Jan 7 2012
Croatia Airlines, Which Launched Services In 1991 Just Like Croatia Declared Independence In The Former Yugoslavia, Has Incurred Losses Each Year Since Posting A Breakeven Cause 2007.
Croatia Airlines is confident it could return to profitability in 2012 after significantly narrowing its losses this coming year despite high fuel prices. The Croatian flag carrier is banking that it is future fleet plan, which focusses on replacing three A320s with four A319s, will result in further improvements in profitability mainly because it will be able to better match capacity with demand. New routes on the east are also planned – including Moscow, St Petersburg and Sofia – to balance a network that is now primarily focussed on Western Europe.
Croatia Airlines, which launched services in 1991 in the same way Croatia declared independence through the former Yugoslavia, has incurred losses yearly since posting a breakeven result in 2007. Croatia Airlines CEO Srećko Šimunović expects the carrier to end 2011 with a loss of EUR9 million (USD12 million).
This loss represents a substantial improvement over the EUR21 million (USD27 million) loss incurred this season. He says the government-owned carrier was aiming to breakeven this year, a goal it will have met if it are not for the rise in fuel costs.
The greater than anticipated fuel prices has forced Croatia Airlines to push back its target for a breakeven or better lead to 2012. “Next year the target is made for the first profit after four years,” Mr Šimunović told CAPA during an interview with the Star Alliance meeting in Ethiopia recently.
While still in the red, Croatia Airlines has become able to significantly improve its financial position this year following adjustments to its schedule and network, who have driven a 16% growth in revenues and 11% rise in passenger traffic. Mr Šimunović expects Croatia Airlines to end 2011 with EUR195 million (USD255 million) in revenues and 1.95 million passengers carried, when compared with EUR168 million (USD219 million) in revenues and 1.76 million passengers this season.
The increase in revenues comes after a period of five years in which revenues in local currency terms were relatively flat. Revenues decreased slightly this season as Croatia’s economy slipped in to a recession. The country recorded negative GDP rise in both 2009 and 2010 but a little increase in GDP is projected for 2011, ultimately causing a better demand environment.
In response to improved demand, Croatia Airlines launched this coming year year-round service from Zagreb to Istanbul as well as several new seasonal routes including Dubrovnik-Belgrade, Rijeka-London Heathrow, Zadar-Munich and Zagreb-Belgrade. What’s more, it increased capacity on several year-round routes from its main Zagreb hub. The carrier currently operates the majority of its international routes from Zagreb but features a secondary hub at Dubrovnik and a few point-to-point primarily seasonal international routes from Rijeka, Split and Zadar.
Croatia Airlines adds capacity by improving utilisation of turboprop fleet
Mr Šimunović says the rise in the carrier’s capacity this year was achieved primarily by increasing utilisation of its Bombardier Dash 8-Q400 fleet. He calls the turboprop “a workhorse” and says the carrier now uses its six Dash 8s an average of 8.6 hours per day.
The 76-seat Q400s were added 2008, replacing smaller, slower and older ATR 42s. Recently Croatia Airlines recorded a normal daily utilisation of 7.9 hours for the Q400 fleet.
The Q400 will remain a backbone from the carrier’s domestic and regional international operation through at the very least 2018, when leases on the fleet expire. Together with replacing ATR 42s, Croatia Airlines has used the Q400 to replace jets on select frequencies in international markets including Brussels, Istanbul, Munich, Paris and Zurich, particularly throughout the slower winter months.
Unusually, Croatia Airlines now gets higher utilisation from its turboprop fleet than its jet fleet, which currently contains four 132-seat A319s and three 162-seat A320s. Mr Šimunović says the carrier’s average utilisation rate on its A320 family fleet is now only 7.8 hours daily.
He says the carrier is unable to get higher utilisation on its Airbus fleet because during wintertime months there is not enough demand within the Croatian market to keep all seven of its A319/A320s flying. The market in Croatia is extremely seasonal with monthly traffic figures at Croatia Airlines throughout the peak summer months typically twice the winter figures.
Such seasonal fluctuations make it very difficult for any carrier to become profitable on a year-round basis. Even throughout the peak summer months, market the weather is challenging in Croatia because low-cost carriers and charter carriers from throughout Europe add a lot of capacity.
“In the summer season in Croatian skies we’ve 86 competitors – each of the main low-cost carriers, all the main legacy carriers and main charter carriers,” Mr Šimunović explains. “They are sustained by local authorities – the airports, etc. They are given a lot of money [in incentives].”
As a result, foreign carriers have the ability to capture a majority of Croatia’s tourism market. Mr Šimunović estimates that Croatia Airlines now only captures 30% from the tourist market. As it is for the Adriatic coast, Croatia is a popular beach destination for Europeans. Mr Šimunović says the nation attracts about one million tourists annually, with the majority coming throughout the summer season.
The local Croatian market is relatively tiny as the country’s population is only about 4.5 million. While foreign carriers take into account the majority of the inbound tourist market, Croatia Airlines is put well for the local market given its domestic operation, its year-round presence at all of Croatia’s main airports as well as presence on all the major short-haul business routes, writes tagza.com.
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