Baltia Air Lines, Inc.
BALTIA AIR LINES
Baltia Air Lines, Inc.
JFK International Airport
Building 151, Room 362
Jamaica, NY 11430
Tel (718) 244-8880
A New U.S. Airline to Serve Major World Markets
Baltia’s goal is to become the leading U.S. airline in the trans-Atlantic market between the U.S. and the capital cities of Eastern Europe, including Russia, Latvia, Ukraine, and Belarus, by providing quality service to the traveler and the shipper.
Baltia Air Lines is currently in the Stage 3 of the FAA Air Carrier Certification.
Market Niche and Potential
Baltia plans to start its flight operations as the only U.S. airline connecting directly two of the world’s prominent cities – New York and St. Petersburg (4th largest city in Europe). Baltia’s objective is to provide quality three-class passenger service, reliable cargo and mail transportation, and to provide “Baltia Express” overnight service for express mail and small packages. On the JFK-St. Petersburg route, management is projecting revenues for year one of operations of approximately $100 million at a projected 64% load factor (filed with the U.S. DOT).
Baltia’s nonstop service from JFK to St. Petersburg will be approximately 8 hours, as compared to European connecting flights on foreign airlines taking 11 to 30 hours. Only a U.S. airline (as well as a reciprocal Russian carrier) is entitled to fly nonstop between the two nations. “Third nation” airlines that are currently serving the market can only operate connecting flights via their national airports.
Management believes that the shortened flight time, elimination of a wait at layover, elimination of the possibility of missing a connecting flight, plus quality passenger service provided by a U.S. airline, will attract the business traveler, the ethnic traveler, and the high-end tourist. Likewise, cargo is flown directly, efficiently and reliably. During years one and two, Baltia plans to add airplanes and start nonstop service on routes from JFK to Moscow, Riga, Kiev and Minsk.
- State of incorporation: New York
- Base of Operations: 804 Willow Run Airport, Hangar 1, Ypsilanti, MI 48198
- Corporate Headquarters: JFK International Airport, Building 151, Room 362, Jamaica, NY 11430
- Common Stock symbol: BLTA
- Company web site: www.Baltia.com
- Public reports available on: www.sec.gov and www.baltia.com
- Department of Transportation (DOT) filings available on: www.regulations,gov
- DOT Final Order authorizing Baltia to operate the JFK-LED service, pending FAA Certification.
- DOT Frequency Allocation for the proposed service.
- U.S. Government has formally designated Baltia to the Russian Federation.
- IATA has assigned Baltia its two letter code.
- ICAO has assigned Baltia its three-letter code.
Baltia’s Station Facilities:
- New York station (main hub) at Terminal 4, JFK Airport
- St. Petersburg Line Station at Terminal 3, Pulkovo Airport
- World Fuel – JFK and world-wide fuel
- SOVEX – fuel at Pulkovo.
- CIS cargo handling at JFK
- ZAO Cargo Terminal Pulkovo
Baltia plans to start with one weekly non-stop flight between JFK and St. Petersburg during the initial months of operation. Baltia plans to expand to five weekly flights in the following months. During years one and two, Baltia plans to build its initial route network by adding nonstop routes from JFK to Moscow, Riga, Minsk, and Kiev.
FAVORABLE MARKET CONDITIONS AND SUPERIOR BALTIA SERVICE
The New York – St. Petersburg route connects two cities with populations of 10 million and 6 million, respectively. The market is currently served by approximately 150 connecting flights per week, operated by a number of European airlines. These foreign airlines may not fly directly between the US and Russia; they have to operate with connecting flights through their countries. As a result, the market is presently served by foreign airlines requiring one or two stops and entailing an 11 to 30 hour journeys. Nonstop service offered by Baltia will provide convenient 8 hour travel, and reliable and efficient palletized/ containerized cargo transport.
In addition to being the only direct flight, Baltia intends to operate quality passenger service in a three-class cabin layout (starting with two-class seating). Typically, in the market served only by connecting flights, significant traffic migrates over to a nonstop service when such service becomes available. Starting with one Boeing 747 on the JFK-St. Petersburg route, Baltia projects approximately 85,000 passengers during year one, representing a small amount of the market size.
Baltia is planning to offer its own “Baltia Express”, as an overnight Trans-Atlantic service for letters and small packages. The Company has also had interest from major overnight shippers.
Despite the large number of stop-over flights currently offered by foreign airlines, passenger fares between JFK and St. Petersburg have steadily risen in the past years due to and even greater increase in traffic. Baltia has conservatively structured its nonstop couch fares consistent with those of the foreign airlines providing connecting services.
REVENUES ANTICIPATED FROM THE START
Because Baltia will offer the only nonstop flights, Baltia anticipates an initial demand for its service from passengers switching from the current connecting services. It is expected that traffic volume will exceed the Company’s conservative assumptions. Based on a very conservative 64% load factor for passengers and couch fares comparative with stop-over flights, the Company anticipates a cash positive first year with revenues of approximately $100 million and a significant operating profit.
In addition to its scheduled flights, Baltia is also being certificated for “supplemental” operations (e.g. charter service). Baltia plans to operate domestic and international charter flights, cargo shipment services, and contract flights. In the future, management is considering qualifying the company for U.S. military contracts.
SERVICE INAUGURATION AND DEVELOPMENT
Following the completion of the FAA Air Carrier Certification (Baltia is currently in Phase 3 of the Certification process) and the processing of documents at the Russian Federation (has accepted Baltia as the U.S. designated carrier), Baltia intends to inaugurate nonstop service with one round trip flight per week to St. Petersburg. A transition to five roundtrip flights, with possible early addition of Moscow, is planned.
In the first and second years of operations, Baltia plans to implement its initial route network by commencing scheduled nonstop service to the other capital cities, i.e. Moscow, Riga, Kiev, and Minsk. Baltia expects that it will be able to expand the initial route network from operating revenues and investments. The Company has plans to purchase additional Boeing 747’s to support the route development.
The Company carries airline liability insurance as required by DOT regulation.
BALTIA WILL CONNECT TWO PROMINENT ECONOMIC REGIONS OF THE WORLD
The nonstop flight by Baltia will connect two large economic regions of the world, centered around the cities of New York and St. Petersburg, with metropolitan city populations alone of 10 million and over 6 million, respectively. In addition, New York is the prime destination for international air transportation due to the size of its population, the magnitude of its port-of-entry position within the U.S., and its cultural, industrial and commercial role in the nation. Similar fundamental factors apply to St. Petersburg as a prime gateway into Russia and, indeed, to all of Northern Europe. St. Petersburg is the leading maritime and surface cargo center, and it is well positioned as Russia’s air cargo port. St. Petersburg is the second largest city in Russia after Moscow and the fourth largest City in all of Europe, following Paris, London and Moscow (the largest City in Europe). St. Petersburg was the imperial capital of Russia. In many respects it continues as Russia’s cultural capital.
St. Petersburg is also a major industrial, scientific, and commercial center with many research institutes, colleges, libraries, shipyards, and factories. St. Petersburg is Northwest Russia’s center of transportation with two airports, major rail terminals, and a hub of interstate roadways. The city is Russia’s only year-round, deep sea commercial port. Large American companies have operations in the St. Petersburg region.
ROUTE TRAFFIC IS GROWING BUT IS UNDERSERVED
The Official Airline Guide (OAG) lists many connecting flights from the United States to St. Petersburg on European airlines.
It is estimated that a significant percentage of the passengers move from connecting flights to a nonstop flight when a nonstop flight becomes available. Also, as required by the Fly America Act, all U.S. tax-supported passenger and cargo transport is required to be flown on a U.S. carrier when service is available.
Cargo is currently being shipped on foreign connecting flights, which necessitates off-loading (mechanized) from trans-Atlantic wide-body jets and reloading by hand into narrow body aircraft (not mechanized) at foreign transit airports. Such reloading is operationally inefficient and subjects cargo shipments to certain risks and extra costs.
Because of the reliability of a nonstop flight, Baltia expects to capture a good portion of the existing cargo traffic. Further, government cargo, such as that of the U.S. Postal Service and diplomatic cargo, is required to be carried on a U.S. flag carrier when service is available. Baltia has had discussions with major freight shippers that have an interest in utilizing the cargo capacity on Baltia’s direct flights on a pre-committed basis. The anticipated additional cargo revenue from these shipping companies would exceed Baltia’s revenue projections.
THE FLY AMERICA ACT
The Fly America Act (41CFR301.3-6) requires all government travelers (travel supported by taxpayer funds) to use a U.S. carrier when a direct flight is available. Similarly, all government cargo shipments are to be carried on a U.S. carrier. The policy of flying on a U.S. carrier has been adopted not only by the Federal Government and its agencies, but by most state governments, as well as many non-government associations and public institutions including many universities. This represents a valuable committed source of passenger and cargo traffic.
Baltia has identified the following market segments in the U.S.-Russia market: (i) Business Travelers, (ii) General Tourism, (iii) Ethnic Travelers, (iv) Special Interest Groups, (v) Professional Exchanges, and (vi) Government and Diplomatic Travel.
- Business and First Class
American business travelers generally choose reliable, high quality, nonstop service and typically choose First and Business, tickets. Business travelers originate primarily from New York, Washington, Boston, Chicago and Atlanta. From the Russian side, businessmen tend to select like service, preferably on western carriers.
- General Tourism and Ethnic Travel
Americans traveling on leisure typically choose excursion fares, individually or as part of wholesale air and ground tour packages. Americans with ethnic ties, originating largely in New York, Chicago and Los Angeles, generally book in advance and choose excursion fares. This category also includes US-bound emigrants and family visitors originating in Russia with tickets pre-paid in the U.S.. Russians travelling on leisure have similar considerations.
- Special Interest Groups
Special interest groups represent a relatively new and substantial category of travelers which is generated by the US government, sister cities programs, educational institutions, and cultural exchange programs. Passengers typically originate in the US, but many also originate in Russia using tickets pre-paid in the US. These exchange programs choose coach and business fares.
- Professional Exchanges
American-Russian professional exchanges are sponsored by trade associations, the US government, cities, hospitals, and colleges, corporations, and performing arts institutions.
- Government and Diplomatic Travel
As discussed before, the Fly America Act requires U.S. government and diplomatic travelers to fly on a U.S. carrier where one is available. Traffic generally originates in Washington, DC and New York. The State Department and the U.S. Counsel General in St. Petersburg had contacted the Company about using its flights from JFK to St. Petersburg. Among the agencies sending employees to Russia are: the Department of State, the Department of Commerce, the Department of Agriculture, the Department of Energy, and the Department of Defense.
NONSTOP FLIGHT vs. CONNECTING SERVICE
The direct nonstop flight to be provided by Baltia is significantly superior to the stopover service currently provided by foreign airlines, such as FinnAir, Lufthansa, Aeroflot, British Airways, etc. This is a comparison between these two types of services with respect to passenger convenience and cargo transport efficiency.
BALTIA – a U.S. airline, Nonstop service
- JFK to St. Petersburg flight in approximately 8 hours
- Boeing 747 wide-body comfort all the way
- Cargo arrives containerized and palletized, and most importantly – reliably and secure
Foreign airlines, Stop-over journeys
- 11 to 30 hours through Helsinki, Frankfurt, Moscow or London on a foreign carrier
- Passengers must change to narrow-body aircraft at layover airport, can miss connection
- Cargo is “broken up” and manually loaded onto narrow-body aircraft, or trucked
Baltia’s management does not take for granted the Company’s advantage based on nonstop superiority. Baltia plans to operate efficiently and provide consistent quality service to passengers and cargo shippers alike in order to establish the Company as the preferred airline in the market. Targeted marketing of service is planned to maintain and grow and market share.
The following is a brief survey of airlines providing connecting services in the U.S. – St. Petersburg market. This survey may not be current.
Delta Air Lines
Delta reportedly plans to serve Moscow via code-share, rather than its own flights
FinnAir flies between New York, Helsinki and St. Petersburg daily. A layover time of 1:25 hours is required East-bound, and 1:40 hours required West-bound. Total en route time East-bound is 10:45 hours, and total en route time West-bound is 10:55 hours.
Lufthansa flies between New York, Frankfurt and St. Petersburg daily. To connect with its flights from New York at Frankfurt, East-bound layover time is 3:40 hours, and on West-bound flights layover times range from 1:50 hours up to 10:00 hours. Total en route time East-bound is 14:00 hours, and total en route time West-bound ranges between 15:00 hours and 21:45 hours.
KLM serves St. Petersburg from Amsterdam daily. To connect with its flights from the U.S. at Amsterdam, East-bound layover time is 2:45 hours, and West-bound layover time is 17:00 to 22:00 hours. Total en route time East-bound is 13:10 hours, West-bound is 29:00 to 30:00 hours.
Aeroflot service from New York to St. Petersburg via Moscow is available daily. To connect with its flights from the U.S. at Moscow, East-bound layover time is 1:45 hours, and West-bound layover time is 1:10 hours. Total en route time East-bound is 12:10 hours, total en route time West-bound is 12:45 hours.
American Airlines, British Airways, Air France, Austrian Airlines, Swissair
American Air Lines, British Airways, Air France, Austrian airlines and Swissair also serve St. Petersburg through connecting cities from New York. These airlines have East-bound layover times ranging between 1:15 hours and 3:00 hours, and West-bound layover times range between 1:15 hours to 4:30 hours. Total en route time East-bound ranges between 11:50 hours and 13:00 hours, and total en route time West-bound between 13:00 and 16:00 hours.
Summary of Competition
FinnAir, Lufthansa and Aeroflot presently are the leading foreign airlines in the U.S.-Russia market. These carriers have intermediate stops in Helsinki, Frankfurt and Moscow (change-of-gauge points – hubs). Other foreign airlines have to fly even more circuitous routes through their hubs. A significant number of world airlines provide some form of connecting flights (one or two stops) at varying levels of service from New York City to St. Petersburg, while a number of airlines offer tickets through code share arrangements.
Baltia will be providing the only nonstop, true wide-body, U.S. carrier service in the market. Baltia’s average JFK – St. Petersburg nonstop block time is approximately 8 hours (includes taxi times and estimated air traffic delays). The normal JFK – St. Petersburg flying time is approximately 7:30 hours and 8:30 hours return flight.
The Company plans to operate five times a week service to St. Petersburg by the end of year one.
SALES AND MARKETING
Baltia’s objective is to establish itself as the leading carrier in its market niche over the North Atlantic with operations that are profitable at the outset and growing over time. In order to accomplish this objective, Management intends to establish and maintain quality service standards to enforce Baltia’s lead compared to other airlines currently providing connecting flights to St. Petersburg.
Overall Market Strategy
Baltia will operate between two of the world’s large industrialized nations, in one of the world’s fast-growing markets providing nonstop, U.S. carrier wide-body passenger service. This is a significant niche-market. Baltia’s passenger market strategy is tailored to particular preferences of the various segments of its customer base, with marketing attention, among others, focused on American business travelers with interests in Russia who require quality, nonstop service aboard a US airline from the U.S. to Russia.
Baltia’s initial marketing strategy is based on working with existing travel agencies that specialize in the market, select travel and business publications, supplemented by direct mailings to corporate travel planners, as well as American businesses that are currently involved in Russia.
To further enhance its marketing, Baltia plans to sponsor select industry and trade events in the U.S. and in St. Petersburg, and to implement its frequent flyer program. Baltia also intends to advertise to the general public throughout the U.S. and in Russia. Baltia plans to operate its customer service and reservations in New York and in St. Petersburg. Baltia has built a reservations center at its headquarters in JFK. Also making tickets available through Baltia website and other internet based outlets.
The marketing strategy relating to capacity and overall quality of service is reflected in the Company’s choice of its aircraft. Baltia’s management has concluded that the cabin size of a Boeing 747 offers the greatest degree of comfort and capacity for the JFK-St. Petersburg market. Baltia’s on-time dependability is enhanced because B-747, a four-engine aircraft, is not subject to the ETOPS regulations which could cancel or divert flights during certain weather conditions.
With the B-747 cargo capacity, Baltia intends to provide quality cargo service from JFK to St. Petersburg, offering containers, pallets, and block space arrangements. Baltia expects to carry contract cargo for express shippers, and Baltia plans to market its own “Baltia Express” service for letters and packages between the metropolitan areas of New York and St. Petersburg. Under the Fly America Act provisions, Baltia also expects revenues from shipments by government agencies, diplomatic mail and cargo.
In addition to the above overall strategy and having its sales specialists directly contact travel agencies and shippers; Baltia has planned specialized marketing programs directed at specific market segments.
For the general tourism market, Baltia plans to conduct promotion through tour operators and wholesalers who specialize in tourism to Russia, with attention to upscale tour packages.
To promote the convenience of its nonstop flights into St. Petersburg, Baltia plans to organize periodic travel agent familiarization trips, and to sponsor select cultural events and performances in order to associate Baltia’s name with quality service. Also, Baltia plans to established promotional contacts with the St. Petersburg’s performing arts community, including the management of the Kirov Opera & Ballet, Hotel Astoria, Grand Hotel Europa, and other organizations.
For the ethnic passenger market, Baltia plans to advertise in selected ethnic publications and on ethnic radio and TV stations in the U.S. Baltia plans to send direct mailings to ethnic organizations and travel agencies. Baltia plans to offer limited introductory fares, group travel packages, and “Pre-Paid Tickets”.
In the U.S. and in Russia Baltia plans to sponsor select cultural and ethnic events that promote interaction of people with like ethnic backgrounds between the two countries. For educational associations and colleges offering Russian studies and language programs, mailings, introductory fares, group travel packages, as well as pre-paid ticket arrangements for Russian travelers will be available. There are U.S.-Russia academic and scientific exchange programs featuring Moscow and St. Petersburg universities and universities throughout the U.S. For promotions within special group markets, Baltia plans direct mailings to trade associations, foundations, educational institutions, and government agencies. As a general promotion, Baltia plans to sponsor certain performances to advance the “BALTIA” name recognition.
Cabin Configuration and Pricing
Baltia’s strategy for the configuration of seating and for the pricing of its classes of cabin service is consistent with its policy of focusing on existing passenger segments that expect quality service and comfort in travel. Baltia’s 747 aircraft currently has Business and Voyager Class arrangement, cabin reconfiguration. First Class service is planned. The number of seats planned in each class of service is aimed at maximizing revenue potential and meeting the market needs.
Baltia surveyed the price structures of FinnAir, SAS, Lufthansa, Delta and Swissair to compare the published market fares of connecting services involving a change of aircraft, for comparison with Baltia’s nonstop service from JFK to St. Petersburg.
For marketing reasons, to reflect Baltia’s nonstop, wide-body U.S. air carrier service, certain of Baltia’s published fares may be incrementally higher than those of foreign connecting flights. Fares are subject to adjustment. It is reasonable to expect that travelers will prefer Baltia’s nonstop service. Baltia assumes a dilution factor at the start of service, a dilution of the weighted average fare used in forecasting revenues which results when passengers purchase a discounted ticket. This percent of dilution is expected to allow the Company to compete periodically with discount programs without compromising its revenue forecasts.
Facilities and Aircraft
Baltia leases station facilities at JFK Airport (Terminal 4) and at Pulkovo Airport (Terminal 3), Headquarters at JFK. Building 151, and Base of Operations at Willow Run Airport in Ypsilanti, Michigan. Baltia owns a Boeing 747 aircraft N706BL
Air Carrier Certification
Baltia is at the Phase 3 of the FAA Air Carrier Certification. In order to launch revenue service, Baltia has to complete the mini evacuation/ditching, and proving flights.
Commencement of JFK – St. Petersburg Flights
Baltia plans to start the JFK-St. Petersburg service with one round-trip flight per week during the initial months of revenue operation and increase the frequency. Alternatively, Baltia has plans to initiate service to Moscow, in which case the frequency increase will be between the two destinations.
By starting with one roundtrip flight per week, Baltia not only simplifies its FAA Certification, but the Company also saves itself the grief from being too busy during those initial days to make necessary improvements. With a gradual increase in schedule, any inefficiencies of a given flight can be corrected for the next flight. The transitional schedule allows Baltia to train additional pilots, flight attendants, and support staff at a continuous pace. It also allows Baltia marketing program to take effect through its various segments.
Initial Route Network
Baltia plans to build operating modules and apply those standards as it enters new markets.
Baltia management expects that through the transition period, the company will attain operating efficiencies and service standards. During the latter part of the transition period, Baltia plans to bring into service its second aircraft.
By the end of year two, Baltia plans to introduce in service three aircraft.
Additional Revenues from Charter Flying
In conjunction with its Part 121 Air Carrier Certification for scheduled “flag” service, Baltia is also being certificated for supplemental service (chartering). As opportunities may arise, Baltia plans to utilize its aircraft (when they are not on scheduled service) to earn additional revenues from charters, sub-service to other carriers.
Baltia’s required airline management is qualified under CFR 121.67 and 121.65 by the FAA.