Tim Ripley/LJUBLJANA
Six years after the outbreak of the Yugoslav conflict destroyed its core business, Slovenia's national carrier Adria Airways has staged a remarkable recovery in preparation for privatisation and European Union (EU) membership.
One morning in June 1991, Yugoslav air force Galeb ground-attack jet aircraft swooped over Ljubljana's Brnik Airport, spraying 23mm cannon shells into the Adria Airways hangar. One of the airline's Airbus A320s, two of its de Havilland Dash 7s and one of its McDonnell Douglas DC-9s were damaged by shrapnel and flying debris. "In 1991 our aircraft were registered in Belgrade, so technically we were being bombed by our own air force," says Adria president Peter Grasek.
Six years on, Slovenia is a prosperous independent country, poised to became an associate member of the EU and reaping the benefits of its early secession from the old Yugoslavia. Almost overnight, Adria had to re-orientate its core business towards scheduled services from its previous mainstream business of tourist charter flights to the Adriatic resorts. At the same time, it had to repair its damaged aircraft and base equipment. For the first months of Slovenian independence, its aircraft were effectively grounded until international recognition released it from the control of Belgrade's aviation authorities and the old Yugoslav air-traffic- control network.
The early years of independence were tough for Adria, which survived only by wet-leasing half of its fleet to other carriers until profitable scheduled routes could be established. Grasek, a banker and lawyer by training, recounts travelling around the world attempting to wet-lease aircraft to an unusual array of customers, including Vietnam Airlines. Those days contrast to what is happening now, with Adria returning to profitability in 1997 for the first time since 1989, and renewing its fleet.
TARGET MARKETS
Associate EU membership for Slovenia offers a big prize for Adria, with the company aiming to gain equal status with other European airlines in the lucrative charter business after it enters the liberalised transport market. Building links with the EU drives Adria's plans to modernise its fleet, says Grasek: "You have to have a modern fleet with European standards," he says. "If you don't meet standards, you will not be permitted access. A modern fleet allows partnership, consolidation and codesharing arrangements."
"Slovenia is applying to be an associate member of the EU. When ratification by EU governments is complete by the end of the year, it will give us much freer access to the market. Now we just have bilateral agreements. At the moment, we can only fly between Slovenia and destinations in the EU."
Access to the European market will include the large charter market between Germany and Spain. "We will at least have a chance to compete. This will give us access to a market which is now on the other side of the wall."
Grasek says that EU associate membership would also provide for a more competitive environment within Slovenia, allowing Adria to buy supplies from cheaper foreign sources.
The nadir of Adria's recent history was in 1992, when it was operating from neighbouring Klagenfurt, in Austria, and only carried 333,000 passengers.
"We lost 90% of our market in 1991. We were left with a big capacity and a small market. Then we had 13 aircraft [three A320s, three DC-9s, five MD-80s and two Dash 7s] which had been carrying some 1.7 million passengers, including 700,000 people on scheduled internal Yugoslav flights, which were loss-generating because of price regulation. The profitable side was bringing tourists to the Adriatic, to Croatia and Montenegro, for Western tour companies," says Grasek.
"To survive, we had to change to scheduled services, introduce the Amadeus reservation system and do something about the fleet," Grasek adds. "In the crisis years we managed to survive: we covered costs and prevented bankruptcy by leasing out half the fleet between 1991 and 1994. We have adapted to a smaller market - around 600,000 passengers. We've sold the MD-80 fleet of five aircraft and one DC-9-30. This year we are replacing the Dash 7s with two Canadair Regional Jet 200LRs, with the option on a third."
Over the past six years, the company has reduced its workforce from 878 people to 618 , but managed to rebuild passenger numbers to just over 600,000, with a 55% load factor and a daily utilisation of 8.27h per aircraft compared to 2.84 in 1992.
"The last DC-9 will be phased out next year. They are 20 years old and their economics are very problematical due to noise and emission surcharges."
Adria's workhorses are its three A320-200s which have been in service since 1989. "Our options include selling one or replacing it with another aircraft, possibly an A319. The goal is to have six modern Stage 3 aircraft, with the same operating capabilities. If we reduce to two aircraft types we will have simpler operations and more cost effectiveness."
The company's business is now the European-Mediterranean market, flying scheduled services to major EU countries, as well as to Albania, Bosnia, Croatia, Macedonia, Russia and Turkey.
Grasek says that Adria will concentrate on these routes rather than go into the long-haul business, but will co-operate with larger airlines such as Air France and Lufthansa to feed into the major European hubs.
About one-third of Adria's business is in the charter market. This is a high-growth area, with 3-6% expansion this year, much of it outgoing from Slovenia and Croatia. Incoming charter flights are increasing, particularly from Israel and the UK, with flights this year from Glasgow and Manchester.
"This is directly related to Slovenian tourism," says Grasek. "This is not mass tourism - our strengths are spas, skiing and special-interest holidays such as golf. It is spread more evenly around the year, but is very competitive and you cannot charge more than for beach holidays."
Ljubljana-Moscow is Adria's longest scheduled service, while the most distant charter destination is the Canary Islands.
Peace in Bosnia and Croatia has helped boost Ljubljana's status as a hub, with connections to locations such as Sarajevo, Skopje and Albania.
"Slovenia is the starting point of East European tours," says Grasek, who claims that the company's daily flights to the Bosnian capital are money spinners and nearly always full. "It has been profitable since day one - I wish other routes were the same."
The airline has yet to open routes to Belgrade because of political problems in the Yugoslav capital, says Grasek. "There are 10 to 15 buses a day between Ljubljana and Belgrade - the only people suffering are the travelling public. It is a shame - we should have been the first to fly to Belgrade."
Adria was established in 1960 as Index Aviopromet by the Government and operated until independence under the old Yugoslav "social-ownership" principle, where employees ran the company through workers' councils.
"The ownership structure changed in March 1996: a government agency holds 82% of the stock and the balance is held by a commercial bank," says Grasek. "The goal is at some point to fully or in part float the company on the stock exchange. I can not speculate about what percentage will be offered. The Government may want a golden share. It is a political issue."
According to Grasek, the advantages of privatisation "-will be in the way the company finances its fleet. Now Adria holds the title of its aircraft and finances them through 100% loans," says Grasek. "Under privatisation, we will have advantages to raise capital for fleet development and financing, such as attracting venture capital.Privately owned companies can be managed more efficiently than government-owned ones."
FLEET OPTIONS
Adria's decision to go for the Canadair Regional Jet to replace its Dash 7s is long awaited. "We knew we had to replace the Dash 7 because we never used its short take-off and landing capability - it is just additional cost and the aircraft are slow," says Grasek. "The Canadair Regional Jet was the only aircraft that met all our requirements," he says. "The A319 is being considered - it has commonality with our A320s and also has lower operating costs because airport landing charges are defined by weight."
The CRJ weights 23t, which results in a dramatic reduction in charges, compared to those for the 49t DC-9. These options are still under analysis. "We will probably stay with our A320s, or go for A319s, which have a capacity more appropriate to our requirements," says Grasek.
Local opinion in Slovenia is also keen for Adria to replace its ageing fleet with more-modern aircraft. "Slovenia is a small country and noise is a big ecological issue," says Grasek. "It is so small, almost all the country hears a noisy aircraft landing at Brnik."
Over the next ten years, Grasek says, Adria will continue to be a niche carrier, catering for Slovenia. "We will try to be more active in the charter market. So far we have been quite successful. We will continue under our own brand operating to EU destinations," he says.
"We already undertake third-party work, and have pilots working on a joint project with Vietnam Airlines, using our captain instructors, planning people and commercial staff. Our advantages are professional staff and lower labour costs," says Grasek.
A dilemma also revolves around the airline's well-known name. Originally defined by its role servicing the Adriatic tourist industry, the airline has moved on. "If we were to change our name, there would be costs, and there is a dilemma because we also promote Slovenia," says Grasek.
Six years of hard work have turned Adria around and its attention is firmly on the future in the European market.
"We are controlling costs and servicing our debts," says Grasek. "We are out of the crisis - and back in normal business".
Source: Flight International