Croatia Airlines is confident it could return to profitability in 2012 after significantly narrowing its losses this season despite high fuel prices. The Croatian flag carrier is banking that its future fleet plan, which focusses on replacing three A320s with four A319s, will result in further improvements in profitability as it will be able to better match capacity with demand. New routes to the east are also planned – including Moscow, St Petersburg and Sofia – to balance a network which is now primarily focussed on Western Europe.
Croatia Airlines, which launched services in 1991 in the same way Croatia declared independence from the former Yugoslavia, has incurred losses each year since posting a breakeven cause 2007. Croatia Airlines CEO Srećko Šimunović expects the carrier to absolve 2011 with a loss of EUR9 million (USD12 million).
This loss represents an important improvement over the EUR21 million (USD27 million) loss incurred really. He says the government-owned carrier was initially aiming to breakeven this year, a goal it could have met if it just weren’t for the rise in fuel costs.
The bigger than anticipated fuel prices has forced Croatia Airlines to test their boundaries its target for a breakeven or better result to 2012. “Next year the target is made for the first profit after four years,” Mr Šimunović told CAPA during an interview in the Star Alliance meeting in Ethiopia earlier this month.
While still in the red, Croatia Airlines continues to be 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% development in passenger traffic. Mr Šimunović expects Croatia Airlines to absolve 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 really.
The increase in revenues comes after a time of five years in which revenues in local currency terms were relatively flat. Revenues decreased slightly really as Croatia’s economy slipped into a recession. The country recorded negative GDP development in both 2009 and 2010 but a little increase in GDP is projected for 2011, leading to a better demand environment.
In response to improved demand, Croatia Airlines launched this season year-round service from Zagreb to Istanbul along with several new seasonal routes including Dubrovnik-Belgrade, Rijeka-London Heathrow, Zadar-Munich and Zagreb-Belgrade. It also increased capacity on several year-round routes looking at the main Zagreb hub. The carrier currently operates the majority of its international routes from Zagreb but carries a secondary hub at Dubrovnik and also 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 their Bombardier Dash 8-Q400 fleet. He calls the turboprop “a workhorse” and says the carrier now uses its six Dash 8s normally 8.6 hours per day.
The 76-seat Q400s were included 2008, replacing smaller, slower and older ATR 42s. Last year Croatia Airlines recorded a typical daily utilisation of 7.9 hours for the Q400 fleet.
The Q400 will remain a backbone of the carrier’s domestic and regional international operation through no less than 2018, when leases on the fleet expire. In addition to replacing ATR 42s, Croatia Airlines provides the Q400 to replace jets on select frequencies in international markets like Brussels, Istanbul, Munich, Paris and Zurich, particularly during the slower winter months.
Unusually, Croatia Airlines now gets higher utilisation from its turboprop fleet than its jet fleet, which currently includes four 132-seat A319s and three 162-seat A320s. Mr Šimunović says the carrier’s average utilisation rate on its A320 family fleet is only 7.8 hours each day.
He says the carrier is not able 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 their A319/A320s flying. The market in Croatia is very seasonal with monthly traffic figures at Croatia Airlines during the peak summer months typically double the amount winter figures.
Such seasonal fluctuations help it become very difficult for any carrier to be profitable on a year-round basis. Even during the peak summer months, market conditions are challenging in Croatia because low-cost carriers and charter carriers from throughout Europe add large amounts of capacity.
“In the summer season in Croatian skies we now have 86 competitors – all 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’re given a lot of money [in incentives].”
As a result, foreign carriers can easily capture a majority of Croatia’s tourism market. Mr Šimunović estimates that Croatia Airlines now only captures 30% of the tourist market. As it is for the Adriatic coast, Croatia is a popular beach destination for Europeans. Mr Šimunović says the united states attracts about one million tourists each year, with the majority coming during the summer season.
The local Croatian market is relatively small as the country’s population is only about 4.5 million. While foreign carriers account for the majority of the inbound tourist market, Croatia Airlines lies well for the local market given its domestic operation, its year-round presence at all of Croatia’s main airports and its particular presence on all the major short-haul business routes, writes tagza.com.
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