Croatia Airlines Extends Subsidised Flights through 2016

At the 60th Government Cabinet Session, held on 8 November 2012, the Croatian Government issued two decisions regarding local air transport services (PSO – Public Service Obligation).  The first decision awards the state-owned carrier Croatia Airlines (CA) the exclusive operating rights for the operation of state subsidised flights within Croatia through 31 March 2013.  CA is the dominant carrier in the country and substantially subsidised by the state, operating at a €5.3 million loss in 2011.  Also, CA operates under the Star Alliance air operator network, dominated by the German carrier Lufthansa.

The second decision is regarding the upcoming PSO tender for services after 31 March 2013.  Given the short timetable, it is expected that the Transport Ministry will issue a public services tender for the PSO valid from 31 March 2013 – 26 March 2016 for the following routes: Zagreb-Dubrovnik, Zagreb-Split, Zagreb-Zadar-Pula, Zagreb-Brac, Osijek-Dubrovnik, Osijek-Split, Osijek-Zagreb, Rijeka-Split-Dubrovnik.  The maximum number of subsidised flights is 6,857 per year and the operators will receive state subsidies totalling between €13 million and €17 million per year, dependent upon the number of yearly flights.

One of the conditions for qualifying for the PSO is that the bidder be registered in Croatia.  Presently, 4 registered operators own appropriate aircraft and a total of 12 companies are registered for appropriate aviation services in Croatia and are potential applicants. The deadlines for tender preparation, public tender process, awarding of tender and final date of services in operation (1 April 2013) are very short.  As of expected EU membership (1 July 2013), EU carriers and businesses will be allowed to operate in Croatia, but without state subsidies.

The above decisions allow CA to dominate the Croatian airspace through 2016, with state subsidies totalling an average of €45 million.  With Croatia’s entrance into the EU and the total liberalisation of the air traffic market in Croatia, this market dominance is only prolonged for a short period of time and delays the inevitable strategic business decision of the privatisation of CA.

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