Baboo retools amid the financial crunch

 - October 1, 2009, 7:01 AM

Swiss regional airline Baboo is consolidating activities following a hectic 18 months in which the carrier appointed new management, adopted a new brand and introduced jet equipment while accommodating volatile fuel prices and the recession. As such, it provides an example of the flexibility a nimble-footed small airline can bring to the marketplace.

The consolidation plan doesn’t mean that the Geneva-based airline, which remains formally registered under its original brand name FlyBaboo, has lost its dynamism. Having dropped plans to add three more Embraer E190 regional jets ordered by its owner, Lebanese M1 Group’s M1 Commercial Jets division, it continues working to increase sales efficiency and use of its five-strong fleet, according to chief executive Jacques Bankir.

Since Bankir took the chief executive’s chair in March last year, he and his management team have “completely reorganized the whole airline, commercially and operationally,” particularly introducing new revenue-accounting and budget-control procedures. Baboo also has reorganized its airport ground operations and now controls and supervises contracted services.

Baboo serves 11 “regular” points in France, Greece, Italy, Romania, Spain and Switzerland, plus five largely Mediterranean charter destinations, and four additional seasonal locations. It introduced seven new destinations last year.
After considering a possible all-jet E190 fleet, Baboo retained its two 74-seat Bombardier Q400 turboprops while the economic recession continues. Its seasonal service to the French Mediterranean coast airport at St. Tropez, which cannot accommodate jets, stood as one major factor.

Following the onset of recession late last year, Baboo decided not to expand its three-strong E190 fleet, deeming stability more prudent than continued expansion. The regional nevertheless had tripled cabin capacity last year as it added its three existing 100-seat Embraer E190s to the pair of Q400s, which replaced two earlier 50-seat Q300s in 2007. That seat count growth took place alongside “exploding” fuel prices, with the subsequent credit crisis offsetting any gains as fuel prices fell.
During this past summer, the airline added more seats on its scheduled services following the return of a wet-leased E190 in March. Now, it plans to boost aircraft utilization as much as 20 percent.

Bankir reported “good” passenger numbers that have “achieved targets in a big way” following a rationalization of routes and equipment. But he conceded that, “like everyone else,” Baboo has seen yields running 20 percent below targets.
Three new destinations– Athens, Greece; and Bordeaux and Toulouse, France–added for the 2008/09 winter season constitute “opportunity” routes, following the abandonment of Geneva services by Olympic Air and Air France. Bankir said Baboo market share against other competition in Athens and Bordeaux has “developed well above expectations.”

Balkan Yields Too Low
Baboo’s consolidation included cessation of services to Sofia, Bulgaria and Zagreb, Croatia, which, according to Bankir, were “too far away from break-even and taking too long to reach profitability.” It also discontinued flights to Vienna, Austria, despite strong traffic that was the result of unsustainable fare levels. “We had quite remarkable market share, beyond our frequency share,” said Bankir. “We considered the yield too low and [it would have taken] too long to reach profitability.”

Although Baboo serves Athens, Geneva and Venice from Nice, it does not regard the French south-coastal location as a mini-hub. Nevertheless, Bankir said the onward flights provide a good connecting service. “We have a strong presence on all these routes, which are working well,” he emphasized.Bankir said this past summer proved “very different” from last year. “In 2008, we were a little airline about to introduce jets [and] were ill-prepared commercially [for the recession],” he lamented. After reorganizing the airline’s financial systems and controls, “this year has been much, much better, even if yield has not increased as expected.” Passenger load factors have risen “way above” those of last year, but Bankir acknowledged that the airline is not breaking even. “We’re not there yet, but we are progressing very satisfactorily,” he said.

A major exercise has centered on raising awareness of Baboo in the markets it serves. “Eighteen months ago, we were essentially an international airline unknown at our destinations,” said Bankir. “Most sales were achieved in the Geneva catchment area. Now, sales are split 50:50 between Geneva and destination markets, and between Internet bookings and reservations made though classic distribution [methods].”

A key element in Baboo’s marketing plans involves the establishment of more industry partnerships, a policy it already has established for fleet maintenance. The airline has signed a “turnkey” contract with Schreiner Aircraft Maintenance in the Netherlands, covering planning and some line maintenance for its two Q400s, for which other third parties conduct some C checks.

For the E190 fleet, Régional in France provides engineering, maintenance planning and control and all related back-office functions. With the whole fleet overnighting in Geneva, line maintenance is in the hands of Swissair Technics.

Having stabilized the business, Bankir wants to raise Baboo’s profile and add more partnerships. The airline already has code-share arrangements with Air France to French destinations since July this year and with Olympic Air on its Athens services, and last month appeared close to announcing further such agreements.

Managing employee numbers after “an intensive recruitment policy” that increased the headcount from 115 in 2007 to around 200 last year–a level Bankir hopes to maintain as the airline increases efficiencies and aircraft utilization–ranks as one of Baboo’s primary goals. By comparison, passenger numbers grew from 169,000 two years ago to 296,000 last year, an increase of 75 percent. Baboonow has switched to an April-March fiscal year, and targets 490,000 passengers during 2009/10, equiv- alent to 66-percent growth.

Having recorded revenue of SFr30 million ($28 million) in 2007, Baboo saw intake almost double last year to SFr56 million ($53 million). For the current financial year, Bankir projects SFr95 million ($90 million) in revenue. “That figure has been slightly diluted from [an initially] higher figure,” conceded the chief executive. So, in a word, can “consolidation” encapsulate the story of Baboo? “Absolutely,” said Bankir. “But we are increasing efficiency in our sales, which gives us a better outlook.”