February 16, 2020 – TCN recently started a discussion on why there are no budget winter flights to Split, which got a lively response. And now we have an expert view to consider.
One of the many fabulous discoveries I made about Croatia in the last couple of years is a fantastic Swiss company called ch-aviation, which is the market leader in aviation data. Fantastic because their data and analysis has been a great source of information for me for stories about flights to Croatia, Montenegro and Serbia. And a fabulous discovery because they opened their main subsidiary office right here in Croatia, in Zagreb. And so successful have they been with their Croatian operation that they have expanded quickly, and continue to look for more talented young Croatian staff. You can read a TCN feature about ch-aviation here, and then check out their website.
The ch-aviation chaps have always been very obliging when I have asked for comment on an issue regarding the Croatian air industry, so having opened the topic about budget winter flights to Split, I thought it would be useful to get some expert thoughts. And here they are, courtesy of Chief Marketing Officer, Simonas Bartkus, for which many thanks:
Europe is by far the most seasonal continent in the world when it comes to air travel. It means there is massive demand in Summer, but the demand goes down in Europe-wide. I don‘t have exact numbers, but I believe Croatia is one of the most challenging countries in Europe when it comes to seasonality (everything connects to sea-coast tourism as a key purpose to travel to Croatia).
In Europe, most of the airlines are making their profits in summer. Even ultra-low-cost-airlines, like Ryanair or Wizz Air, announce quarterly losses when financial quarters includes winter months only. From time to time low-cost airlines report very thin positive margins, but mainly due to their smart capacity management (reducing in winter, planning all maintenance events and crew holidays in winter) and more business profile routes in their network.
Having said that, I should say, profitable operations in winter-only operations are not realistic from Split in winter. Nevertheless, every additional flight would be beneficial for local tourism and the economy. As the region has the infrastructure to serve loads of people in summer, the capacity is under-utilized in winter. It would make sense to the region (tourism authority, local businesses or local government) to subsidize routes, but the amount of the subsidies may be high: we could look at the numbers to subsidize 30% or even 50% of all the cost of the flights which may result in few millions of subsidies per route. At the same time, the long term development the subsidies will develop the traffic to the level it can sustain itself in the long term also is not very realistic, in my opinion.
Together with that, every subsidy creates a change in the competition environment. In winter, Croatia Airlines offers 86% of the capacity from Split Airport. The national airline is operating 3x daily flights to Zagreb which is subsidized by PSO mechanism in Croatia domestic airline network. Croatia Airlines also feeds Frankfurt and Munich with daily flights on their own commercial risk, feeding Lufthansa hubs and two largest Star Alliance hubs in Europe. Business travellers have an option to reach Split via Zagreb, Munich or Frankfurt in winter. If the new low-cost airline will be created in Split for winter operations, Croatia Airlines will become the one which will be hurt most, as I expect their routes SPU-ZAG, SPU-MUC and SPU-FRA serves connecting traffic mostly. This may result in the need to raise the subsidy required for SPU-ZAG or/and Croatia Airlines may decide to drop Frankfurt and Munich services for good.
So to say, I‘m quite pessimistic with the longterm sustainability of such a project. Nevertheless, there are some good examples in Europe, when Malta, Cyprus or provinces of Italy try to attract a limited amount of low-cost flights during winter with offering subsidies. But at the same time subsidies schemes should be smart not to destroy existing traffic.
For the latest flight news from Croatia, check out the dedicated TCN section.
