Tuesday, August 16, 2016

Croatia Airlines plans for future without partner


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.

66 comments:

  1. It's an interesting analysis. I would like to hear Purger's thoughts too. If OU manage to pull off their plans without an investor it would be quite an achievement in my opinion and proof that you can succeed without foreign intervention. But I completely agree with the analyst that the risks are huge.

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  2. What caused the fall in revenue in 2014/2015? It was higher in 2013 at the height of the restructuring. Interesting.

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  3. How is this even possible - "All of our routes are unprofitable during the winter"?

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  4. There only option is to sell aircraft to finance all their future plans which are not bad in my opinion but this will put a lot of pressure on the airline like the article says.

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    1. My question is where did they get the money to buy A320neos and future regional jets?

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  5. I think that Croatia Airlines would have developed the most under some far east Asian carrier, for example Garuda. That way you avoid becoming a feeder and are instead being fed passengers from Asia by your owner.

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    1. Trust me, you don't want to partner with an airline from Indonesia. If OU wants to look into East Asia they better focus on China. Even their carriers are far from perfect strategic partners but compared to Indonesia they are supreme - and they have a bunch of tourists on board. Garuda would be a serious suicide move.

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    2. Trust me, I've always had great flights with Garuda and the hospitable Indonesians.

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  6. Those financial results are far from good. Amazing how that load factor collapsed over the past two year seven though no new aircraft were introduced.

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    1. Judging by the table the major source of increased profitability were lower fuel prices,

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  7. "It may be the case that Croatia Airlines is too late to the party"

    I agree. That's why I think recapitalisation is the better option.

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  8. Can they achieve profitability this year without selling anything?

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    1. I don't think there is anything else left to sell except for planes.

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  9. The maintenance division could be of much greater interest to a potential investor than the airline itself.

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  10. Difficult road ahead.

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  11. Whatever they do they should not sell to a financial institution.

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    1. Let's see how things work out for Adria and whather the same scenario can be applied to Croatia Airlines

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    2. It isn't really working.

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  12. So no new management for OU after all?

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    1. Who can change this management if we don't have government in Croatia?

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  13. Their overall profits are minimal for expansion. They will continue to become more and more of an irrelevant player on the market. Their final nail in the coffin will be the opening of regional bases in Albanian inhabited regions.

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  14. Jednom reciju smejanje. Nalaze se u situaciji kao JAT pri tome su zracnu luku dali za male pare i prevarantsko mali novi
    terminal. Tu su ih tako Francuzi izradili. O kakvim bre oni novim avionima pricaju i kakvom profitu tri godine kada rasprodaju sve sto mogu.

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  15. maksimalni domet OU u narednoj godini je wet lease oba F100 trade air-a i to uslovno - ukoliko obezbede dovoljno kesha od drzave kroz kvazi PSO i fleksibilno racunovodstvo.

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    1. PSO je definiran sukladno pravilima EU. To nije stvar svokogodišnjih pregovora, nego po striktnim pravilima provedenih natječaja, te potpisanih ugovora za period 2016-2020. Dakle oni novac za PSO imaju osiguran do 2020. godine.

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  16. Last night at ZAG was an epic failure. The evening flight to SPU was delayed by almost two hours because the initial aircraft was hit by lighting. Then we only departed after boarding two different aircraft. Meanwhile electricity at the airport went out. lol

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    1. Sounds like an unfortunate situation and not something that can be blamed on anyone. There is no way to predict when a plane will be hit by lightning or when the electricity will be out at the airport.

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    2. Yeah, but surely an airport should have backup generators, methinks.

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    3. Yes but there are generators that should be turned on immediately. It took like 20 minutes, at least.

      Also, why did we need to switch two aircraft before departing on the A320? Did they make us board an unsafe aircraft?!

      Also, the airport staff should be fired on the spot. One girl was shouting at passengers after we deplaned for the second time.

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    4. OU 342 to sjj was cancelled last night, they had to ferry a q400 this morning to sjj.
      Hopefully same won't happen tonight as I'm flying on OU 341 tomorrow morning :-D

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    5. Hahah their fleet is falling apart, really crazy! One would expect them to handle all this in a better manner.

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    6. pa dobro, javna je tajna da pokusavaju da se rese cele flote Q400 pouzdanijim tipom, ali to bez novca tesko ide

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    7. zato ces ovde cuti savete rvata i dinkicevaca da se asl resi ATRova i kako q400 hebu kevu.

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  17. How they will finance any international expansion is a huge mystery to me. If they intend to add a new type into their fleet, that will certainly include huge costs. Even without fleet costs, the costs associated with opening a new base, hiring local workers, renting/buying property, buying equipment, marketing, new route costs, etc, etc are huge.

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    1. Sve je to poznato Jatovanje oni su u terminalnoj fazi koja ce trajati jedno tri godine. Tada ulece LH sa Eurowings.

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    2. They have talked about recapitalisation which means I believe they will offer more shares it interested parties like pension funds for example.

      If they want to really raise money they should look at listing the company on one of the European stock exchanges, take advantage of being a part of the EU!

      The only problem with this is that they will be truly held to account by shareholders and would not be able to get away with complacency (like we can't figure out what to do in winter attitude) and creative accounting.

      This means that all the current management would have to change, not because they are incapable (I don't know if they are or are not) but because I doubt they are wired for that type of financial environment or just don't know how it works.

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  18. Future means a Eurowings based model model with fewer aircraft mainly based outside of Croatia.

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  19. Pretty much over the next 5 years we will probably see a complete change in the fleet. CRJ 900s will replace A319s, A320neos replace the A320s and my guess is the Q400s will stay part of the fleet.

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    1. They should get rid of Dash 8 plane. Has been very unreliable. Tech problems every few weeks.

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    2. I think introducing more Bombardiers would make sense. Keep fleet at 2 aircraft manufacturers and don't increase costs.

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  20. Time to stop playing around and replace this management, they have wasted enough time.

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  21. Didn't someone here claim recently that OU will start flying to New York and Toronto with A321LR?

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    1. lmao i remember that guy,probably from Austria.....And everything is disaster for him.

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  22. Dajem im dbije godine zivota, a poslije toga ala JAT

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    1. Imaju otplačenih aviona u 100% vlasništvu, slotova, maintenanc i ostale imovine koje su dostatne za 10 godina životarenja. Dovoljno je samo prodati jedan-dva aviona ili pokoji slot svake godine, a od prodaje maintenancea i hangara mogu dobrih 5 godina trošiti preko svake mjere.

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    2. BOJIM SE DA TO NE STOJI.AVIONI(AIRBUS)SU OTPLAĆENI,ALI KOLIKA JE NJIHOVA SADAŠNJA VRIJEDNOST,POSEBICE BEZ MOTORA KOJE SU PRODALI.KAKO ĆE NOVI REVIZOR REAGIRATI NA ČINJENICU DA SE U KNJIGAMA VRIJEDNOST AVIONA VODI ZAJEDNO S MOTOROM KOJEG(IH)VIŠE NEMA.TERT OTPISA TREBA PODNIJETI KAO I ČINJENICU DA BEZ NJIH NAKON GOTOVO 20 GODINA STAROSTI VRIJEDNOST SAMOG TIJELA AVIONA JE GOTOVO ZANEMARIVA.MAINTENANCE REZERVE IDU U GLAVNOM LESORU KOJI JE KUPIO MOTORE I DAO IH SKUPLJE U DUGOROČNI NAJAM!NE TREBA ZABORAVITI DA JE I DIO AIRBUSA POD HIPOTEKOM BANAKA,PA KAKO ONDA NASTAVITI S PRODAJOM IMOVINE,ILI BOLJE REČENO RASPRODAJOM!

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    3. Dobro ne deri se svi znamo da je CTN pred raspadom. Zna to i analiticar no mu je tesko da prizna. Kada krene prodaja slotova znaci blizi se kraj.

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  23. I don't understand that it is that hard to get interest for OU. The airline is generally in ok shape. Fleet is relatively modern, you have a nice domestic network which is supported by the government and huge market during the summer. The biggest issue to overcome is seasonality. But still, OU isn't a bad investment. I don't understand that they haven't managed to find anyone.

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    1. OU had a chance before major changes in the region. They have become far less attractive now. In my opinion they should start growing and make themselves attractive.

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    2. Problem je sto Rvati ne lete vec strani gosti. Sta tu ne shvatas? Pogledaj koliko izdvajaju za taj fini domestic network. 10 Mjura.

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    3. A to znaš jer imaš podatke u kojem postotku lete domaći i u kojem postotku stranci?
      Ajde ne lupetaj.

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    4. To se proceni ocas posla odbijes CTN letove za morske aerodrome (iako u njima ima stranaca) i svi ostali su straci. Pola broj stranaca u Zagrebu dodje avionom i brzo vidis koliko malo letite.

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  24. Setting up bases (especially 4 bases) and especially in places like Skopje where the airline has missed out on first mover advantage and will probably get limited support from the government will be a very costly exercise.

    I can't believe they haven't learnt a thing from Adria!

    Just crazy and very irresponsible management unless they know something we don't.

    Sarajevo is the only proposed base that makes sense to me.

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    1. nista ni od Sarajeva za sada

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    2. Zašto? Izvor?

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  25. "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.

    "Babaroga" stories for little children.

    Croatia Airlines gets 10.450.000 EUR per year for 6.800 domestic flights (PSO). It is 1.500 EUR per flight. All of those flights are profitable during summer, so basically that money is used for winter seasons when they have much less flights per week than during summer. With that much money (maybe even 4.500 EUR per flight without profitable summer flights) every owner would fly those routes with huge smile on face.

    So, Mr. Kučko, do not go there. Not even 5-year old will believe this.

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  26. What do you, guys, think if Croatia Airlines will add some new routes next year from Zagreb?

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  27. They need to find a way to work with Air Serbia - both will gain since they don't fly overlapping routes

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  28. OT: ECA lost their license to operate in Croatia

    http://www.index.hr/vijesti/clanak/nakon-istrage-indexa-eca-izgubila-dozvolu-za-obavljanje-komercijalnog-zracnog-prijevoza/913238.aspx

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  29. Replies
    1. Check the date, it is today's news!

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    2. I was referring to the post above on the ECE.

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  30. OT btw got update on ZAG term opening. Inofficial plan is 04mar not 03apr

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    1. Great news. I hope to be one of first pasengers.

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