News 28 Nov 12

Croatia Airlines Gets Government Aid

National carrier Croatia Airlines has received a capital boost of EUR 106 million from the government in Zagreb. 

The injection of funds was approvedseveral months ahead of Croatia's anticipated EU accession as a means to avoid strict EU competition regulations, observers say.

The main goal of this investment is to power a turnaround plan which aims to help the national carrier break even and become profitable in 2012. In order to achieve this goal, Croatia Airlines plans to gradually downsize, cutting 10 percent of its staff over the next two years.

The government funds are to be transferred in two installments, the first one covering Croatia Airline’s debts of EUR 82.6 million and the second investing EUR  19.8 million to make the carrier more competitive. The net loss of Croatia Airlines in the first nine months of 2012 is EUR 1.4 million, a significant improvement over the EUR 4.2 million loss reported for the same period of 2011.

From January to September 2012, Croatia Airlines carried over 1..5 million passengers, up 3.5 percent compared to 2011 figures. The average cabin load factor also went up by three points, reaching 70.3 percent.

The Croatian national carrier will soon be facing strong competition from airlines such as British Airways on its London route and Qatar Airways for its passengers using Frankfurt and Munich as transfer hubs. To stay ahead of its competitors, Croatia Airlines has announced new routes for the 2013 summer season and plans to increase the number of flights to Brussels from six to eleven each week.

The government moved quickly to approve the capital boost before Croatia joins the European Union as the 28th member state on July 1, 2013. Once it joins the bloc, Zagreb will be forced to follow EU regulations which require state aid to be assessed as an investment; fund injections of this sort can only be approved if monitors conclude that a private investor would match such an investment.

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