Adria Airways

Romania's TAROM remains confident of reversing its fortunes despite facing huge competitive hurdles

Management of Romania's TAROM believes it will not slip into a scenario like Hungary’s national carrier Malev, which ceased operations in Feb-2012, arguing that it has the “capability to adapt quickly”. But TAROM executives will find a hard time proving their case as the Romanian carrier has recorded losses for four consecutive years and is expected to remain in the red in 2012.

TAROM faces significant pressure from LCCs, namely from Wizz Air, which is absorbing an increasingly larger part of its market. In addition, the airline’s efforts to restructure and find a new business model are hindered by repeated delays of plans to sell 20% of the company. Eventually the Romanian carrier’s full ownership should end up in private hands.

But it is unlikely that a private investor will step forward to purchase a minority stake in state-owned TAROM in the current European financial environment. Europe’s economies are overall in bad shape, and there is an oversupply of small and medium airlines for sale whilst potential buyers are scarce.

Flag carriers of the former Yugoslavia urged to unite

National carriers in countries of the former Yugoslavia are struggling to survive in the current economic environment as operating costs rise and they face competition from large network carriers and expanding low-cost carriers. The former Yugoslavian nations of Bosnia and Herzegovina, Croatia, Montenegro, Serbia and Slovenia all have national airlines but are struggling to become profitable, while the national carriers of Kosovo and Macedonia have already failed and have not been revived. 

Association of European Airlines (AEA) secretary general Ulrich Schulte Strathaus recently told Slovenian newspaper Dnevnik that national carriers in the former Yugoslavia need to unite into a single carrier in order to survive. Mr Strathaus stated, “the once single Yugoslav market is now fragmented and a regional solution is necessary. The region needs an airline that would cover local needs and connect with global hubs.”

The main airlines in the region are Bosnia and Herzegovina’s B&H Airlines, Croatia’s Croatia Airlines, Montenegro’s Montenegro Airlines, Serbia’s Jat Airways and Slovenia’s Adria Airways.

Slovenia’s Adria Airways seeks strategic investor following restructuring

Slovenia’s Adria Airways this year plans to search for a strategic investor, hopeful it can attract interest from other airlines after completing a restructuring and recapitalisation in 2011. But the flag carrier, which has emerged as a significantly smaller and less ambitious entity, still faces significant challenges as it joins several Eastern European carriers in trying to sell stakes in adverse market conditions.

The Slovenian Government sold just under 30% of Adria Airways in Sep-2011 to a group of four banks as part of a debt for equity swap. The agreement also included a EUR50 million cash infusion from the Government, which has had to pump capital into the Ljubljana-based carrier multiple times over the last several years to cover continued losses. But the banks, which include two Slovenian and two international banks, are considered short-term investors and only agreed to the deal as it was seen as the only alternative to avoiding bankruptcy. The four banks are expected to sell their stakes at the first opportunity while the Government is also eager to further reduce its share, which now stands at just over 70%.

Europe's fringe carriers look for partners to overcome financial crisis; Cyprus Airways latest

Airlines on Europe's southern and eastern periphery are becoming more precariously positioned, but are looking for for partners to help overcome the growing financial crisis. Cyprus Airways is the latest such carrier, and reported a widening in first half losses in the six months to 30-Jun-2011, as lower top-line revenue fell and higher fuel costs squeezed the airline in the period. Cyprus Airways is also turning to implementing a raft of measures aimed at stemming operating losses.

European airlines report single-digit traffic growth in 2010; profits remain weak

European airlines reported single-digit growth last year - a welcome improvement from 2009's depressed level - but 2010 was a lacklustre year overall. Full year data has been released by the Association of European Airlines (AEA), the European Low Fares Airline Association (ELFAA) and EUROCONTROL. As noted by EUROCONTROL, growth across the continent last year was driven mainly by LCCs.