SmartLynx is a private airline company that primarily offers full-service aircraft leasing services, abbreviated as ACMI, which stands for aircraft, crew, maintenance, and insurance. It provides other airlines with aircraft along with their crew and all necessary maintenance and insurance services. The company also offers charter flights and cargo services. It does not offer traditional passenger air transport through the sale of tickets for its scheduled flights.
This year, SmartLynx will have nearly 70 aircraft in its fleet through operating leases, some of which will be delivered before the end of the year. Of these, 26 aircraft are covered by an Air Operator’s Certificate (AOC) in Latvia. The company is also based in Malta and Estonia.
SmartLynx in Latvia is currently making structural changes to improve operational efficiency. The airline has around 400 employees in Latvia, spread across four offices. The company’s parent company, Avia Solutions Group, has now started construction of a new office building, which will also be used for SmartLynx’s needs. It is expected to be ready by the end of next year and will have a capacity of 11,000 square meters.
- What are SmartLynx’s plans for future growth?
- At the moment, we are focused on controlled growth and will expand as much as the market allows. We are always looking for growth opportunities, but it’s important to do so smartly, rather than just acquiring aircraft for the sake of it. Right now, rapid growth is limited due to a lack of available aircraft. The newest planes in our fleet are Boeing Max models, which we leased after Covid-19. We have 13 of them, and while some are 2-3 years old, they only have 200-300 flight hours, so they are practically new. At the moment, newly produced or relatively new aircraft are either unavailable or very expensive. If the asset prices are disproportionate, we won’t pursue them. Our approach is to control growth and wait until the aircraft shortage eases before acquiring more planes.
- Do you think aviation as an industry has recovered from Covid-19, including SmartLynx? In terms of turnover, you’re twice where you were before Covid-19, but the margins are much smaller. Is this a consequence of Covid-19?
- It depends on how we define recovery. Overall, traffic has returned to 2019 levels this year, including for us. In August, we hit a record of 1.29 million passengers in a month—double that of airBaltic.
However, costs have risen significantly since Covid-19—staff availability, maintenance, spare parts price increases, etc. This has had a big impact on profitability because not all costs can be passed on to customers.
Additionally, to achieve growth, we reinvest profits. Every new aircraft requires investment, which temporarily reduces profitability. This year, we are focusing on investments, but I’m optimistic about next year.
- What is the future of aviation in light of climate change and related changes in people’s travel behavior?
- As growth figures show, people’s travel habits have not significantly changed. At SmartLynx, we are heavily investing in environmentally and socially responsible business practices, as well as climate change mitigation. For example, we’ve acquired more efficient aircraft, like the Boeing Max, which uses less fuel than the A320 [the equivalent model from Boeing’s competitor Airbus - ed.]. While some may point out that these planes are not new based on their year of manufacture, they still offer up to 35% lower fuel consumption.
As for how aviation will change, it certainly will. Companies that fail to prioritize environmental sustainability will disappear from the market in the coming years. Some airports are already limiting the types of aircraft that can operate, or they impose significant fees for landing or terminal navigation on older models. This increases operating costs dramatically. Airports are pushing airlines to rethink their strategies for the future.
- How do you see your future, given the consolidation of airlines in Europe, such as the recent acquisitions by Lufthansa?
- This is a normal occurrence. It’s happening everywhere, whether in aviation or any other sector. Consolidation is a general business principle. Even from the perspective of Avia Solutions Group [SmartLynx’s parent company - ed.], we are consolidating by acquiring new companies. I believe that in the next ten years, there will be fewer and fewer companies globally. On one hand, this helps achieve efficiency. On the other hand, this process is closely regulated by competition authorities, such as the Competition Council.
- Is SmartLynx also planning to buy an airline?
- We are always exploring opportunities to acquire companies or projects. However, at the moment, our focus is on development, particularly in seasonal markets [demand for aircraft depending on the season - ed.]. We are working on how to use our aircraft more efficiently in winter. Over the last two years, SmartLynx has achieved 100% fleet utilization, both in summer and winter, whereas in 2017-2018, we were only utilizing 25-30% of our aircraft during winter. Our teams have worked hard on this strategy to ensure year-round operations.
- What about airBaltic—given that the company is planning to become a publicly listed company, are you considering buying shares?
- That’s a good question. It’s hard for me to say because I don’t have any inside information, just what I’ve seen in the media. However, I think airBaltic’s desire to go public is a logical decision. As for the timing of this move, again, without more insider knowledge, it’s hard to say. Choosing the right time is key to achieving the desired result, but I do believe that this is the right direction for airBaltic, rather than continued support from the Latvian government.
- You have several Boeing aircraft in your fleet—how has SmartLynx been affected by Boeing’s recent issues?
- We’ve actually been affected positively, as we were able to bring these aircraft into service in a timely manner. In our view, there’s no safer aircraft than the Boeing Max right now, because every part of it has been thoroughly re-tested. When we made the decision to bring these planes into our fleet, there were questions about whether passengers would feel comfortable flying on them. In my opinion, it’s the safest plane because it was recertified by multiple authorities, including EASA (European Aviation Safety Agency), and cleared to fly. We’re pleased we were able to acquire the Boeing Max.
At the moment, all aircraft manufacturers are facing challenges, but that’s just the nature of the aviation industry. We’re managing well and haven’t been significantly impacted.
- In an interview with Delfi Bizness in August 2020, SmartLynx mentioned a goal to increase cargo flights from 10% to 40% of turnover. How is this target progressing? How much of your turnover currently comes from cargo?
- I can’t provide the exact turnover figures, but out of 70 aircraft, 14 are freighters, so we’re currently at around 20%. While cargo traffic has declined over the last year and a half, we’re sticking with our strategy for freighters and still believe in the value of our assets. It makes sense for SmartLynx to be in the cargo business because the aircraft are similar to the A320 family, which we use for passengers, and the pilots can fly both types.
Maintenance support and spare parts also work for both passenger and cargo planes. To be honest, we’ve adjusted our strategy slightly. Previously, we focused solely on freighters for ACMI—helping customers with capacity shortfalls. Now, 50% of our freighter operations are ACMI, and the other 50% are full charter.
- You previously announced that you were no longer operating charter flights in the Baltic States. How much turnover did they generate, and does SmartLynx plan to return to this segment?
- At the end of April, we discontinued charter flights from Riga and Tallinn, as they didn’t generate enough revenue to keep the aircraft operational. The market is too small for tour operators to build enough capacity for us to fly. However, we still operate charter flights in the cargo sector. We haven’t completely ruled out charters. We still aim for the majority of our fleet to be ACMI, which remains our core business. As you can see, airBaltic is also moving toward ACMI, with potentially half of its fleet focusing on that.
If the market becomes strong enough for us to profit from full charter operations, we’d definitely consider it—perhaps not in the Baltics, but in Germany or other regions. We still have the resources to restart full charter operations in cargo whenever needed.
- What are the most popular charter destinations?
- We operate full charter flights with the TUI Group from Germany. The most popular destinations are in the south, covering the entire Mediterranean region. Spain, Italy, Greece, and Turkey are probably the top four countries in the summer. In winter, there are fewer charter flights, except to destinations like the United Arab Emirates (UAE) and ski resorts.
- Last year, a US audit cleared the way for Latvian-registered airlines to fly to the US. Do you plan to take advantage of this? Will these be charter flights? And will such direct flights from the Baltic States be competitively priced?
- We’ve been flying to the US since 2019 with aircraft registered in Malta. For us to operate flights to the US, Australia, or Vietnam, there needs to be sufficient demand. From Malta, we already fly to Australia. We’re now in the final stages of obtaining a Latvian Foreign Air Operator’s Certificate for the US. Once the authorities grant this certificate, it will allow us to operate flights to the US. If we also obtain Canadian and US Foreign Air Operator Certificates, we could fly routes like Toronto to New York.
We won’t operate flights from Latvia because we aren’t a scheduled airline, but if someone wants to charter our Boeing Max for flights between Riga and New York, we’d be happy to provide the service.
I don’t believe there’s enough demand to support regular direct flights from the Baltics to the US. Opinions differ on whether supply should lead demand or vice versa, but generally, they should be balanced. There are already good connections from the Baltic States to major hubs, and when you look at flight schedules, passengers only lose about an hour and a half on connections, which isn’t a big deal on long 12- to 14-hour flights.
- SmartLynx Airlines parent company, Avia Solutions Group, raised €300 million this year through a bond issue. What will this money be used for? Will it contribute to the development of SmartLynx?
- Interestingly, SmartLynx did not receive any financial assistance from the Latvian government or from our own group during Covid-19, before or after. We are continually developing and investing on our own, which means our profit margins are slightly lower because we reinvest our earnings. While I can’t speak on behalf of the group, I believe this money will be used for growth, purchasing aircraft, and overall development.
- One of your planes was parked in Lviv for more than a year. How easy or difficult was it to retrieve?
- I remember the morning the invasion began; we realized the impact it would have. Nobody was prepared for it; it all happened overnight. It took a year and a half to get the plane out. We received substantial support from both the Latvian and Ukrainian governments. Once we got the approval to fly, the preparations took another 3-4 months. The plane had been parked in Lviv, so we needed to check everything and perform maintenance to get it airborne again. It was a significant project. Even though the plane hadn’t flown for a long time, we had to re-inspect and re-certify it, but there were no engineers available to assist. So, yes, it was a very complex undertaking.