The Croatian government has approved a major capital injection for its national carrier, prior to the country’s entry into the European Union, so as to avoid strict competition regulations. Croatia Airlines will receive 106 million euros in fresh equity capital from the Croatian government as part of a capital increase. The investment is part of a turnaround plan to make the national carrier profitable from 2013 with Croatia Airlines also planning to gradually cut 10% of its staff within the next two years. The government will make its payment in two stages. It will first provide 86.2 million euros to cover Croatia Airlines’ debts and a further 19.8 million euros to help the airline become more competitive.
Croatia Airlines suffered a net loss of 1.4 million euros in the first nine months of this year, down from 4.2 million over the same period last year. The government continues to stress the need to restructure the company in order for it to continue operating. During the first nine months of the year, Croatia Airlines carried 1.550.000 passengers, an increase of 3.5% on 2011. The average cabin load factor stood at 70.3%, up three points.
While Croatia Airlines already sees strong summer competition at its secondary bases on the coast, it is now facing tougher competition in Zagreb as well. The airline will soon have to compete against British Airways on its London route and has had to deal with the arrival of Qatar Airways which has tapped into its passenger base that use Frankfurt and Munich as transfer hubs. Croatia Airlines has already announced a string of new flights for the 2013 summer season. It will also significantly boost its services to the “European capital” Brussels from six per week to eleven.
Croatia is set to become the 28th member state of the European Union on July 1, 2013. The government has ushered in the capital injection before it is obliged to follow EU regulation. State aid is not prohibited in the EU, but it has to be assessed as an investment and is allowable only if it is considered that a private investor would be prepared to make the same investment. Furthermore, state aid includes not only aid received from the central government, but also aid from other entities such as local authorities or companies owned by the public, such as airports which Croatia Airlines duly enjoys.