Can you tell us about your strategy for the airline in the next few years?
Our strategy focuses on our customer needs, further business optimization, fleet modernization, and enhanced competitiveness. Before, it was about survival in our region, which has experienced a lot of geopolitical instability. There have been industry crises too and, of course, the pandemic.
But by the end of 2027, we hope to have 15 new A220s which will replace our entire existing fleet. This will not only enable our growth but also make us more competitive and sustainable, which fits our business plans perfectly.
We must also respect the fact that Croatian Airlines is integral to our country’s transport and infrastructure. That makes our role in tourism vital. We’re working together with tourism and government authorities to boost visitors to our country year-round.
Why did you feel the need to rebrand?
The fleet renewal is the biggest project in our history so, in part, the rebrand is to mark this event. It is also our 35th anniversary. And it is more a refresh than a rebrand—our aircraft tails will still be recognizable.
The project is designed as a thank you to our staff and our customers and it will emphasize our core values of safety, comfort, and hospitality.
How are supply chain issues—new aircraft and parts / repairs—affecting you?
All airlines are suffering from this problem. There is no doubt that the delivery of new aircraft and parts is a concern. Requests for many parts used to be resolved in 24 hours but now it takes two to three days. And that represents a large cost.
Fleet availability has significantly affected our costs this year and we were forced into short term leases as we had to keep up our schedules, maintain our slots, and ensure a good customer service. It was a difficult situation.
And we provide some third-party maintenance activities too and these were also affected by the shortages in the spares market.
These issues have cost us an extra €10 million in the first nine months of 2024. When you consider that our annual revenue will be in the range of €260 million, you can see the extent of the problem.
Let’s see what happens with the delivery of our new aircraft.
Are costs rising significantly and what work are you doing to keep costs under control?
Costs are going up generally and Croatian Airlines is also going through a transition phase, which increases our cost exposure. Our pilots need two months’ training for the new aircraft, for example, and there is constant monitoring of all the work we are doing and many new items and systems to buy.
And structural exposure to new regulations and industry crises is always there.
But our new fleet will bring us a 25% reduction in fuel and lower maintenance costs. And we hope our new product and focus on customer service will increase revenues.
Reducing cost and increasing revenue is always the challenge though. That’s business.
What are you doing to improve the passenger experience in terms of new technologies?
I was at passport control recently and listened to what our customers were saying. I was very happy with what I heard about our efforts. Our work to improve our product and services has been noticed.
It’s vital that we streamline processes, and, like many airlines, we are undergoing a digital transformation to ensure we are at the cutting-edge of passenger services. But it is also about getting details right. The new aircraft will all have USB ports, better seats, larger windows and high-speed inflight Wi-Fi.
Is Star Alliance still relevant to your business?
All the work is done within the framework of Star Alliance. We joined 20 years ago and are the smallest airline member. But we have to reach and maintain certain standards to be part of the alliance, and I am proud that Croatian Airlines has done that for two decades. Compliance with these standards and the associated technology is really important to us and gives us a platform for success. It allows us to be competitive as I talked about before.
And, of course, there are innovations at an alliance level which we can access and there is added value for our passengers in terms of connectivity and rewards.
How important is diversity?
We recognize the importance of diversity both as the right thing to do and as a sound business decision. Again, as a member of Star Alliance, there are high standards in place.
We respect and appreciate every employee and every customer. That made us resilient in the past and will make us successful in the future.
What work are you doing in sustainability and can you source enough sustainable aviation fuel (SAF)?
Sustainability is critical. In 2018, we did all the ISO standards for environment and energy management and built the foundations to reach net zero carbon emissions.
But we know there is a problem with the 2% EU mandate for SAF and its availability. And that problem is worse for us.
If bigger airlines and airports are worried about it, imagine the issue for a small airline and small airport. Where are we supposed to source the SAF and what will the cost be when we don’t have the same economies of scale? Our costs will be proportionally greater.
The dispersion of SAF fuel production in Europe is not equal to the dispersion of demand, which will cause additional transport costs and CO2 emissions. These can significantly reduce the positive effects of using this fuel. In Croatia, we do not have SAF production, so we will have to transport SAF to Zagreb too.
And we have to know what happens if fuel costs decrease in the short term, which is a possibility. What is the incentive to produce SAF then? We must be sustainable, but we must face reality and look at what is actually achievable and what would make a real difference to the bottom line.
Expand this to the bigger picture. Aviation is about 2.5% of global emissions. We are going to spend a huge amount of money on trying to eradicate a small percentage that cannot stop climate change on its own.
We must still do it, of course. But we need more honest conversations.
Where can the EU improve aviation regulation?
Some regulations bear no relation to real life. Look at the single European sky and what has, or rather hasn’t, happened.
Also, most regulations favor those that have big money and can lobby and make a noise. Small airlines are suffering.
With EU261, which is about consumer rights, our starting position affects our competitiveness. It touches all airlines, but it affects small airlines more. We don’t have the ability to find an aircraft or two if there is a delay or network disruption. We therefore are liable for significant compensation and that makes a material difference. And yet we can still be held accountable for others’ mistakes.
A balance between the protection of passenger rights and airline sustainability is needed, possibly through more flexible regulations or specific support for smaller carriers to ensure a fairer system. It won’t just be the small airlines that lose out. What will happen to the regions they serve and the isolated communities that rely on air transport for goods and connectivity?
Taxation and fee discrepancies across EU states also create unequal conditions for airlines. Standardizing tax and fee structures at the level of the EU would lower costs and simplify operations.
On sustainability, the implementation of regulations related to CO2 emissions, such as the Fit for 55 package and the ReFuelEU aviation initiative, creates significant additional costs for airlines.
Are there any challenges or opportunities in aviation that are “under the radar” or not being talked about?
The most significant emerging challenge is cybersecurity. Risk is increasing by the day. At Croatian Airlines, we have implemented best practice in Security Management systems, and we continually analyze our exposure. But this is an industry problem, and we need to collaborate to find the best solutions.
And I know we are talking about SAF availability, but I’m not sure the scale of problem is fully appreciated. We need SAF otherwise our net zero 2050 target is in danger. And we need it now.
What does it mean to be a CEO of a smaller airline?
I started with the airline 30 years ago as an analyst. Since then, I’ve worked in numerous areas and written more than 35 papers and two books: Airline Management and Air Transport Planning. You need that experience because at a smaller airline it is a hands-on job.
Carriers with a small percentage of available seats and niche networks need a bigger voice on the global stage. As I said, we are critical to connectivity. But we are more vulnerable to poor regulation and escalating costs. We also play a vital role feeding the global airlines. There should be a greater understanding of our operating circumstances.