The sins of EX-YU carriers and their managements
The national carriers of Bosnia and Herzegovina, Croatia, Serbia, Slovenia and Montenegro will end 2010 with multi million Euro losses.By the end of September Croatia Airlines has accumulated a loss of approximately 15 million Euros, an increase of 16.2% compared to the same period last year. “The aviation industry has just gone through one of the toughest periods in history and a further 3 years will be needed until the situation is stabilised”, a Croatia Airlines financial report for the Zagreb stock exchange states. The airline notes that the 2 day cabin crew strike and the Icelandic volcano ash cloud hit the airline’s finances even further. However, the Croatian national carrier did manage to decrease its expenditure by 6.2% this year.
Jat Airways recently reported that its financial result for 2010 will be “worse than expected”. The airline’s CEO said at a news conference in Bled, Slovenia that his optimistic plans for 2010 have been derailed by the failure to launch a base in Skopje, the delay in launching Sky Srpska in Banja Luka and the delayed technical overhaul of some of its aircraft. Furthermore, a series of managerial blunders have left the airline strapped for cash. However, the exact loss won’t be known until the 2010 financial report is published in January next year. Jat’s CEO, Srdjan Radovanović, became the airline’s number one man thanks to political ties (like most of his predecessors in the past few years) and has never worked in the field of aviation. Early in the year it was revealed that Jat’s head of finances, brought to the airline by Radovanović, has a high school diploma as his highest academic achievement.
Montenegro Airlines’ losses are also mounting. The airline owes “Airports of Montenegro”, the company that runs Podgorica and Tivat airports, 2.7 million Euros. The airline hasn’t paid its handling fees to the airports since August 31, 2009. The Montenegrin carrier is expected to end 2010 with a 5 million Euro loss, lower than most other EX-YU carriers. Montenegro Airlines’ CEO, Zoran Djurišić also has strong ties with the Government and has an ongoing corruption case against him, which involves the unlawful leasing of aircraft and the failed Master Airways project.
Increased passenger numbers have not financially materialised for B&H Airlines. The Bosnian carrier is projected to end the year with a loss of just over 6 million Euros. Additionally, the decision making process at the carrier has become extremely complicated as all decisions must be approved by Turkish Airlines in Istanbul. The airline still hasn’t named its new CEO, several months after Nudžeim Rečica (the former CEO) left the carrier. Rečica has been promoted by the Government from B&H CEO to the Ambassador of Bosnia and Herzegovina in Qatar.
Finally. Adria Airways’ losses have exceeded 13 million Euros in 2010. The Slovenian carrier received 2.5 million Euros from shareholders and partners last month in a move to aid the carrier.
The title should be "losing" not "loosing" :)
ReplyDeleteBut it so important to have a "national carrier"! Politics on the back of tax payers money.
ReplyDeleteTime to act and consolidate:
Adria+Croatia
Jat+Montenegro
BH Airlines?
BRAVO!!!!
ReplyDelete**FINALLY** an article written here that at least comes close to the reality in the ex-YU.
Well done.
^
ReplyDeleteBingo.
But consolidation is not the answer: many people are foolish to believe merging two non-profitable airlines will immediately result in a profitable one.
Cashflow is the key to any business, and in most instances being government-owned will result in some stability in this regard. There's no Ch11 available to these airlines in the way US carriers which *should* have been shut down for their inefficiency have managed to keep in the air.
Many airlines will need to downsize fleet and/or operations (and throw away the grandeur plans in a few instances), some will need to cut staff or salaries, and some just need competent managerial staff before anything else can happen.
Sometimes I think members of this forum might do a better job running and planning some of these airlines - but the comments you read here from time to time mean it's anything but...
Very nice comment from Frequent flyer.
ReplyDeleteI completely agree with you, You have pointed out the right thing- Cashflow.
And also merging two sinking ships doesnt make them float immediately.
About the comments - sometimes you really read pure stupidities from some members.
The only way forward for the airlines in this region (and beyond) is to start from scratch - like Olympic Air did.
ReplyDeleteThe legacy issues with these state owned monsters is just impossible to 'fix' - it needs to be scrapped and started over, otherwise Wizz and others will just eat up this market for fun, which they're already doing. On London-Belgrade, they've already captured 25% market share in 5 months with only 3 weekly frequencies, against 2 established competitors (BA - soon to be gone, and dear old JU).
Wake up and smell the coffee.
JAT blames the delay of Sky Srpska? If it had been launched the only benefit they would have is a new excuse on why they are losing money. It would be something to the tune of "well you see we had to spend money getting Sky Srpska off the ground and for advertising..." Anyone that believes an air carrier based in Banja Luka will be profitable is delusional. The passenger numbers just are not there. This is just another political decision instead of a business decision and that is why the ex-yu airlines are in such dire shape. That is why you have non-qualified people running the companies. Thank god there are international standards for flight crew because otherwise you would have bus drivers flying planes.
ReplyDeleteThese airlines are politically connected. Just like anything else in Ex-Yu that is controlled by the government, the airlines are losing tons of cash and are suffering. However I don't view this as big news...this has been going on for some time now.
ReplyDeleteAs far as the solutions go: JAT should expand its regional network to Croatia and possibly N. Africa. Croatia Airlines needs to manage its money better ie: it is buying more aircraft when it has too much already, Adria should codeshare more, and as for the rest I can't think of a solution right now.
I absolutely agree with frequentflyer that merging two unprofitable companies will not make the new merger company successful, but it might ease the costs. In JAT's case, it gains nothing by merging fleets with Montenegro, and actually loses more than it gains. That is a perfect example of failure of merging fleets.
However, it would be interesting to contemplate merging all of the Ex-Yu carriers and see what happens. Costs would definitely go down, although insufficient airlines such as Montenegro and B&H will probably lose nearly all of their aircraft due to unnecessary costs.But it would be fun to analyze a hypothetical situation in which this did occur.
Politics and business do not mix, unless it is to rip off the people.
ReplyDeleteSolution for JAT is very simple, if CEO was free to take the necessary steps. Any business graduate could do it. One just has to look at Annual Statement (if you can believe one)
1. Cut the Salaries (read: fire people) and T&E expense (EUR 3.5 million !!!) by 50% and that's EUR 15 million (from 2008 data). Yes, there may a one-off redundancy package expense and unions rumble, but it would free up cash going forward. This shouldn't be difficult as JAT carried 800 people per employee. By comparison, Wizzair carries well over 8,000 per employee. So if JAT were to reach 20% efficiency of Wizzair, that would translate into 850 employees (vs 1,710 in 2008)
2. I'm sure that some contracts could be re-negotiated, particularly one with JAT Tehnika (EUR 15 million per year). Maintenance costs should further come down with introduction of new planes.
3. Sell all non-core real-estate and sell&lease back the rest, freeing up cash for investment in new planes.
So you could easily find EUR 20 million cost savings.
But, I'm sure they know it and some future CEO will get Manager of the Year Award for what should really be a mid-term paper in introductory management course.
By chelica2
@chelica2: mid-term paper in introductory to management course, i like it ;) However, politics is bigger than anything in the Balkan. You may soon see a Belgrade - Chicago on grounds of "strengthing out ties across the Atlantic" or "speeding up our integration with the European Union".
ReplyDeleteOh good old Europe ;)
Bring in the bus drivers. They will fly a plane for 10% of the cost
ReplyDelete@Arturo
ReplyDeleteAbsolutely correct. And that is the reason why as soon as corporate interests take over the object will be to gain the more money and not gain more votes.
@Anonymous
That's pretty funny. Who knows, if another strike comes near...