Rumor: Air Serbia to restructure. Will Etihad pull out?
European carrier. Some stakes owned by Etihad Airways. Undergoing restructuring. Sounds familiar? After two Etihad-owned airlines filed for bankruptcy in 2017, the question remains – which one is next? Air Serbia is taking steps not to become the answer to this question.
On February 18, 2018, Serbian daily Danas reported that Air Serbia is planning a restructuring, which is exclusively focused on improving key performance indicators. As Ex-Yu Aviation News puts in, the wide-ranging revamp comes at a time when Air Serbia is struggling to “keep a lid on costs, growing competition, an over-inflated workforce and the winding down of state subsidies”.
Employees of the Serbian flag carrier received an announcement on February 12, 2018, stating that during a “recent” company’s strategic meeting it was decided to "define the direction of development in the coming period".
The approach "will contribute to the successful adjustment of the company to the current conditions on the market, achieving better profitability and competitiveness,” is noted in the announcement, according to Danas.
The goal of the re-organization, as the statement reads, will be to focus on net profit, a new concept of tariffs, on-the-fly sales, additional services that will generate additional revenue as a product, and initiatives that will allow increased operational efficiency.
Changing Air Serbia
In August 2017, See News reported that Air Serbia plans to fire approximately 100 of its employees as it was allegedly told to do so by Etihad. A couple of months later – in November 2017 – the company did say goodbye to 340 employees (in other sources – 350) by transferring its handling unit to Serbia’s Nikola Tesla Airport.
The changes affected the top management as well. On December 25, 2017, Air Serbia announced leadership change as Dane Kondić stepped down from his role as Chief Executive Officer “for personal reasons”, as noted in a statement by the airline. Kondić was the CEO for four years before leaving the airline in January 2018.
Duncan Naysmith, previously the airline’s Chief Financial and Business Transformation Officer, was appointed as Interim Chief Executive Officer “while the airline embarks on a search for a permanent replacement for Mr. Kondić”. Naysmith assumed full management responsibilities in December 2017, while a handover period was in place until the end of January 2018.
“Air Serbia is embarking on the next phase of its development as one of best carriers in Europe,” Siniša Mali, Chairman of the Supervisory Board of Air, was quoted saying in the statement at the time.
In addition to changes in staff, Air Serbia has recently introduced some operational
changes adjustments. In January 19, 2018, the carrier announced postponing its previously intended service to Geneva and transferring capacities to charter operations.
“As last year was a record year for charter operations, the company has decided to supplement its capacities with an aircraft originally intended for transporting passengers and goods to Geneva,” was said in a statement, adding that “charter flights present, from a financial aspect, a lower investment risk and a more efficient use of resources”.
On January 24, 2018, Air Serbia also announced a new pricing model to be progressively rolled out from March 1, 2018. The carrier is introducing four fare types – Economy White, Economy Blue, Economy Red or Business Silver – that vary according to baggage allowances, flexibility in changing travel dates and additional services.
Referring to the new pricing model, Naysmith said in a statement that “Modern trends have clearly shown there is no one-size-fits-all approach that works in air travel and different segments of travelers have different needs, which is why airlines around the world are unbundling their fares”.
But sceptics are not convinced of the new ‘hybrid’ business model Air Serbia is moving towards. The carrier’s “business repositioning began to create a hybrid airlines, which would be a "little" classic and "little" low-cost”, writes Danas, pointing out that the Serbian flag carrier also operates cargo and charter service.
Is Etihad here to stay?
In November 2017, Serbia’s President Aleksandar Vucic met with the Crown Prince of Abu Dhabi Mohammed Bin Zayed al-Nahyan to discuss “further improvement” of relations between the two countries.
Among other questions, the two parties also talked about the “continuation of the cooperation between the Republic of Serbia and Etihad through operations of the national air carrier of Serbia”, Serbia’s President Press Office reported on November 25, 2017.
The meeting raised questions on whether Etihad is interested in retaining its 49% equity stake in Air Serbia.
On the one hand, Air Serbia is not the only carrier, in which Etihad has shares, currently attempting to increase performance. In January 2018, Air Seychelles – another carrier in which Etihad has shares – launched austerity measures and announced the beginning of a restructuring plan implementation.
The plan, aimed at “ensuring the long-term profitability and sustainability”, includes lay-offs of cabin crew, pilots and other staff, suspending service to Paris and Antananarivo, fleet alterations (giving up two leased Airbus A330 and replacing two Airbus A320 with the next generation aircraft in 2019), etc.
The developments will also be “coupled by a number of new cost-saving and revenue-generating initiatives in 2018, including projects aimed at strengthening non-airline areas of the business such as ground handling, cargo handling and engineering services,” the carrier noted in a statement.
On the other hand, in 2017, Etihad said goodbye to its long-term chief executive James Hogan, who was famous for bold strategy of attracting traffic to Abu Dhabi hub by buying minority stakes in often troubled foreign airlines. Two of these airlines – Alitalia and Air Berlin – filed for administration in 2017.
Hogan’s strategy was rumored to be the reason for his leave and he was partially blamed for the carrier’s financial losses, as the year 2016 marked Etihad’s significant financial loss of $1.87 billion and the first time the airline actually reported a loss since becoming profitable in 2011.
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