaper the ticket is, the easier it is for them to come in and the more they can buy.”

A prime example of an innovative ancillary product is the airline’s airBalticBag. AirBaltic normally charges passengers in Economy a fee of EUR20 to 30 per checked bag per one-way flight. However, instead of just another mundane transaction, regular flyers with the airline can purchase an airBaltic-branded Samsonite suitcase that comes in two sizes (EUR169 and EUR181 respectively), and carry it as free checked luggage on an unlimited number of airBaltic flights for twelve months. Passengers are required to register for airBaltic’s BalticMiles frequent flyer program in order to receive a personalised ‘free baggage tag’ with their full name and BalticMiles number, which must be attached to the Samsonite suitcase and correspond with the name on the flight ticket.

Stretching the airBaltic service to journeys both to and from the airport, the airline in 2010 established its own taxi company, BalticTAXI, as taxi drivers in Riga often charge foreign visitors too much for rides and airBaltic felt this was harming the image of its hub. BalticTAXI’s fleet of Toyota Corolla vehicles are staffed by professional uniformed drivers, and a fixed price is charged for the journey from the airport to any location in Riga. Passengers can purchase pre-paid taxi vouchers onboard airBaltic, and members of the airline’s BalticMiles loyalty program receive a 10 percent discount. To promote the taxi service, ads for BalticTAXI can be found in airBaltic’s in-flight magazine and a cabin crew announcement is made after landing in Riga.

iPad rental
AirBaltic also rents iPads to passengers travelling in Economy on flights longer than 2 hours and 30 minutes for a fee of EUR 9. Up to 10 iPads are available on each flight, which airBaltic rents from catering company LSG under a profit-sharing agreement.

Upgrade option, delayed arrival warranty
Two other innovative ancillary products launched by airBaltic both include an element of gambling and chance. For an EUR3 fee, passengers in Economy can participate in an OptionTown ‘lottery’ to qualify for a cheap last-minute upgrade to Business Class. AirBaltic’s ‘Delayed Arrival Warranty’ meanwhile lets passengers bet against a late arrival of their flight. For a non-refundable fee of EUR24 per one-way journey, passengers receive a double refund of their ticket price if the airline arrives one hour behind schedule at their destination.

Discounted tikets, TV sets, cars, holiday houses
Taking its ‘travel megastore’ concept quite literally, airBaltic in the past two years has held several onboard retail campaigns in which it offered passengers the option to buy discounted flight tickets, flat screen tv sets and even a custom-designed Mini Cooper car in airBaltic colors and sporting the text “I Love Flyin.”

So far, results of the onboard retail campaigns have generally been mixed. The airline noted that the direct sales of TV sets on board were lower than anticipated, though several people have bought a EUR50 voucher that gives them the option to purchase a Mini Cooper. Despite the modest sales results, the deals have created significant buzz for the airline. The next campaign may offer passengers the chance to buy a Latvian manor house or beach villa onboard, in a promotion dubbed ‘Castles in the Sky’. Says airBaltic’s Vanigs, “These products add a lot to our visibility and expand the brand. It’s often not the technology, but creative limitations that restrict new ancillary revenue generation. We are not afraid to experiment, despite the fact that success is not guaranteed.”

Experiental marketing
AirBaltic’s creative streak can also be seen in its promotional activities, where the airlines seems to have a preference for 3-dimensional, moving concepts.

Last year, airBaltic launched a new advertising campaign that featured several airline-themed shoe designs branded in the airline’s colours. The shoes were meant to illustrate the various reasons behind a consumer’s decision to take advantage of a promotional fare and were featured in print ads, outdoor billboards and online banners. The shoes themselves created such an amount of interest by the general public that people began asking airBaltic via Facebook and Twitter where they could buy the shoes. AirBaltic was quick to embrace this marketing opportunity to gain some free exposure and turned one of the designs into an actual limited edition shoe, which for EUR55 can be purchased at the airline’s online shop and in duty free stores at Riga Airport.

In 2010, airBaltic launched a BalticBike bike sharing scheme in Riga and in the seaside resort of Jurmala to promote an inexpensive and eco-friendly way for visitors to get around town. Registered members can pick up one of the 150 bicycles at 19 locations in Riga and 3 in Jurmala for LVL0.70 (EUR1.00) per hour with a maximum of LVL8 (EUR11.40) a day and EUR 100 a month. To rent a bike, members call the phone number printed on the bicycle to receive a code that unlocks the bike. Bikes can be returned to any station and another call completes the rental. Says airBaltic’s Vanags: “BalticBike makes a marginal profit, but it is hugely popular among the city residents and tourists, and hugely visible, and so irreplaceable in advertising.”


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