Žygimantas Surintas, SIA „Smartlynx Airlines” CEO
Less than 3% of Latvian full-service aircraft plus crew (ACMI) charter and cargo operator SmartLynx's income comes from the local market. Facing a possible recession in the region the company is planning to increase income outside Europe by 10 to 15% by next year.
“I see new businesses always using this saying – first, we are going to trial and test the local market because it is cheaper and the risk is lower, and then we are going to start exporting and attempt to break into the international markets. My personal experience tells me that it is one of the biggest mistakes that you can make. Don't do all the business locally," emphasized the CEO of SmartLynx Žygimantas Surintas.
Startup companies in particular have limited funds and all their business success is driven by the size of the market and the demand. Maybe the product would be much more successful if the company allocated investments directly into export markets rather than spending the money on testing the products in the local market.
"You can be very, very smart and a very good company but if you focus only on the local market, you will never have a chance to grow. At the same time, you also need to earn the chance to grow, and start to be a serious and big exporter," he said. The SmartLynx CEO recommends measuring the capabilities to cooperate and compete in the big markets. The company needs to be prepared for this. It is one thing to see the numbers in the Excel sheet, but another to execute. “This is one of the biggest SmartLynx challenges as well. The global market has really high standards for quality and delivery so you have to be prepared for that. The international market only gives you one or two chances. So you cannot fail,” highlighted Ž. Surintas.
Looking outside the European Union
SmartLynx started full charter operations in 1992 as Latcharter Airlines. It was the first airline to provide package holidays from Riga; it was also equipped to offer sports, events, concerts, and governmental, military, and executive charter flights. “The company was initially created to serve only the local market, but it has changed. Now we are mainly focused on exports and operations in different international markets. In our turnover, Latvia represents less than 3%, and all the Baltic states together – 6 to 7% of the total turnover. We are purely focusing on the export markets,” said Ž. Surintas.
The current number of airplanes in the fleet is 49. In the summer of 2023 there will be around 65 aircraft. From January till November 2022 SmartLynx operated more than 30 thousand flights and carried over 4 million passengers. Today, the total number of SmartLynx employees is 365. The current number of fixed-duration employees at SmartLynx in Latvia is 327 people, including sister companies and subsidiaries in Latvia. There are also 31 employees in Estonia, 27 in Malta, 6 in Lithuania and 1 in Germany.
The reason SmartLynx is located in Latvia, is because in Riga, the aviation industry is the most developed compared to other Baltic states. Ž. Surintas emphasizes that in Latvia it is possible to get special education in this field ‒ here there are schools that prepare technicians, pilots as well as dispatchers.
"There are several aviation companies based in Latvia, and specialists tend to switch their workplace, so they have comprehensive experience and they learn from each other. Also, there are lower personnel costs," he adds.
Biggest market ‒ United Kingdom
Now SmartLynx’s biggest market is the United Kingdom followed by the Benelux countries and Germany. An important part of the business is markets in the Middle East and Asia as well. “Africa is also a quite strong market for us. Currently, we operate 8 airplanes in Africa,” said Ž. Surintas. Canada is the new market for SmartLynx. The majority of our revenue comes from the European Union countries, but we are a very global company,” he added.
The consolidated turnover of SmartLynx this year will reach around 300 million euros. “We have the same fears about the economic recession in the EU. This is not a big secret, and I believe all companies over the next year will be taking this into account. Our company is trying to look at how to diversify our sales and reduce the proportion of income from the EU states and increase our business in North America and the Middle East markets. We would like to increase the share of revenue outside the EU by 10 to 15% by next year. This will help us to weather economic turbulent times,” said Ž. Surintas.
Fuel prices will affect demand
SmartLynx is also affected by Russia's war in Ukraine. Mainly because four of the company's cargo planes were financed by a company related to Russia. “Those planes have been affected the European and American sanctions, and we cannot operate those airplanes, they are all parked right now. This is a very significant hit to our business because four planes are 5% of our total fleet,” said Ž. Surintas. Also, one plane is stuck in Ukraine, and it is not possible to retrieve it because of the restrictions in Ukraine's airspace. “We are seeing more indirect hits to our business which is mainly affecting the internal demand and increase in the cost of living, which is directly connected to the war and economic situation,” he added.
Talking about fuel prices, Ž. Surintas said they are very important for the business – fuel prices mainly affect the end customers. And he is very realistic: nobody knows how demand will be affected due to the higher prices.
Looking to new markets very carefully
Regarding export strategy and decision-making process about entering new markets, Ž. Surintas believes all the decisions are made based on the same principles as in any other business. They are driven by the key data figures: the number of people, competitors, airplanes, the country's geography and traveling habits, and what kind of airplanes are used in the market.
“Germany and the UK are the markets where people travel most frequently in Europe. It shows that there is demand all the time. But there is constantly high competition and high inner barriers as well. That's why we are always looking to markets which have economic and political stability. Also, the regulation is very important, because there are countries where there are limitations providing wet lease services,” said Ž. Surintas. For example, in some countries, wet lease is not allowed because of different kinds of restrictions set by the authorities. “Also, there are many small countries where we see the risk of defaults as too high, and we are also staying away from these markets. The risk factor is quite high, so when we explore new markets for our company, we need to be very careful,” he said.
The same principles
Because of the difficulties in the aviation industry people sometimes think that business is somehow different in this sector. But Ž. Surintas emphasized that all businesses are more or less based on the same principles. SmartLynx also needs to look for the markets which can contribute revenue to the company. The company also participates in exhibitions which is a very popular marketing tool. Another popular tool is brokerage. Historically more than 40% of business came through different brokers.
“Now when our company gets bigger, we will have more direct business with our end customers. Exhibitions and brokerage are the two key tools for our business,” said Ž. Surintas.