The Latvian national airline, airBaltic, generated a turnover of €339.3 million in the first half of this year but incurred a loss of €88.8 million. In contrast, the company posted a profit of €14.6 million during the same period last year.

The first half-year loss was not unexpected, as airBaltic had a significant need for cash, leading to decisions that resulted in such a loss, aviation expert Sven Kukemelk told ERR. For example, in May of this year, the company announced the issuance of five-year bonds worth €340 million with an interest rate of 14.5 percent.

"They were able to borrow money from the market to delay their cash flow needs. Additionally, last fall, they ran many promotional campaigns with very low prices, selling tickets basically at the level of airport fees. In other words, last year, in order to generate cash, they sold too many tickets at too low a price, knowing that they would sacrifice the results of the first half of this year," Kukemelk explained.

Summer is a time when people travel more, and airlines typically earn their main revenue during this period. However, airBaltic had already sold tickets for this summer at low prices last fall.

"When you sell tickets for four-hour flights at €50-€60 round trip, with airport fees already accounting for €20 of that, there's not much left to keep the airline afloat," Kukemelk noted.

Despite this, airBaltic has some hope for the second half of the year, as the company's capitalization level is satisfactory, he added.

"There have been shifts in the aviation market. Last summer was excellent for all airlines, with very strong demand. This year, we see that demand has decreased. Lufthansa, Air France, KLM – their summer results this year are weaker than last year. The Americans have been hit particularly hard. We are currently witnessing a slight overheating effect in the aviation market," Kukemelk said.

This means that airBaltic's hope of relying on this summer could backfire.

"AirBaltic has also significantly changed its route network – they are not flying to business destinations with high frequency but rather to a wide geographical range of destinations with low frequency – such as once a week to some Greek islands or twice a week to the Italian coast. Business demand has returned after COVID-19, but airBaltic's schedule does not support it because their historical business model relied on bringing passengers from Russia, Ukraine and Belarus and then flying them onward. Now, they are outsourcing and trying to expand. As a result, they have added flights from Tallinn and Vilnius as well," Kukemelk explained.

The result may scare away the last remaining investors

Latvia plans to take airBaltic public. In July, Latvian Transport Minister Kaspars Briškens announced that a potential investor, who wishes to remain anonymous, is interested in purchasing a minority stake in the airline ahead of the company's initial public offering (IPO). AirBaltic is primarily owned by the Latvian state.

Kukemelk expressed deep skepticism about the idea of listing airBaltic, particularly given that the airline has only been profitable for one or two years over the course of a couple of decades.

"I am extremely skeptical that there is a market investor willing to invest in airBaltic. The high cost of borrowing – indicated by a very high interest rate – signals a company in significant trouble. I don't see airBaltic generating substantial market interest. The significant loss in the first half of the year is also an indicator of this. While a better result is expected in the second half, as many of the issues from the first half will dissipate, I do not foresee a positive outcome by the end of the year," Kukemelk said.

For Latvia, airBaltic useful even in the conditions of loss

When airBaltic has faced financial difficulties, its owner – the Latvian state – has stepped in with financial support, providing the company with hundreds of millions of euros. So far, they have also managed to convince Brussels that this constitutes permissible state aid.

"They'll likely find a way to inject more money into the company. It's clear that airBaltic will need additional capital at some point, probably around the end of 2025 or the beginning of 2026. The question then becomes whether this will be done through an IPO. But again, I don't see many serious investors on the market, because typically, no one wants to hold shares in a company that cannot generate dividend income for its owners," Kukemelk said.

However, he added that airBaltic is a beneficial company for the state overall.

"AirBaltic generates a positive ROI (return on investment) for Latvia's tourism sector in any case – bringing in a significant number of tourists and business people. The number of jobs created in Latvia far exceeds the costs. The concern lies in the fact that the European Commission has state aid rules, and airBaltic has repeatedly received aid under these rules. They just need to figure out how to navigate this, but so far, the Latvians have always managed to do so," Kukemelk noted.

AirBaltic's largest shareholder is the Latvian state, which holds a 97.97 percent stake in the company. The remaining 2.03 percent is owned by other shareholders.

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