Croatia Airlines has set in motion plans to expand its operations without a strategic partner. Although its privatisation process has been ongoing since 2013, it is becoming increasingly unlikely that any progress in its sale will be made by the end of the year. Despite this, the carrier anticipates expanding its fleet and destination network in 2017 with the launch of several new bases across the Balkans on the back of a successful restructuring process. However, the aviation advisory company Ishka, which analysed the carrier's business, believes that without external capital Croatia Airlines will find its slim profit margins stretched and will face additional pressure with the arrival of new aircraft and the opening of new routes. The carrier plans to purchase four to six regional jets next year and has an additional four A320neos on order, with two to arrive in 2021 and the remaining two a year later. The incoming aircraft are expected to replace the existing A319 and A320 fleet as they retire.
In its report, Ishka said, "Any expansion plans will undoubtedly require cash and a willing strategic investor. It appears increasingly likely that Croatia Airlines is going to have to try and manage its expansion plans without the assistance of a strategic partner. The market for European airline shares is weighted in favour of buyers at the moment. The Polish government is in talks to sell LOT. Any prospective partner for Croatia Airlines will need a strategic rationale for investing in a barely profitable enterprise. Etihad saw Air Serbia’s position as a natural bridge between east and west. It may be the case that Croatia Airlines is too late to the party" It adds, "The decision depends on what the government is looking to achieve. Do they want to get the airline off their books entirely and use the profits to pay down debt? Or, as seems more likely, the government wants to outsource the financial burden of supporting the airline to a strategic partner, whilst benefiting from any future increase in profitability". The report lists the airline's ownership of its aircraft, with exception to one Airbus A320, as an advantage. If the need arises Croatia Airlines can opt for a sale and lease back of its fleet.
Last month, Croatia Airlines' CEO, Krešimir Kučko, said foreign carriers have shown no real intention in acquiring a stake in the company, despite initial interest from Turkish Airlines. "No one has given a firm offer. The state hired a consultant who was supposed to prepare the privatisation procedure. However, they only completed part of the job and tried to see what sort of interest there was on the market", Mr Kučko said. He added, "The company should be recapitalised as soon as possible, so as to allow it to develop and grow. That will guarantee that national interests will be protected, rather than privatisation. We can expand at a respectable pace using our own resources, but the market can take on more". According to its CEO, Croatia Airlines has developed a five-year strategy through the use of its own resources, without factoring in a strategic partner or privatisation. "In case someone buys Croatia Airlines they can do as they please. All of our routes are unprofitable during the winter but we earn enough during the summer to cover the first and fourth quarters. However, it is important that we maintain flights and link Croatia to other countries throughout the year. A partner could discontinue unprofitable routes and then during the winter Croatia would no longer be connected to the rest of the world", Mr Kučko said in a previous interview.
During the first half of the year, the Croatian carrier narrowed its net loss by 13.3% to 11.3 million euros compared to the same period in 2015. Croatia Airlines recorded a full-year profit in 2015 for the third consecutive year. However, Ishka believes that the company’s overall profit is still too small for it not to pursue a foreign investor.