Politically Appointed Disasters

In Serbia politics and aviation are closely interwoven. In a 21st century European business environment that is unacceptable, because modern day Europe is based on the Principles of Enlightenment. In many regards one can assume that this revolutionary process has bypassed Serbia; the civil aviation sector being just one of many examples which could be used to prove the point.

So what new development will the recently held Serbian elections bring to Jat Airways and the civil aviation sector in the country? Will there be any changes?
If the party of the ex-president of Serbia forms the ruling coalition then we can assume that Jat Airways will fall under their jurisdiction. This could be seen as very bad news, simply because over the course of the past 4 years all we have heard are empty promises, both in relation to civil aviation and to the wellbeing of the republic. As always, during the pre-election circus new rumours surfaced that Jat Airways is in the market for a lease of 2 Boeings B737-800s.
We see a clear shift from the traditional rhetoric of Jat Airways looking for the smaller variant, Boeing B737-700.

The real question at this point is not if Jat Airways needs the Boeing B737-800s, but what could they do with the two aircraft once they are delivered.
The vast majority of people tend to forget that Jat Airways’ biggest issue is not its ageing fleet; it is actually their politically appointed management which has no real knowledge of the aviation business. This is best portrayed by their failure to follow the latest trends within this highly competitive industry. Some of these include their utter failure to create and effectively introduce a loyalty programme, provide their customers with a consistent flight schedule across their network, implement effective customer service and most importantly, create a Jat Airways brand.

The last point is the most relevant. Though Belgrade airport reminds me of an abandoned outpost somewhere in Africa, I have to admit that the airport is served by a wide variety of airlines, providing more than affordable fares to pretty much any part of the world. Though this comes as good news for people planning on travelling to/from Serbia, it does not come as good news for Jat Airways.
The airline was forced to battle with increased competition through the liberalization of the market without having been reformed and adapted to the new business trends. This means that Jat Airways found itself in a situation when it had to lower its fares, which resulted in an obvious decrease in revenue, while still maintaining a rather high cost structure. The failure of the Serbian government is best portrayed here when we see what crucial step was neglected in ensuring that the national carrier became competitive. By not doing so, they have only ensured that the carrier accumulates losses which need to be covered by the government at the end of each year. On average Jat loses €20 million per annum. This is one of many examples where Serbia blindly introduced EU legislation without preparing its market for the shock.

Jat Airways faces competition on all of its lucrative routes. Starting with the shortest, Vienna, which sees three carriers and up to 7 daily rotations. Jat Airways operates double daily flights on board their Atr-72 aircraft. Up until the liberalization of the market, both Jat Airways and Austrian Airlines enjoyed a duopoly on the route shamelessly charging people up to €200 for a return flight (the route is about one hour). With Niki entering the market things have dramatically changed. Both Austrian Airlines and Jat Airways have been forced to change their tactics in order to survive. Austrian Airlines have added new flights, with the additional departure at 05:15 offering the possibility of reaching any part of Europe via its hub in Vienna by 09:00. More recently it added a late afternoon flight out of Belgrade allowing for connections to the Middle East and beyond, but more importantly it has become more convenient to organize single day trips between the two cities, in order to attract business passengers. On the other hand, Niki launched their flights to Belgrade with 6 weekly rotations, which in a short period of time was increased to almost double daily. Not only have they increased the number of flights to Belgrade, they have also revised their schedule so as to offer more connections via Vienna. The initial schedule mostly catered for the needs of the so called origin and destination market, while the morning and evening scheduling of flights permit more convenient connections in Vienna.
Jat Airways had done absolutely nothing besides entering a price war with these two airlines, competing for the origin and destination market while relying on a humble number of connecting passengers from its rather limited regional network.

Vienna is just one of the few examples where Jat Airways’ failure to react has cost them dearly. Turkish Airlines is increasing their flights to Istanbul, Wizz Air has added additional flights to Malmo while Norwegian has launched their own flights from Copenhagen, and routes such as Amsterdam and London see competition from Wizz Air’s flights to Eindhoven and Luton.
It is also worth mentioning that Jat’s lack of adequate equipment has only speeded up the process of another airline launching flights from Dubai. This was done by flydubai which uses its own 189 seat B738 between the two cities. When the route was operated by Jat, it used a 125 seat B737-300 with a stop in Larnaca. The route saw roughly 70% load factor and was not a great money maker for the airline as it had to compete with other carriers from the region such as Turkish Airlines. The route to Belgrade is considered a success for flydubai with the airline currently operating 5 weekly rotations between the two cities.
This can only mean that Jat’s outdated management is not only driving the airline to its eventual demise, but at the same time it is restricting the normal development of the market. Had the airline leased its B737-700, as it stated some time ago, they could have used it to operate the route to Dubai directly, thus reducing the chances of flydubai launching their own flights. However, their rather archaic product and the stop in Cyprus have made this route unattractive for passengers.
The same applies for Jat’s triangular routes such as those that are operated to Scandinavia or the one to Cyprus and Israel. Naturally, Jat can afford to operate its triangular route in the middle of the night to Cyprus and Israel because it sees no competition in that region. At the same time, they are charging exuberant fares with the cheapest flight to Larnaca starting at €270 (2h: 40 mins.). Attitudes such as these have driven customers away and created a negative perception of Jat among the flying public.
It was exactly because of such policies and such perception that the arrival of competition from Scandinavia was more than welcome.

The management of Jat Airways needs to understand that they are not running JAT Yugoslav Airlines any longer. Operating frequencies are no longer arranged through bilateral agreements and in the contemporary aviation business, profit is everything. On top of it all, the fact that they have been recording passenger growth is only because they introduced numerous ticket sales.
The greatest challenge for any new management would be to restore trust in Jat among the flying public. This can only be done through a strong brand which would make people want to fly with them, even when they are not the cheapest option. Today, the vast majority of passengers would only opt to use Jat if it is cheaper than its competition. Through these numerous sales, that goal was achieved. Unfortunately the management of the company does not see why the airline is failing to make money, though its passenger numbers are up. Probably the term ‘cost structure’ is foreign to them and they have no clue what its relation is to Jat. Future management will keep on failing as long as they are appointed by the government, as is the case with the present CEO.

The current fleet structure is good, in other words a regional turboprop and a medium sized jet aircraft. Unfortunately the airline has never managed to replace its DC-9 aircraft which had the capacity of roughly 100 passengers. This is something that is killing the airline as the Atrs are too small and too slow to operate some of the routes, while the B737s are too big and too inefficient. Some of the best examples of routes which require a regional medium-size aircraft (100 to 110 seats) are destinations such as Berlin, Brussels, Copenhagen, Stockholm, Larnaca and Athens. By introducing these aircraft the airline will be able to reduce capacity and increase frequency. Through such a move it will be able to build departure waves out of Belgrade and thus facilitate the introduction of regional flights to feed its network out of Belgrade.
By using its Atr fleet, which is very fuel efficient, it will be able to reduce the damage of constant fluctuations of fuel prices. These fluctuations are one of the biggest problems for the aviation sector today. With these aircraft this problem can be overcome and so transform Jat Airways into a much more competitive player in the region.
Though Jat currently operates 4 of these aircraft, their scheduling is abysmal with connecting passengers having to spend hours waiting in Belgrade. This only goes to prove that running an airline requires more than good political connections; it requires in-depth knowledge of all aspects of the business.

Both Jat Airways and Belgrade international airport are run by politically appointed people. Naturally, Belgrade airport is in a better position as it is currently the only real international airport in the country. Other airports in Serbia cannot compare in terms of destinations offered, frequencies or infrastructure.
Their current CEO was appointed thanks to his wife’s friendship with the wife of the ex-health minister who offered him a choice between a position at the university or the position of deputy-CEO of Belgrade airport. After the ‘Kristo scandal’, current CEO Velimir Radosavljevic was offered the position during a lunch meeting with Mr Dinkic and Mr Mrkonjic.
A similar story occurred with the appointment of the current CEO of Jat Airways, Mr Ognjenovic. His aunt was one of the founding members of the party of the previous president of Serbia.

As long as the societal riff raff gets promoted to key positions in the country, young and competent Serbs will have no chance of finding adequate employment opportunities in their own country. This is only encouraging the already serious problem of ‘brain drain’.

Could the saying, birds of a feather flock together, indicate that people such as the CEOs of Belgrade airport and Jat Airways are actually no different than those who have appointed them?
It all goes to show that ‘It’s who you know, not what you know’!

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3 Responses to Politically Appointed Disasters

  1. Sinisa Krneta says:

    Great again.
    We missed you!

  2. Alexander says:

    Terrific and on the spot ! Thanks

  3. b737 says:

    Glad to see you back. I could not agree more with you, but at this moment I do not see light at the end of the tunnel. In Jat need someone who will have gut and start to change everything, from the whole management to the core business. Otherwise the end is coming, sadly, but is coming.

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