Croatia targets greater PSO funding for airlines


The Croatian government is holding talks with the European Commission in an attempt to increase funding for Public Service Obligation (PSO) flight contracts in the country. PSOs make European funds available for unprofitable, primarily domestic routes which are vital for the economic development of the region they serve. The existing four-year PSO contracts in Croatia, which expire on March 28, 2020, are currently held by Croatia Airlines and Trade Air, which won a European tender to maintain ten routes inside the country. The new tender is expected to be launched towards the end of this year. The Croatian government has not revealed by how much it is seeking to increase PSO funding.

The current PSO contracts in Croatia cover the national carrier's routes from Zagreb to Dubrovnik, Split, Zadar, Pula and Brač, as well as Trade Air's services from Osijek to Dubrovnik, Split, Pula, Zagreb and Rijeka. The Croatian national carrier annually receives 10.3 million euros in compensation for the domestic services. The largest amount, 3.6 million euros per year, goes towards maintaing flights between Zagreb - Pula - Zadar, where the airline is remunerated some 184 euros per passenger carried. The value of Trade Air's PSO contracts amount to 2.6 million euros per year. The largest share of the subsidies goes towards the upkeep of the Osijek - Zagreb service (1.2 million euros per year), where the airline is compensated approximately 564 euros per passenger.

Rijeka Airport has urged the Croatian government to do more to include the city in its PSO contracts. "We cannot be satisfied with the PSO concept because Rijeka Airport receives crumbles from these contracts. Pula and Zadar airports handle between 50.000 and 70.000 passengers solely as a result of the PSO routes", the Deputy of the Primorje - Gorski Kotar County, Marko Boras Mandić, said recently. Croatia Airlines carried 227.681 travellers on its domestic services during the first half of the year, representing a decrease of 3.1% on the same period in 2018. The average cabin load factor on these routes stood at 64.7%, down 3.3 points.




Comments

  1. Are PSO tenders open just for airlines from that particular country or can any EU airline apply?

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    Replies
    1. It should be open to all EU carriers but if my memory serves me right, they allowed only airlines with Croatian AOC to apply last time.

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    2. "They" cannot allow ... The EU is a single market in which anyone can operate and the money is partly EU money, so anyone can apply.

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    3. I doubt Croatian government would select a foreign airline and give them money to fly domestic routes. No way.

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    4. Agree with last anon. Nor should they give it to a foreign airline.

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    5. Maybe Silver Air applies. They are the only non Croatian airlines flying domestic flights (in summer).

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    6. @Anon9:15 why should they not give it to a foreign airline? If Ryanair (for example) can fly Zagreb-Split better for cheaper why should they not be able to? This sort of nationalism is mind boggling to me. Nobody is forcing you to fly airlines other than Croatian but stop forcing the rest of your countrymen to only have Croatian as an option.

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    7. I am sure that for a domestic route it is a logic base requirement that only airlines with Croatian speaking cabin crew is eligible. Hence the assumption only Croatian airlines may apply.

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  2. It's really surprising that only 1 route to Rijeka is included. No wonder they are pissed.

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    Replies
    1. It's two routes - to Split-Dubrovnik and Osijek. But of course, not enough and much much less than others have

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    2. What domestic routes would be beneficial from Rijeka?

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    3. I think Rijeka-Dubrovnik should be included.

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    4. It's not only about domestic routes when RJK is in question. RJK gets less than 2% from "udruzeno oglasavanje" funds, aimed primarily for attracting LCC'S. Other airports have around 20%each, and RJK less than 2. For domestic services, for the beginning, SPU and DBV should be separated, at least on some days of the week and at least in summer season. Also they should increase frequencies, or change to higher capacity plane on existing lines, as two weekly on Turbolet is nothing. In summer flights are booked months in advance and if you need to travel urgently, it's impossible.

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    5. What is percentage of "udruzeno oglasavanje" in ZAG and do you know which foreign airlines received it?

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    6. I wonder if Lauda would have operated DBV-ZAG if they were allowed to open a base in ZAG like they wanted to.

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    7. I would also like to open a base in ZAG like Lauda. I will do it immediately if ZAG relieves me from paying taxes, gives me 50million and does what I want.

      But they did not allow me in the end to fly out of ZAG :(

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    8. Do you have a source where Lauda asked €50 million in order to open a base in ZAG? Also you are a no one while Lauda is owned by Ryanair, you know, the biggest European airline.

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    9. Exactly, so Ryanair has to ask ZAG if they have slots (they do), what the price list is (publically available) and then decide to open a base.

      Obviously they see no demand. Rynair would never ask for benefits that destort competition.

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    10. Lauda has walked away from ZAG, easyJet has not returned, DY has scaled back while EW has complained about fees and has not expanded in a while.
      Seems like ZAG is asking way too much for the market they serve. They need to be more realistic.

      Why? In order to protect OU which is slowly collapsing under its own weight.

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    11. Maybe OU has to pay the same prices? Ever thought about that?

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    12. I highly doubt that, all airports provide their home carrier with discounts.

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    13. It is a private enterprise and they have their own calculation on the profit. You should not worry about that.

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    14. It's an airport, this is an aviation forum so what else should we worry about? Also the last time I checked it ws still property of Croatia so it's not theirs toy to play with as they please.

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  3. "The largest share of the subsidies goes towards the upkeep of the Osijek - Zagreb service (1.2 million euros per year)"

    Oh my...what a waste of resources! Considering the perfect highway between the two cities and the short distance. Fishy deals.

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    Replies
    1. Connecting traffic via ZAG.

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    2. But are there that many transfers? The route is operated by a tiny aircraft and frequencies are not that high.

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    3. Yes they are. Last time I flew FRA-ZAG there where passnegers coming from the US and flying via ZAG to OSI. 6 of them.

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    4. Six of them is a lot? lol

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    5. Where do you see it is "a lot" who has written that?

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    6. 6 passengers arriving from the US and heading to OSI on a single observation might not seem much, but considering the aircraft seats 19 passengers, only those 6 I saw made alredy 30% seat occupancy.

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    7. Anon 09.33 asked if there are many transfers and then Anon 10.30 (you?) said that they are since you saw six of them on a single flight.

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    8. The state has an obligation to support parts of the country which are less developed. 1M EUR us a peanut in the state budget.

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  4. 10 million for PSO? Quite a bit.

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    Replies
    1. Same as the bogus tender for flights from LJU to BRU.

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  5. How much could they ask for this time around?

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    Replies
    1. Probably 12 million and include Rijeka.

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  6. I hope they do revise the PSO contracts because I think some route are unnecessary while others not included would be really beneficial.

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  7. Hope they are successful in increasing the PSO funding. Unlike some here, I do hope ex-Yu carriers survive.

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  8. I can't understand that Zagreb-Dubrovnik and Zagreb-Split can't be profitable.

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    Replies
    1. ZAG-DBV can but SPU no way since locals take the road (cheaper) while foreigners have more and more non-stop options. Not to mention that OU has a modest network out of ZAG so they are less competitive than OS, JU and others that fly to SPU for transfers.

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  9. How is the PSO budget set. I mean does the EU take in the size of the country, population, GDP? Or is it negotiated directly with the government?

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    Replies
    1. I believe it's negotiated directly with the government but the metrics you listed are taken into consideration.

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  10. Some PSO rules:

    Transparency-1: All awards, modifications and any
    abolition of PSO routes, as well as the corresponding
    calls for tenders, must be announced in the Official
    Journal of the European Union (OJ EU).

    Transparency-2: Air fares and conditions can be
    quoted to users (in most cases maximum fares
    are imposed)

    Market failure: Market forces alone have failed to
    create incentives for air carriers to provide scheduled
    air services on the route.

    No obstacle to market functioning: A PSO should
    not limit the possibility for air carriers to provide
    a higher level of service in terms of capacity and
    frequency than minimum obligations required
    under the PSO award. National authorities should
    not interfere with the way the market fulfils these
    obligations. In any case where more than one carrier
    is interested to operate a route as an open PSO,
    national authorities should not distribute frequencies
    or capacities between those air carriers concerned.

    Necessity: Routes are considered vital for the
    economic and social development of the region
    served (routes to an airport serving a peripheral or
    development region or thin routes to any airport).

    Proportionality & non-discrimination: PSOs are a
    useful tool to enhance the contribution of aviation to
    the overall competitiveness of the regions concerned.
    They must be imposed in a non-discriminatory and
    proportionate manner (e.g. no restrictions based on
    passenger’s nationality or on the air carrier’s state of
    origin, no selective promotion of specific air carriers/
    airports).

    No alternative: Inadequacy of alternative transport
    modes connecting the route(s) under PSO.

    EU law: Full compliance with EU Regulation 1008/2008
    (compliance with national law only is insufficient).

    Route-by-route basis: Necessity of PSO award
    must be assessed for each route separately (no
    network routes). A PSO cannot link two cities or
    two regions, routes must be defined from airport to
    airport. States may not make the award to one route

    ReplyDelete
    Replies
    1. and Geographic scope: A PSO route between an EU
      airport and a non-EU (except EEA members) country
      is not allowed. Intra-EU routes (not exclusively
      domestic) are however allowed.

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  11. Zagreb-Split 184€ per passenger
    Zagreb-Osijek 564€ per passenger

    Are this numbers for real!?

    ReplyDelete
    Replies
    1. Yes. It's the only way you can make money on a route like Zagreb-Osijek. It goes to show how loss making this route would be in the real world.

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    2. You are looking at Croatia Code Share Prices. The PSO was won by Trade air and their prices are 20-50 Eur one way.

      tradeair.com

      OU codeshares on these routes to provide onward connections. OU is not interested to sell those seats point to point.

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    3. I was not looking at prices but at average size of subside per passenger, data is from article we are discussing.
      So, Croatian government paid 184€ per each passenger on Zagreb-Split route, and 564€ per each passenger on Zagreb-Osijek route.
      That sounds completely insane.

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    4. Not the Croatian government but the EU ;)

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    5. So basically taxpayers one way or another.

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    6. How many passnegers flew ZAG-SPU and ZAG-OSI last year?

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    7. Well obviously 19.565 passengers. (3,6 million received / 184 per passenger) So OU carried 13 passengers on these flights to Split on average.

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    8. strange, when I fly the route, all of the 5-6 daily flights are packed. Ok but obviously it is 13 on average on the A320 :(

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    9. Ok it is corrected in the article, now it is ZAG-ZAD-PUY-ZAG. That makes sense, as triangle flights are always capital intensive. Crew change is in PUY. Then the flight from Pula returns via ZAD to ZAG. 4 hotel rooms throughout the year + night shift surcharges makes ithe flight ops expensive. In case they flew it direct both ways costs would be significantly lower.

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  12. Government has also said they will increase funding for Udruzeno Oglasavanje by one million euros next year but they didn't say how much that would be in total.

    ReplyDelete
    Replies
    1. We heard that Government has nothing to do with "udruzeno oglasavanje" and that is only the money collected from tourist organizations in order to attract foreign airlines to fly to the airports in Croatia where they wouldn't be flying if there was no money from this fund.

      How come that Government is involved now? Under what EU rule comes this kind of financial support?

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    2. I don't know where you heard that "udruzeno oglasavanje" has nothing to do with government but it is not true:

      "The Croatian Minister for Tourism, Gari Capelli, previously said that seasonal flights between the United States and Croatia would launch first, before year-round operations could commence. The Ministry has launched an eight million euro project entitled "Positioning Croatia as an airline destination", with plans to double its budget next year. "The project aims to attract carriers from far away markets"

      https://www.exyuaviation.com/2019/03/croatia-targets-new-us-flights.html

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    3. Quote from Purger

      "Novac ne izdvaja Hrvatska država nego Hrvatska turisička zajednica, organizacija koja se financira od članarina članova, a to su hoteli, kampovi, hosteli, pansioni, turističke agencije, putničke agencije, turistički operateri i druge turističke institurije, te od turističke tekse. Taj novac namjenjen je promociji, reklamiranju i unapređivanju turizma. Projekt se zove „udruženo oglašavanje“ i 50% tog novca izdvaja HTZ, a drugih 50% lokalne turističke zajednice (županija, gradova i općina, u nekim slučajevima i hotela i drugih institucija). "

      and one more

      "Hrvatske ne smije financirati prijevoznike, bilo bi to protivno pravilima Europske unije. Ne znam na što je ministar mislio, tj. tko financira i tko će financirati te linije (možda HTZ), ali ako bi to financirala država bilo bi to kršenje EU pravila koja bi bila podložna sankcijama. Nadam se da ministar neće napraviti takvu grešku."

      https://tangosix.rs/2018/21/08/kolumna-alena-scurica-sarajevo-regionalni-centar-za-bliski-istok-tursku/

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    4. Quote from Purger vs, quote from minister? :) :)
      Come on, I mean, you can believe what ever you want but this is ridiculous...
      Obviously, members of government didn't get memo from Purger ;)

      Delete
    5. Purger explained where this money comes from and minister didn't.

      Do you know where it comes from?

      Does it come from yearly budget of Croatia? If yes, what EU regulations do allow it?

      It is easy saying something but explaining...is different thing.

      Delete
    6. Purger told as a story.
      You can believe it or not, because there are no evidence for that story. You choose to believe because you like happy endings, and that's ok :)

      BTW, even if that is true, let me ask you:
      Do you know that HTZ is founded by government of Croatia?
      Do you know that HTZ receives funds directly from budget?

      So government transfer funds from budget (ie. "državni proračun") and when it land at HTZ account it become "non-government" related? :)

      Delete
    7. BTW, "županije, gradovi i općine" - are they also receiving money from budget, what do you think? :)
      BTW2, HTZ was planning to receive slightly more than 7 million EUR in 2019 directly from budget (at the end of year it could be slightly more as it was the case in 2018)

      Delete
  13. Not sure the EU will be giving handouts for such things when they get hit by UK withdrawal from EU, because it will be a big financial hit.

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    Replies
    1. UK said that they will pay €9 billion out of the €39 billion the EU is asking for.

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    2. The other E.U countries will have to pay extra into the E.U to make up for the loss of funds that the UK will no longer be paying after Brexit.

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    3. Exactly. There will be a big financial hole.

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    4. 30 billion is not a small amount and France, Germany and Italy won't be happy since they'll have to cash out the most.

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    5. That is only what the UK wishes to do. In a negotiations there are two of them, so wait.

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  14. PSO tender has to be started 6 months before routes start. Since routes will start on 29 March I expect tenders will start in October.

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    Replies
    1. Yes. The call for tender for a renewed PSO contract period and the information notice to be published in the EU OJ six months before the projected start of any new concession.

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    2. So we will find out soon which routes will be subsidised.

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  15. If it brings us more trip reports like this one I'm all for it :D

    https://www.exyuaviation.com/2018/05/trip-report-trade-air-croatia-pso.html

    ReplyDelete
  16. Interesting. Let's see if they include new routes.

    ReplyDelete
    Replies
    1. Minister recently announced they will expand PSO

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  17. These PSOs seems to be working out quite well for Trade Air since they have been able to add 3 planes to their fleet since they got their first PSO contracts.

    ReplyDelete
    Replies
    1. They could have gotten those aircraft from leasing contracts they have with other airlines, not necessarily PSOs.

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    2. They certainly helped though.

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  18. PSO in Croatia is used exactly for the purpose it is intended for. It connects the poorest part of the country with its rest to enable it to grow, bacause there is no way for carriers to make money there.

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    Replies
    1. Dubrovnik and Zagreb are poor?

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    2. Last time I checked Rijeka wasnt poor

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    3. Slavonija is the poorest part of Croatia. Trade Air Turbolet is based in Osijek and connecting Slavonija with richer parts : Zagreb, Rijeka, Pula, Split, Dubrovnik Not that difficult to understand.

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    4. Newsflash: PSO isn't only used for flights to/from Slavonija. It's not that difficult to understand.

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    5. I'm not sure about DBV and RJK but SPU area is really poor, thus PSO is justified. Do not focus only on Split as the largest city in the area, which is also rather poor.

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    6. @An.11.17, yesterday
      I was referring to @An.10.00 post and replies 10.04 and 10.05, so not exactly what you write about. And about you trying to be funny with the newsflash, I have newsflash for you too : PSO functions EU - wide. The entire Croatia is one of the poorest (at least statistically) parts of EU. So EU funds are used for better connectivity of parts of EU which are as not rich and as not populated as for example pairs Berlin/Munich or Paris/Marseilles. But if writing from outside of EU, I understand it might be difficult for you to understand it. What I don't understand is strong urge of some Anonymouses here to spit on everything I write, no matter what and no matter how unimportant and benigne it is

      Delete
  19. What are generally the loads on these domestic Croatian flights? If they are marked as PSO it's probably not great outside of peak summer.

    ReplyDelete
    Replies
    1. ZAG-DBVSPU numbers have been slipping in recent times.

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    2. I wouldn't say it's great. It says in the article:

      "Croatia Airlines carried 227.681 travellers on its domestic services during the first half of the year, representing a decrease of 3.1% on the same period in 2018. The average cabin load factor on these routes stood at 64.7%, down 3.3 points."

      Delete
  20. Zagreb-Split and Zagreb-Dubrovnik shouldn't be under PSO having in fact that Croatia always has full planes on these lines, event in winter months. I think PSO for DBV and SPU is just an excuse to give some money to Croatia Airlines.

    ReplyDelete
    Replies
    1. Agree.

      Even in end of September Dubrovnik-Zagreb has more than 90% LF. In most of the year if you buy ticket some 3 weeks in advance there is almost no chance that you will buy it for less than 170 EUR, mostly even 200 for return ticket. Planes are always full. Even in winter LF is more than 80% and some flights (early morning to ZAG, evening back) almost 100%. In summer flights are all the time almost 100%.

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    2. I totally agree that ZAG-DBV-ZAG flights should not be PSO. Tickets are so expensive, LF is more than 90% all year.

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    3. Only reason why there could be PSO for Dubrovnik is if Government decide that it is important for local economy (tourism), that Dubrovnik is isolated and that air traffic is important for connection in Croatia (and it is as there is no highway to Dubrovnik, it is some 600 km to Zagreb, no railway and by road you have to pass Bosnian border). Because of that Dubrovnik city gives to their citizen voucher of some 33 EUR if they fly to Zagreb (they refund them part of air ticket costs).

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    4. PSO is provided by Croatian Government, Dubrovnik gives additional subsidies, so we talk about two types of subsidies.

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    5. Heavily subsidied company

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    6. It's ok to have PSO there if flights are cheap.
      If the ticket is 170-200€ and you get PSO on top of this it is clear that this is just about finding a way to subsidies airline.

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  21. But if OU is getting subsidies for these routes, isn't it creating unfair competition on the market?

    ReplyDelete
    Replies
    1. No one ever wanted to fly these routes. So there is no competition.

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    2. If an LCC based a plane in DBV or ZAG they would be flying these routes.

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  22. Compensation per pax

    Dubrovnik-Zagreb-Dubrovnik - €10,84
    Split-Zagreb-Split - €19,74
    Zagreb-Pula-Zadar - €184,90
    Zagreb-Brac-Zagreb - €81,73

    ReplyDelete
  23. No matter what the government tries to do, I still don't know how OU will survive this winter.

    ReplyDelete
    Replies
    1. It will survive like it does every year.

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    2. How? It has very little assets left, last year they sold LHR slots.

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    3. With financial support

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  24. Which EU country get's the most from PSO funding?

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  25. The highest subsidised route in the EU each year is

    Calvi - Paris Orly - €8.648.250 each year.

    The biggest PSO contract holder in EU is Air Corsica. It gets 40 million euros per year.

    ReplyDelete
  26. Good luck Croatia Airlines and Trade Air. Hope they get those 4 year contacts again.

    ReplyDelete
    Replies
    1. They will. There is no doubt.

      Delete

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