LATVIA – Interview
For SmartLynx Airlines, the Latvian crewed aircraft rental company (ACMI) as well as a charter and cargo operator, the local market accounts for less than 3% of total turnover. Moreover, given the possible recession in the region, the company plans to increase revenue outside Europe by 10-15% next year.
«New companies often say – let’s try the local market first, because it is cheaper and there is less risk, and then we will start exporting and try to enter international markets. In my personal experience, this is one of the biggest mistakes you can make. Don’t run your entire business in the local market» says SmartLynx CEO Jygimant Surinth.
Start-ups often have limited funds and their business success is determined by the size of the market and demand. Perhaps the product would have been much more successful if the company had invested immediately in export markets instead of spending money on product testing in the domestic market.
«You can have great experience and a great product and company, but if you focus only on the local market, you will have limited opportunities for growth. That said, it is important for you to start earning money in order to grow further and become a serious and large exporter» explains J. Surinth.
The SmartLynx CEO advises to assess the opportunities for co-operation and competition in large markets. And a company needs to prepare for this thoroughly. It is one thing to see the numbers on an Excel spreadsheet, and quite another to realise them.
«This is also one of the biggest challenges for SmartLynx. The global market has very high standards of quality and performance, so you have to be knowledgeable and ready to meet the requirements, because in the international market you are only given one or two options. So you can’t go wrong» emphasises J. Surinth.
Seeking opportunities outside the European Union
In 1992, SmartLynx Airlines commenced full-fledged charter flights at that time the company was called LatCharter Airlines. It was the first airline to provide package tours from Riga, and was also ready to offer private charter flights for athletes, events, concerts, government, military and business leaders. LatCharter was also the official carrier of then-President Vaira Vīķe-Freiberga.
«The company was originally set up to serve only the local market, but that has now changed. Now we are mainly focused on exports and work in various international markets. The Latvian market accounts for less than 3% of our total turnover, and all Baltic countries combined about 6-7%» says J. Surinth.
There are now 49 aircraft in the fleet, but in the summer of 2023 there will be around 65 aircraft. From January to November 2022, SmartLynx flew more than 30,000 flights and carried 4 million passengers. SmartLynx has a total of 365 employees. Currently, SmartLynx has 327 full-time employees in Latvia, including Latvian subsidiaries and sub-companies. There are 31 employees in Estonia, 27 in Malta, 6 in Lithuania and 1 in Germany. SmartLynx is located in Latvia because Riga’s aviation industry is the most developed compared to other Baltic countries. J. Surint emphasises that Latvia offers specialised training in this field – there are schools here that train technicians, pilots and air traffic controllers.
«There are several aviation companies in Latvia that provide opportunities for specialists to change jobs to gain comprehensive experience and learn from each other. Personnel costs are also lower compared to Estonia and Lithuania» he adds.
The largest market is the UK
The UK is currently SmartLynx’s largest market, followed by the Benelux countries and Germany. The Middle East and Asian markets are also an important part of the business.
«Africa is also a relatively important market for us. We currently use eight aircraft in Africa» says J. Surinth. Canada, on the other hand, is a new market for SmartLynx. «Most of our revenue comes from the European Union (EU), but at the same time we are a very global company expanding beyond Europe» adds J. Surinth.
SmartLynx’s consolidated turnover will reach around €300 million this year.
«Like companies in other EU countries, we are also concerned about the economic downturn. We are looking for opportunities to diversify sales – to reduce revenues generated in the EU and to increase business in the North American and Middle Eastern markets. Next year, the company plans to increase the share of revenue generated outside the EU by 10-15%. This will help us survive economically unstable times» explains J. Surinth.
Fuel prices will affect demand
SmartLynx was also affected by the war started by Russia in Ukraine. Mainly because the company’s four cargo planes were financed by a company linked to Russia.
«These planes have fallen under EU and US sanctions, so these planes are not being used and are currently parked. This is a very significant blow to our business, because four aircraft represent 5% of our total fleet» says J. Surinth.
One aircraft remains in Ukraine and cannot be recovered due to restrictions on Ukrainian airspace.
«We see other indirect impacts on our business, which primarily affect domestic demand and the rising cost of living, which is directly related to the war and the economic situation» adds J. Surinth.
Talking about fuel prices, J. Surinth says that they are very important for the company – fuel prices mainly affect the cost of service to end customers. He is very realistic: nobody knows how demand will be affected by higher prices.
A very cautious search for new markets
In relation to export strategy and the decision-making process for entering new markets, J. Surinth believes that all decisions are based on the same principles as in any other business. They are based on key indicators: population, number and type of participants and aircraft, geographical location of the country and travel habits.
«Germany and the UK are the markets where people in Europe travel the most. This means that demand is constant. But there is always high competition and high internal barriers. That’s why we are always looking for markets with economic and political stability. Regulation is also very important because there are countries where there are restrictions on crewed aircraft rentals» says J. Surinth.
For example, in some countries the chartering of crewed aircraft is prohibited due to various restrictions imposed by national authorities.
«There are also many smaller countries where the risk of default is too high and we avoid these markets. The risk factor is quite high, so when looking for new markets for our company, we have to do thorough research first» explains J. Surinth.
Same business principles
Because the aviation industry is complex, people sometimes think that doing business in this sector is slightly different. However, J. Surint emphasised that all companies are more or less based on the same principles. SmartLynx also needs to look for markets that can generate revenue for the company. The company participates in trade fairs, which is a very powerful marketing tool for attracting new clients. Brokerage is another popular tool. Historically, more than 40 per cent of transactions have been done through various intermediaries.
«Now that our company is expanding, we will have more direct business with end clients» concludes J. Surinth.