airBaltic’s financial performance has resulted in a loss in its third-quarter results released on November 28th. As we know the war in Ukraine has taken a terrible toll on airlines at a time when they were already having difficulty due to the pandemic. However, airBaltic was one of those airlines that provided assistance to Ukraine by leasing (effectively renting) both the planes and staff of Ukrainian International Airlines providing much-needed revenue for the airline at the time of the Russian invasion of Ukraine.
However, airBaltic has had problems of its own. Due to financial difficulties during the pandemic the airline, which is the flagship carrier of Latvia, accepted a bailout from the Latvian government of 200 million euros in return for a share of its equity. It has also accepted state aid in 2021 and 2022 of 90 million euros in total.
airBaltic’s Financial Performance
At the moment, it appears that airBaltic’s financial performance is not out of the pandemic blues yet. This is common with many airlines including European airlines such as Tui and EasyJet. Even though pandemic restrictions have been lifted, airlines have been struggling to deal with staff shortages as many had been laid off when demand was less during the pandemic. As a result, airlines could not benefit fully from the lifting of restrictions because flight numbers had to be curtailed to reduce the congestion at airports and subsequent flight delays and cancellations.
So what is the story now? Well in terms of airBaltic’s financial performance, in the 3 months leading up to September 30th 2022 it made a loss of 33.906 million euros. This loss is greater than at the same time last year when airBaltic’s financial performance resulted in a loss of 10.664 million euros. As one can see, unlike many other airlines, where the loss has reduced or even turned into a profit, airBaltic’s financial performance is comparably worse when compared to the previous year.
In terms of revenue (total money received) however, airBaltic’s financial performance has improved for the three months up to September 30th 2022 creating revenue of 171.064 million euros when compared to 81.601 million euros made at the same time last year. This shows an increase in revenue of approximately 110%. The fact that revenue has increased substantially whereas the company is making an even greater loss suggests that costs have increased to a greater extent.
In response to this, in its report, the company comments that its costs have increased due to world events which have in particular increased the price of fuel. This is common with many airlines. In addition, however, there has also been a shortage of engines required to replace those that are faulty. On average there were 6.8 aircraft (which means approximately between 6 and 7 although on average closer to 7) on the ground because of a shortage of engines. This meant that it had to lease more aircraft from other companies affecting airBaltic’s financial performance.
In October a deal was signed with the aircraft’s engine manufacturer so that airBaltic would be effectively compensated if its engines were not replaced in time. This agreement only came into place after September 30th and therefore international financial reporting standards (IFRS) could not be accounted for in the income statement. In addition, the company has also said that airBaltic’s financial performance was affected by the revaluation of foreign exchange debts which were based in US dollars. airBaltic has said that these situations were exceptional and therefore has also prepared a separate account taking this into account. According to this pre-exceptional account, airBaltic’s financial performance resulted in a profit of 17.175 million euros.
As one can see, airBaltic’s financial performance is less than it was last year. The company has also been receiving state aid. However, it has been argued that the factors putting the company into a loss is exceptional and therefore has said that the outlook is good. We have to wait however to see how this progresses as only time will tell whether this is the case.