Croatia Airlines Talks Future Partnerships

Were you happy with the airline’s performance in 2014?

Looking at the preliminary, unrevised financial results for 2014, Croatia Airlines generated a profit for the second consecutive year. Operating profit totalled HRK13.1 million. With the financial costs included, the net profit was HRK 7.1 million. In 2013, the net result was HRK721,000. The number of passengers transported grew 2% (1,825,063 passengers). Passenger kilometres increased 1% and the passenger load factor was 69.2% compared with 68.8% in 2013.

Also in 2014, Croatia Airlines achieved an excellent level of punctuality: 84.7% of departures in scheduled traffic were realized within the 15 minutes, which is above the Association of European Airlines’ members’ average (83.6%).

Has the restructuring programme made a big difference?

The restructuring programme of Croatia Airlines was approved on 27 June, 2013 by the Croatian Competition Agency and refers to a period 2011–2015, with two additional years for assessment after the restructuring is finalised. The restructuring comprises a wide range of measures covering strategic, operating and financial restructuring. It is an unavoidable step aimed to prepare the company for long-term sustainable business operations.

The implementation of all restructuring measures generated a positive financial result in 2013 and 2014. It is important to emphasise that these positive results were the first since 2007, when much of the world was in recession. The restructuring measures are being strictly realised as defined in the restructuring plan. The compensation and self-contribution measures are in line with EU competition, restructuring and state aid rules.

What are your priorities for 2015?

It’s the final year of the restructuring plan so we will continue applying the measures with a focus on increasing labour productivity and competitiveness as well as operational and financial efficiency. Our intention is to continue the positive trend in the business and create the conditions for stable and sustainable operations. It is expected that economic trends in the surrounding countries will have an impact on our business operations. The anticipated result will be affected by competition and will also depend on the upcoming tourist season.

Tell us about your route development strategy. What are your most profitable routes and where do you want to fly to in future?

Our dependence on leisure traffic is higher than in other European countries. The major problem for Croatia Airlines is a seasonal demand and this seasonality represents the main issue to be resolved in future network development. Currently, Croatia Airlines connects Zagreb, our hub, with western Europe and southeast Europe. When we add our domestic network on top of this, you see a small but efficient network. The most significant gap is to the east and we see our opportunity right there. At first, eastern countries within the EU are our priority. At a later stage, we intend to fly east outside EU boundaries. We should not forget significant demand for air service between North America and Croatia too and we are keeping an eye on this market as well. But to achieve this goal, we will first need to develop our regional network much more.

Does being a member of Star Alliance affect the way you develop your network?

Being a part of the alliance, for a small airline in today’s Europe, is a huge advantage. A big portion of our production represents a seat placed on a route to one of the Star hubs in Europe. Through the alliance partners, we can reach our customers and offer our product to the whole world without the necessity of being represented in a country with our own sales organisation. There are no restrictions within the alliance and we can decide, on our own, to develop the markets where we see the most potential. However, in the role of Star alliance member and full service carrier, we are most efficient when our network is complemented by the Star product.

How will you develop your fleet to complement your network?

We operate A320, A319 and Q400 aircraft. We are now studying a new type because of the difference in capacity between the A319 (144 seats) and Q400 (76 seats) and because of the market environment. So, we are analysing the effect of having 100-seat aircraft in our fleet.

Such an aircraft would help us to operate cost-efficiently during the winter months and to open new markets in summer. We are now developing various models, with a different number of units for our future plans. From these various models we will eventually choose one; the most sustainable, most efficient and most prosperous.

Are you happy with the infrastructure at Zagreb?

The infrastructure at Zagreb Airport is not adequate and is the limiting factor in traffic planning. The size and passenger flow is not in line with traffic demand and passenger volume. This is particularly evident in peak hours when the volume of passengers is much higher than capacity of the terminal. But Zagreb Airport is constructing a new terminal, which will have almost double the capacity of the existing one.

What is your view of the regulatory environment in Europe?

The EU air transport legislative process is extremely complex, including passenger rights, the Emissions Trading System (EU ETS), ownership restrictions and sector-specific state aid rules. For sure, European airlines need a better regulatory environment that supports the sustainable development of European aviation. Increasing competition from the Middle East carriers, together with Turkish Airlines, with different state aid rules in those countries, could create unfair competition environment. Even so, the restructuring programme and future strategic positioning of Croatia Airlines is creating a sustainable business model within the existing legislation.

What role does a smaller airline play in the modern European market? Is there a danger you will find it difficult to compete in an era of mergers and acquisitions?

Given the global situation, strategic integration is almost unavoidable for companies of our size. Financially, it ensures sustainable growth. We want to make Croatia Airlines a modern, middle-sized European airline operating with a profit and basing its recognisable success on flight safety and customer satisfaction, with quality services. Our strategic goals are defined in our restructuring plan and, with strategic partners, we have the potential to be a strong player in the southeast Europe air transport market. The Croatian Government has indicated it will begin a privatisation process for the airline and this will also be important.

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