Jonas Janukenas, Avia Solutions Group
«Wet leasing will become more important in the future»
Avia Solutions Group is the market leader in wet leasing in Europe with Avion Express, Smart Lynx and Klasjet. In this interview, CEO Jonas Janukėnas talks about expansion plans, the future fleet and challenges.
When the pandemic broke out in March 2020, the entire industry was in shock. That year they suffered their first loss in a long time. What were your thoughts back then, when you realized this was going to be a big deal?
Jonas Janukėnas: Of course, it quickly became clear to us that this was a major turning point when the first large countries in Europe introduced travel restrictions. And no one knew at the time how long that would take. Nevertheless, we have learned from the experience of the last few decades that aviation is a very resilient industry – also because it is so important. As long as a new middle class emerges in many parts of the world that can afford flights for the first time, the industry will grow. Historically, it was three to five percent annually. This will continue to be the case in the future – despite setbacks in the meantime.
In 2021 you have made a profit again. How were you able to achieve such a quick turnaround?
What helped us was that we expanded into the freight business before the pandemic and already knew the market well through our charter broker subsidiary Chapman Freeborn. We already operated three Boeing 747-400 F in 2020 and quickly looked for other freighters. Freight prices exploded and we wanted to benefit from that. We have also succeeded. We now operate a fleet of 34 freighters with our subsidiaries Arcus Air Logistics, BBN Airlines Nordic, Magma Aviation and Smart Lynx. Of course, we had to take tough measures in the passenger area and cut jobs. We had to cut 30 to 40 percent of the workforce. However, unlike many others in the aviation industry, we have not claimed any state aid.
And today Avia Solutions Group is confident again?
Yes, we see the future as bright. As a group, we are set up in such a way that we can survive crises and even benefit from them. For example, certain aircraft models suddenly became much cheaper. We took advantage of this and significantly enlarged our fleet in 2021. At the same time, demand is coming back sharply, in Europe we are already at 90 percent of the level before the pandemic. Many airlines reduced their fleets and staff levels during the COVID crisis. They could not rebuild as quickly as needed. That was a perfect opportunity for us, wet leasing is the most important pillar of the Avia Solutions Group with the subsidiaries Avion Express, Klasjet and Smart Lynx. The cycles in the industry bring opportunities.
The opposite was actually expected: During the pandemic, many airlines reduced their fleets and had too many aircraft themselves. Many believed this would mean the end of wet lease providers. The opposite happened. For what reason?
I believe that many airlines have realized in the past crises, and especially in the pandemic, that they should not gear their fleets to peak demand. In addition, the following applies in the wet lease market: supply creates demand. The market has grown steadily since the early 1990s. At that time we also started with a few old aircraft. If an airline ran short of planes at short notice, we might fill in for a week and charge high prices for it. We now operate over 100 aircraft and the market has changed as supply has increased. Airlines see that they can use wet leases to efficiently compensate for peaks such as the summer peak season. This is only possible if the offer is big enough. Avia Solutions Group can offer big cost savings and reliability.
But the seasonality also applies to you, in summer you would probably need twice as many planes as in winter…?
That‘s correct. However, we have established relationships with customers in North and South America, Africa and Southeast Asia. There the seasons are opposite. And we now know the markets, the needs and the legal framework. This allows us to compensate for the weaker demand from Europe.
How many planes can you use in winter?
We can employ more than half of our fleet.
You operate three airlines in the wet lease business: Smart Lynx and Avion Express and, more recently, Klasjet. Wouldn‘t it make more sense to appear under one brand?
We significantly expanded our fleet during the pandemic. But we want to remain agile. And when a company gets too big, it loses flexibility. That‘s why we keep the three brands.
Aren‘t there economies of scale?
Of course, you also need a certain size to get advantageous conditions – be it for the aircraft, for maintenance, for the systems and for the staff. This is where the group helps us. As Avia Solutions Group, we can appear differently overall. On the other hand, we can also offer many services ourselves, thanks in particular to our maintenance subsidiary FL Technics and our training subsidiary BAA Training. We are not dependent on external providers and are therefore much faster – and speed counts in the wet lease business.
The wet lease market in Europe is very competitive. Some airlines are also expanding in this market because otherwise they would not be able to fully utilize their aircraft. Is there no overcapacity that reduces your returns?
We are the biggest in Europe and we want to keep growing. Yes, the competition is increasing, but our size has many advantages and we will continue to capitalize on them.
So you will continue to expand the wet lease business?
Wet lease will become more important in the future. Outsourcing is now quite normal in many industries to manage capacity. Aviation is one of the last to rely little on this means. That‘s about to change.
How big will your wet lease fleet be in five years?
For reasons of competition, I don‘t want to give too specific details. But we will certainly grow by a high double-digit amount.
Your wet lease airlines rely almost exclusively on Airbus jets. However, you recently added four Boeing 737 Max 8s to Smart Lynx. For what reason?
The Boeing 737 Max is a very attractive aircraft. It‘s bigger and has more range. This enables us to do new business. When we got the four aircraft, the prices were also very attractive. We seized this opportunity. At the same time, we are currently expanding at Klasjet. Previously, the airline was purely a charter airline, but now it is also entering the wet lease market. By the summer, it will have eight Boeing 737-800s in its fleet, and by the end of 2023 there will be 15 Boeing 737-800s. Certain customers want Boeing jets and we are reacting to this with this rapid expansion.
And are Airbus A320 Neos and A321 Neos on the agenda?
We will certainly switch to Airbus A320 Neo and A321 Neo at some point.
Are you also thinking about regional jets?
I wouldn‘t rule that out, but there are no concrete plans. We don‘t want to serve niche markets. In addition, it is much more difficult to relocate the smaller planes to other continents if you need them elsewhere. So this is currently not an issue.
Could a fourth be added to Avia Solutions Group‘s current three wet- lease airlines?
We are currently expanding Klasjet. If there was a need for another airline, we would look into it.
You have recently started to expand into the long-haul business with Smart Lynx. Do you see more potential there than your current six Airbus A330?
(smiles) We don‘t start anything to stay small. We still see great potential, because there are aircraft on very attractive terms in this market too. We don‘t know yet whether it will be a large long-haul fleet or just a medium-sized one with ten aircraft. But what we are definitely looking at are Airbus A330 conversion freighters. Running passenger and cargo versions of one model at the same time opens up a lot of synergies. And thanks to our contacts and our broker Chapman Freeborn, we can also use the aircraft to capacity. We will therefore certainly add more Airbus A330s to the fleet.
Wet lease airlines are often criticized for allegedly offering poorly paid jobs and little social security for their employees. What is your response to this criticism?
We know what‘s going on in the market and therefore cannot understand the criticism. We pay wages that are comparable to those of other airlines. We wouldn‘t be able to fly at all if we didn‘t offer marketable wages. Above all, we would then not be able to find any pilots, where there is a shortage. Of course, we expect more flexibility from our employees than a network or low-cost airline, especially when it comes to location. It‘s not fixed like other airlines. Some like it, others don‘t like it. It‘s almost a kind of lifestyle.
Your origin is a scheduled airline, Lithuanian Airlines or Fly Lal. Is there an option to return to a scheduled airline?
No. Airlines are our customers, we don‘t want to compete with them, we want to help them. Besides, it‘s quite simply a completely different business.
Klasjet is also a charter airline. During the 2020 European Football Championship, they flew many teams such as Germany, Czech Republic, Belgium and Poland. Why have you been so successful in attracting these teams?
We have a very attractive and unique product. At Klasjet we offer a Boeing 737 with 56 to 68 seats in business class. This offers customers a high level of convenience, and we can also offer clubs a high degree of privacy.
Did you lose a lot of sales due to the Ukraine war and the sanctions against Russia?
Even before the war began, Russia was not a major market for us, with the revenue share amounting to less than 3 percent. We had no plans for expansion there.
Avia Solutions is much more than a wet leasing. They are also active in maintenance, training, aircraft leasing or in the area of conferences and media. Don‘t you lose the overview?
But there is one parenthesis in everything: Aviation is our field of activity. The individual subsidiaries complement and support each other. The fact that we have a maintenance subsidiary in Asia also helps us to win wet lease customers in Asia, for example. But we give all group companies a lot of freedom. Most of your customers are external and not internal, which is important in order to remain agile. This requires extremely motivated management.
The group was founded in 2005 and has increased its turnover tenfold over the past ten years. Isn‘t it risky to grow so fast?
We have grown organically, but also through acquisitions. There we focused on companies that have great growth potential and that we can help to achieve it. We will and intend to continue to grow through acquisitions. But we always focus on areas that we know. We don‘t do something completely new and always limit the risk.