Air Serbia 101

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Everyone who has been following Serbian aviation will know that in less than a year, the local market underwent a revolutionary process at the end of which a new airline emerged- Air Serbia. When Etihad announced its intentions to takeover Jat Airways, it seemed that anyone and everyone in Serbia felt that they should publicly express their views and opinions regardless of how familiar they were with civil aviation. It’s worth pointing out that from the start almost everyone agreed that something had to be done with Jat Airways; disagreements emerged over what kind of business model the airline should follow.

Scepticism related to Air Serbia’s future started long before the airline’s business plan was made public. As early as February 2013, roughly the same time when first takeover rumours surfaced, a large number of sceptics did not believe there were any good enough reasons for a premium airline such as Etihad to even consider investing in a failing carrier such as Jat Airways. Even though I was part of the minority which believed that this scenario was very much possible, I can understand where the anger of the majority was coming from. For years and years, Jat Airways CEOs were politically appointed people with no aviation skills or knowledge- I have even dedicated entire posts on this blog to talk of this problem. Some of these CEOs have even managed to make the airline a laughing stock by proposing, for example, to sell tickets in post offices and on the streets.

In addition to a non-existent business plan, the airline’s fleet renewal strategy was often discussed as its fleet of 10 Boeing B737-300s were well over 25 years old. The airline also operated a fleet of 4 regional, turboprop aircraft (Atr 72-200), however, these were often neglected as the Boeing fleet constituted the airline’s backbone. Though the aircraft were safe, their comfort and efficiency were well below the industry standard which prevented the airline from being competitive not only internationally but also domestically. The latter was a serious problem for the Serbian carrier as its market share at Belgrade airport was constantly dropping over the last several years as a result of the liberalization of the Serbian market. In the end, Jat Airways managed to stop this negative trend and so it kept a market share of around 40% at Belgrade airport. Naturally, Jat Airways’ management, without any aviation knowledge, did this by considerably reducing its fares on almost all routes. Even though its passenger numbers did manage to recover, its yields collapsed. This is because the airline, one could argue, introduced a new business model- one that required a light cost structure. The airline’s management was probably not aware of this hence why the airline’s state only worsened with the passing of time. On the outside the airline seemed to be doing ok but behind the scenes the situation was precarious as the airline was slowly moving towards bankruptcy.

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In early 2013, the situation went from bad to worse as the airline’s winter timetable collapsed as a result of bad C check scheduling. In other words, a considerable part of the airline’s fleet was grounded which left the management with no alternative choice but to cancel numerous flights. This further hurt the airline’s image and reputation among the travelling public. It is also worth mentioning that the airline failed to keep up with modern aviation trends as it lacked a competitive frequent flyer programme as well as the option of online check-in. Simply put, Jat Airways was a dying dinosaur of an airline.  

The first major development took place on 15 April 2013 when the two airlines, Etihad and Jat Airways, formalized their cooperation. Two months later, Etihad launched daily, direct flights from Abu Dhabi to Belgrade with the smallest aircraft in its fleet, Airbus A319. Throughout the summer season, Etihad experts evaluated the overall state of the Serbian national carrier before formally announcing a minority takeover on 1st August 2013. Even though the official takeover was scheduled to take place on 01st January 2014, the airline took immediate charge of Jat Airways. By mid-September, Etihad proposed a new CEO, Danny Kondic, a man with vast aviation experience. Regardless of his experience and professionalism, a certain Serbian aviation portal did not waste its time to attack the government’s decision for allowing the previous (politically appointed) CEO, Velibor Vukasinovic, to be deposed. According to this portal, Mr Vukasinovic had done a lot to save Jat Airways’ summer operations by leasing a total of four new aircraft; two Boeing B737-300 from Bulgaria and two Atr 72-500 from a Danish leasing company. Even though this was a good move and it did help with the summer schedule, the candidate proposed by Etihad had far more experience from internationally acclaimed airlines and aviation businesses. In other words, by bringing a new CEO such as Mr Kondic, the government ensured that the airline has a long-term development strategy. Furthermore, Vukasinovic might have saved the summer schedule from collapsing but he still did not show any intention of dealing with the fundamental problems with which the airline was faced. What the portal missed was that Vukasinovic merely prolonged the status quo for a bit longer before the whole structure would have come down crushing.

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On top of everything, Mr Vukasinovic never worked directly for an airline; his aviation experience comes from working for government institutions which have little in common with running a successful aviation business. Just because Mr Vukasinovic was successful in his previous jobs does not mean he would have run Jat Airways/Air Serbia successfully, especially not since he did oppose the takeover. Many in Serbia tend to forget that running an airline and working for a civil aviation institution is not the same thing. The qualities required for each post are completely different; one is a technocrat while the other is a businessman. By opposing the deal with Etihad, Mr Vukasinovic proved to all of us that he was not a businessman and that he probably did not understand in what state Jat Airways truly was- in other words, it was on the brink of bankruptcy. Only Etihad with its fresh capital injection could have saved it, which it did, especially since the Serbian government was in no position to provide the funds needed to restructure and revitalize Jat Airways.

One can interpret Mr Vukasinovic’s departure as a symbolic one. It marked the end of an era where Jat Airways was a political toy misused by successive governments. It had become obvious that the only way for Jat Airways to survive was for a professional and financially strong partner to step in and introduce a modern work ethic and business strategy. Etihad did exactly that and positive results were noticed from the very start. Besides introducing new corporate identity, fleet and a revised flight schedule the airline managed to become, in just two months, the main factor of growth at Belgrade airport. During November 2013, the first month of Air Serbia’s operations, the airline recorded a 12% increase in passenger numbers. Even though passenger statistics for the month of December have not yet been published, Belgrade airport has forecast its own passenger growth to be close to 20%.

Belgrade airport’s phenomenal passenger growth could not have been achieved without Air Serbia and its new business strategy. Air Serbia’s future ambitions have been recognized in both Bucharest and Sarajevo where both Tarom and B&H Airlines have stepped forward and offered to cooperate with Air Serbia.

In the next blog post, I will take a closer look at what kind of airline Etihad and its team have created in Belgrade. In addition to this, I will present its main advantages and challenges.

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The Uniqueness of the Serbian Aviation Experts

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One does not get many chances to use ‘Serbian’ and ‘aviation experts’ in the same sentence without a dose of sarcasm or irony.It is a public secret that people in charge of Serbian aviation are usually there as a form of reward for their stellar and uncompromising allegiance to their political party. To be fair, political appointments do not represent the sole mechanism for employment since nepotism seems to be just as popular.

Though political appointments and nepotism are present in all societies of this world, the fact that this occurs in Serbia should come as no surprise. However, it seems that these practices are rooted so deeply within the Serbian mentality that qualified people are left with no other choice but to choose between emigration and working for a pathetic salary where career advances are not based on merit. Since most talented and competent Serbs seek ways to emigrate, the local aviation business is run by people who are there just because working for the national carrier (or any other government institution) beats being unemployed. Before continuing any further, I would like to emphasise that this trend does not apply to those who operate or service the aircraft but rather to those who are responsible for the management of the aviation business in the country.

Since 2000, when democracy replaced authoritarianism, little has been done to prepare the Serbian industry, especially the national carrier, for the unavoidable liberalization of the aviation market.

Both the airport and the national carrier saw a succession of ‘experts’ lead the Serbian aviation forward into regional leadership (we are still waiting for them to tell us what region they actually meant).

In May 2012 Serbia held national elections where a new coalition was formed. Everyone was anxious to find out what the new government coalition planned for Jat Airways and if their policies would bring about a change.

Beating all expectations the new government formed a task group, made up of experts, who were supposed to come up with a plan which would revitalize the national carrier and, according to the minister of transport, reduce the losses so that the airline might manage to just about break even.

In theory, this solution is simple and effective.

However, the only problem is that the experts in this group were either political puppets or pilots.

For the airline to be restored to profitability unpopular measures had to be introduced so as to reduce costs. Political puppets would be unaware of this necessity as most of them are unfamiliar with the strategies employed within this particular field. However, it is highly likely that pilots would be aware of the necessity of these measures, as they are familiar with the working conditions of their colleagues who  fly for low cost airlines or other legacy carriers which previously undertook these measures. Without doubt the pilots would ignore these harsh measures in order to preserve their perks and benefits.

A positive outcome from the work of this task force is that they have concluded that Jat Airways needs to reduce its workforce by at least a half. Though we can partially give them credit for their conclusion, one should not have high expectations as even politicians have made similar statements in the past. At this point it has become quite clear that we should not expect any fundamental changes within the airline as nothing seems to have changed from the previous times when ‘experts’ were called in to save the day.

Another positive outcome from this whole story is that these ‘experts’ have agreed to put forward a fleet renewal plan. However, a country like Serbia, which seems to be determined to join the European Union, has failed to embrace the notion of transparency. The whole process has been cloaked in mystery and kept away from the public eye. Only vague information has been leaked to the public revealing absolutely nothing.

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So what is the actual problem?

There are two major chronic problems with Jat Airways which will will continue to cripple it in the future. The first is the very organization of the airline, while the second is, once again, its fleet.

The airline plans on reducing its workforce by almost 50%, which should reduce its losses, but will not solve its long-term problems.

So what are these long-term problems Jat is facing? The first is that the carrier needs to decide what kind of market it wants to serve. Will it aim at catering for the needs of the point to point travellers or will it attempt to transform its Belgrade hub into a true Balkan crossroad? Until now, the abrupt liberalization of the Serbian market and the failure of various governments to prepare the national carrier for the transitional shock have forced the national carrier to mutate into some sort of a hybrid carrier which is stuck between two worlds.

Jat tries to compete with low cost carriers (most notably Wizz Air) by offering competitive fares with an uncompetitive cost structure. Though this might have a positive impact on the average load factor, it has the exact opposite impact on the airline’s finances. Without the much needed autonomy, the airline was (and still is) unable to take the adequate measures which only increased its losses and its debt.

Government officials stated on numerous occasions that they have no intent to turn Jat Airways into a low cost carrier. This means that Jat Airways has to keep its level of service equal to that offered by legacy carriers but at the same time it has to have a relatively low cost structure which will enable it to compete against the low cost carriers.

Though this is relatively difficult to achieve it is far from being impossible. The most important thing for Jat Airways to do is to revise its regional network by taking into consideration the state of its fleet and what it can do with it.

Its regional network will not only cater for the needs of the point to point passengers but it should be organized in such a way that it allows onward connections in Belgrade through the creation of several waves of departures.

The Balkan Peninsula is very competitive in terms of the number of carriers which are based there. Therefore Jat must optimize its performance within its regional network. First step would be to designate its regional zone as the one that stretches within a 500 nautical mile (nm) radius from its base at Belgrade airport. When competing with the Dash-8, on flights within this area, the Atr is incomparably more profitable. Problems arise on flights that exceed this distance as the Atr is simply not built for similar missions. Beyond the 500 nm radius the speed of the Dash becomes its biggest attribute while at the same time its more comfortable cabin improves the overall passenger experience.

Once the radius and the equipment have been defined, Jat needs to evaluate all possible means on how to offer competitive fares and still make a profit.

The simplest solution would be to divide its fleet into a mainline division and a regional one. The regional one would be comprised of Atrs where both the flight deck and cabin crew would sign separate contracts which would be similar to those used by (ultra?) low cost carriers. Though these contracts might be unattractive for the employees (when compared to the present) they need to enable the airline to engage in price wars so as to beat its competition – especially when facing airlines from its surrounding region which will most likely try to attract the same passengers as Jat. For example, on flights from Belgrade to Montenegro Jat currently needs at least €90 per passenger in order to break even. Its competition, Montenegro Airlines, operates a mixture of Embraer and Fokker jets which are much less efficient on such a short flight. By restructuring the airline and by separating the regional from the mainline fleet, Jat will be able to lower its fares to about €40/50 and still make a profit. This would eventually hurt Montenegro Airlines who will be forced into a pricing war it cannot win. This regional branch could either be a subdivision of the national carrier or a totally new airline which would take over all regional routes from Jat leaving it to operate from Belgrade to all destinations located outside the domestic sphere. The latter solution might be a more favourable one so that neither one of the two companies drains the other financially. It is always better to have two independent carriers operating within their own respective markets.

Though this light cost structure might encourage the management of the airline to expand rapidly, it is wiser to preserve a more conservative approach and expand within regional markets which have a considerable point to point traffic. This means that routes such as Podgorica, Tivat, Ljubljana, Sarajevo, Skopje, Thessaloniki, Ohrid, Dubrovnik and Pula should be considered as primary destinations which should be operated at least daily. Secondary cities such as Sofia, Banja Luka, Varna or Bucharest should be launched three times per week and special attention should be dedicated to these markets so as to develop point to point traffic which should act as a safety net once a more aggressive approach is taken when connections are added to the business equation.

Road and rail transport throughout the Balkans is bad, while its future improvement will be made difficult by the mountainous terrain. Jat Airways needs to use this to its advantage and attract passengers who would otherwise take a bus or train to reach any destination within this region.

Building a network to feed the flights of the mainline division is not enough; the airline needs to find its own market which will be served between the mainline waves of departures. In my opinion the airline should propose a new project entitled ‘Belgrade, a Balkan crossroad’ where it would provide connections for intra-Balkan flights. This programme could make certain routes profitable that otherwise would not be so. A good example of this is the flight from Belgrade to Zagreb. Due to good road infrastructure between the two cities most people opt to travel by car or bus. However, by establishing this route in the post-reorganization period it could feed the mainline’s waves of departures but more importantly it could also offer connections to the regional flights out of Belgrade. Just before the crisis there were roughly 20 passengers flying between Zagreb and Bucharest. Since this route would not be profitable for either Croatia Airlines or Tarom people travelling between the two cities have to either travel by road (which requires crossing several borders) or fly via an alternative hub. If Jat could manage to capture this market (and due to its geographical location it could), it would mean that on a daily basis it could fill 30% of its Zagreb flight with passengers connecting onwards to Bucharest.

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In order for this plan to be successful, careful planning and a light cost structure would need to be set in place. Fleet commonality is paramount hence the reason the fleet should be comprised of Atr 72-500s.

This is naturally a simplified explanation of what is needed for Jat to have even a remote chance of surviving. This is why the work done by the so-called experts should be disregarded since they will only reduce the negative effects but will not solve the actual problem.

If the restructuring plan proposed by the task group does take place then Jat will have a young fleet of regional aircraft, but at the same time this fleet will be operated by an expensive crew (and a generally expensive cost structure). Therefore the problems faced by the airline will simply persist under another guise. At this point the carrier will be left with two choices: either to reduce or to increase its fares.  The first option will attract more passengers, which should work, but at the same it will make the airline bleed money; or the latter choice resulting in increasing its fares beyond rational levels, serving only to tarnish its image among the travelling public. This second choice would  create the perception that, no matter what, Jat Airways will always be the most expensive option.

The fact that this group of ‘experts’ have yet to propose fundamental changes within the airline only goes to prove that they lack the basic knowledge of the aviation business.

 

To be continued…

Balkan Unity. Thank you, but no thank you…

Recently there was much talk related to a creation of a single Yugoslav airline. Many prophesised that this was the only way these airlines could compete and thrive in the modern-day aviation business. While these self-proclaimed experts spread their ‘wisdom’, a relatively small group of people, with some sort of knowledge in aviation, laughed knowing that this would never occur.
Though many would argue that this would fail because of politics, the reality is very different. This project would fail because it is not sustainable, just as the nation of Yugoslavia wasn’t.

In mid-April CAPA published a rather superficial analysis on this proposal, not presenting its readers with the challenges beyond those from the world of politics. A month later the Economist reinvented the wheel by publishing the paraphrased mediocrity calling upon the Western Balkans to commit the same mistake they did roughly a century ago.

Today’s post will be based on the article published in the Economist since it has a wider readership, and is generally more influential than CAPA.

There is little concrete correlation between the title of the article and its content. By reading the title one would assume that there is a pan-Balkan move to unify the airlines into a single larger one. This is not the case,- unless, of course, the author believes that the ex-Yugoslav region is all that matters in the Balkans? The article talks of a meeting between the representatives of four ailing carriers meeting in Montenegro to discuss what they could do in order to fight the arrival of lowcost airlines into their home markets. As expected no concrete decision was taken.

However, the author of the article manages to contradict himself from the very start. In his first sentence he makes a bold statement that all eastern European airlines are sick. Within the same paragraph the author states: ‘Most East European airlines are losing money’. At this point one needs to ask if, according to the author, most of these Eastern carriers are sick, but not all of them are losing money, then what characterizes these profitable carriers as sick? Could it be that the author did not bother to look at the state of several carriers such as Aeroflot, Transaero, Travel Service, LOT Polish Airlines, Wizz Air, Blue Air…?
All of these carriers are far from being ‘sick’, yet they are all based in Eastern Europe.
In addition to attempting to create a false perception of reality in order to support his argument, the author forgot to mention that Eastern European airlines are not the only victims of bad management and the World Economic Crisis. Numerous airlines in the West are struggling just as much as these Eastern ones are. Even long established carriers such as Air France had reported tremendous losses, SN Brussels did the same, while Lufthansa had come forward with a statement that its short-haul operations are not profitable, echoed in a statement by Finnair. Even beyond the borders of the European continent the same trend can be noticed. JAL of Japan has been struggling financially for years now; Qantas has just reported a 90% slump in its profits while American Airlines is currently undergoing Chapter 11 restructuring. Then again, it is worth mentioning the major recipient of government subsidies, Air Canada, which would not be able to survive had it not been for their government bailing them out on numerous occasions. In addition to bailing them out, the Canadian government had blocked numerous Middle Eastern carriers from establishing flights based on demand instead of restrictive bilateral agreements. All in all, civil aviation business is suffering on a global scale; Eastern Europe is just one part of this phenomenon.
It is true that Eastern European airlines are suffering from rising competition from lowcost carriers, but once again, this development is not exclusive to this part of the world, it is a global trend.

The last sentence of the first paragraph should completely discredit the author as it portrays his lack of knowledge when it comes to civil aviation. His mention of Malév’s bankruptcy is completely taken out of context here. Malév’s unfortunate demise did not come as a result of a classic bankruptcy, but rather as a result of bad and inconsistent policies by the CEOs. The final nail in Malév’s coffin came during the tenure of the current CEO of Wizz Air, Tomasz Váradi, who had signed the airline’s fleet renewal. The agreement had been so unfavorable to the Hungarian carrier that it could never make a profit due to additional costs included in the leasing contract. On top of these additional expenses the airline had to battle with weak economic performance of its key markets and the rising cost of fuel. The same man who inked the detrimental fleet renewal was the one to report the case of Malév to the European Commission.
The European Commission clearly breached its own regulation when it claimed that the airline must pay back the subsidies it had received from the Hungarian government. Once the news reached Budapest, the Hungarian government decided that it could no longer finance Malév’s survival and so it decided to shut down the airline. Had the fleet renewal been done properly Malév would have never faced liquidation.

To get back to the topic in hand, I would like to present the key problem to the establishment of this new airline: the hub.
Though each country would still maintain a certain number of routes, there should be one dominant airport from where most of the flights would originate and where most of the regional flights would feed the routes which are not sustainable from other airports. Naturally it would make sense for that airport to be based either in Belgrade or Zagreb. Belgrade which is currently seeing impressive passenger growth and handles more passengers and airlines on a yearly base than Zagreb would be the obvious choice. Not to mention that Belgrade currently has better infrastructure which could be used by this new airline.
However, the million dollar question is: are the Croats are ready to accept this? If we judge by the statement at the end of the Economist’s article where Croatia’s minister of transport says that unless Croatia Airlines revives it should merge with Adria, then we can assume we got the answer to our question. A merger with smaller Adria would mean that Croatia Airlines and Zagreb would become the dominant players. This would not be possible if Belgrade and Jat were added to the equation.

Another major challenge for these airlines is in their fleet structure. Adria’s fleet is the one to pose the greatest problem in creating a new airline. They have 6 CRJ200 aircraft which are highly uneconomical for the modern day aviation business.
For example, a CRJ200 consumes 1.200 kg/h of fuel to carry 50 passengers, while Montenegro Airlines’ ageing Fokker carry double the amount of passengers but consume just 100 kg/h more fuel. This only goes to prove that 6 out of 13 aircraft in Adria’s fleet are bleeding money, a trend which should be reversed through the establishment of a single Yugoslav airline. By pursuing a merger in the current environment, an airline would be created with a fleet consisting of: Boeing B737-300s, a Boeing B737-200, Atr-72s, Fokker 100s, Embraer E195s, Airbus A319s, Airbus A320s, CRJ200s, CRJ900s and Dash-8s. Optimal fleet structure for an airline serving Yugoslavia should be made up of Airbus A319s, A320s and Dash-8s.

The most logical step would be to pursue a merger between Adria and Croatia Airlines, their core fleet is similar as both airlines operate Airbus aircraft. This means that there would be no additional cost to set up maintenance facilities or to provide the employees with additional training. If Adria were to introduce Dash-8 aircraft, their maintenance could be done in Zagreb thus lowering operational costs.
Montenegro Airlines operates out of a small, and extremely seasonal market, so its fate would be dictated by the bigger airlines.

If Adria, Croatia Airlines and Montenegro Airlines were to pursue a merger, should Jat Airways follow suit? Currently the airline operates a fleet of 14 aircraft, 10 Boeing B737-300s and 4 regional turboprop Atr-72 aircraft.
If they were to join this new venture they would have to consider replacing their Boeing fleet with Airbus aircraft in order to create synergy with other carriers within the alliance. This would bring about a new additional problem. The reason why all these airlines are considering unifying is because they lack the financial means to sustain their current operations. This only leads one to conclude that these airlines, even after unifying, could not afford to finance Jat’s transition from an all Boeing to an all Airbus fleet. As the carrier serving the biggest Yugoslav market it would require more than a few aircraft which could be transferred from Adria or Croatia Airlines. In addition to this, additional training of its personnel would increase the costs on top of introducing additional maintenance facilities at Belgrade airport. All in all, the cost of including Jat Airways in this project would cost more than they can afford.

The fact that Jat Airways is not a natural partner for this ex-Yugoslav alliance does not mean it is a lost cause, quite the opposite. This should make the management of Jat Airways realize that they are pursuing cooperation with the wrong airlines. Their future cooperation should be with Serbia’s traditional ally, Romania. Romania’s national carrier Tarom has a similar fleet structure to that of Jat. 18 of their 24 aircraft are directly compatible with Jat’s fleet.
Tarom operates both old and new generation Boeing B737 series, as well as 9 turbo-prop regional aircraft. This means that Jat’s natural partner is not to be found in the west but rather to the east.

Apart from the fleet commonality, both airlines complement each other. Tarom’s strength is in certain western European markets and the Middle East, while its services to Scandinavia, ex-Yugoslavia and Russia are limited to non-existent. Jat Airways is in the complete opposite situation: it has a decent network across Scandinavia and the ex-Yugoslav region, while its service to Moscow was reinforced with an additional three frequencies at the beginning of this summer season. On a weekly basis Jat offers a total of 17 flights between the two cities, 10 on its own metal while the other 7 are offered through a codeshare agreement with Aeroflot.

For Jat, closer cooperation with Tarom is far better than any proposal coming from the ex-Yugoslav capitals.
Yugoslav aviation is in a state of total chaos. Adria which has managed to accumulate over €150 million debt is constantly failing to make itself efficient when facing competition. On top if all, the recent announcement by Wizz Air that it will be launching flights to Ljubljana should result in this bad situation becoming worse for the Slovenian national carrier. With 6 highly inefficient aircraft in its fleet they will not be able to launch a price war against Wizz Air. I would like to point out that when I mention a price war I am referring to lowering the prices but at the same time not bleeding money. This can be achieved through efficient fleet and a competitive cost structure, neither of which is present in Adria.

On the other hand we have Croatia Airlines which, despite a modern Airbus fleet, 6 Dash-8 aircraft and a Star Alliance membership, manages to fail. Recently it even threatened the management of Zagreb airport that it would axe flights to key destinations if they allow, or encourage, lowcost airlines to launch flights to the Croatian capital. So not only are they discouraging the management from doing their job, thus distorting the ideal of free market, but at the same time they are also encouraging protectionism, which is a sign of a management which has failed to modernize and embrace modern business trends. A bad relationship with its staff has led to numerous strikes while the airline lacks a clear strategy when it comes to its future.
I will be audacious enough to compare Croatia Airlines and British Airways. I will do so not because they are similar airlines, or because they are of the same quality, but because they are both located in countries with similar aviation geography. This means that both airlines operate out of countries with numerous airports, making it difficult to establish domination over the market. Several years ago British Airways had decided to concentrate its operations in London by terminating international flights from secondary airports and establishing a domestic network. Croatia Airlines has not done so, and the airline still insists on offering flights from Zagreb to Europe via its coastal cities. This is only making them less competitive internationally. The icing on the cake was when the Croatian government wanted to appoint the new CEO who was previously accused of harassment by one of the female employees. Once again, this goes to prove the utter failure of their management.

Despite their fallacies, the biggest problem for both Croatia Airlines and Adria is that their master, Lufthansa, relies on these airlines to feed its growing network rather than to become self-sustainable companies. Then again, Lufthansa’s faith in Croatia Airlines might be dwindling as they have decided to launch their own flights from Berlin to Zagreb.

The other two airlines in the region, Montenegro Airlines and B&H Airlines, are a joke and will survive only as long as they receive subsidies from their respective governments. The Serbian government should consider abandoning altogether this proposal as Yugoslav airlines are willing to work with Jat Airways only now when they are in a desperate position. We all remember why Jat Airways was forced to terminate its flights to Dubrovnik back in 2009, or who was behind Master Airways (and why it closed down), or why Jat Airways did a favour to Montenegro Airlines by allowing them to take over most of the passengers between Montenegro and Belgrade some years ago…! Additionally the article fails to point out what would happen with the south Serbian province of Kosovo whose independence is not recognized by either Serbia or Bosnia.

The best part of the article, which only goes to prove how little the author knows about civil aviation, is when he calls upon the ex-Yugoslav airlines to unite in the same manner as SAS did. The article fails to state which city should act as the central hub, as does Copenhagen in the case of SAS.
What the author fails to realize (one of many things I fear) is that SAS is currently struggling to survive due to a heavy cost structure, a difficult relationship with the unions, a large share of its fleet being ineffective and old, plummeting shares in the last five years, and it is currently under attacked from lowcosts such as Norwegian Air Shuttle and Flybe Scandinavia…

Now that I think of it, JAT’s offspring are already in the same situation as SAS. All that is needed is for them to unite under one common brand.

They should resurrect the Air Yugoslavia brand, after all this experiment will have as much success as that country did.

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’!

A Quiet Cold Winter

 

For the past couple of seasons Belgrade airport has been boasting about numerous new airlines opening up routes to cities that have not been linked to Belgrade previously.

 

Every fan of Serbian aviation will have to deal with the anti-climactic situation at Belgrade airport this coming winter. A total of 6 airlines will not be returning to Serbia. Some, such as Cimber-Sterling or Lot, had announced that they will be reinstating flights to Serbia with the 2012 summer season. On the other hand the potential return of some other carriers is uncertain, at least for the time being.

The struggling national carrier of Latvia, airBaltic, will not be returning to Belgrade, thus cutting the only direct airlink the two countries have ever had. airBaltic entered the Serbian market in April 2010 and was forced to axe the route within a few months as the lease on its Fokker 100 aircraft was expiring. They had remained optimistic about their future in Serbia and even announced their return for the following summer.

A year later, in May 2011, Riga and Belgrade were re-connected. Flights operate four times weekly with airBaltic’s brand new 74 seater Dash-8.

Loadfactor increased from 46% last year to 74% this year. The sharp rise in loadfactor was probably due to a smaller aircraft used between the two cities, but nevertheless passenger numbers have grown by 23% year on year.

Due to a deteriorating situation within the company, the airline was forced to axe Belgrade,  although tickets for the winter season were already on sale. The airline had even kept Belgrade as a 4 times weekly service instead of the originally planned two.

CSA Czech Airlines will not be returning to Belgrade after operating the route for more than 65 years. In 2007 and 2008 the airline saw its passenger numbers fall by 6% and 11% respectively! 2009 saw passenger numbers rise by 40% as the airline revised its schedule by increasing Belgrade to daily services while at the same time reducing the route to an Atr.This enabled more connecting possibilities via its hub in Prague.  Its impressive upward passenger trend continued in 2010 when the airline added an additional 6 frequencies, thus serving Belgrade with an almost twice daily service. With the increased competition in Belgrade CSA faced a sharp drop in bookings and completely revised its schedule for 2011 which sees the airline operate 4 weekly services to the Serbian capital, on board their old B737-500.

 

 

As a result of this reduction in capacity and frequency, year on year numbers fell by 34%.

 

 

 

Belgrade will eagerly await the return of both Lot and Cimber which had announced that their suspension will only be seasonal. Links to Copenhagen and Warsaw on these airlines is expected to resume with the 2012 summer season.

Airlines which operated flights last winter but will not do so this year are Aerosvit from Kiev and British Airways from London Heathrow.

Lufthansa will be introducing small changes to its current flight schedule. Double daily flights to Frankfurt are to see a drop in capacity as the airline plans on replacing the B737-300 with its smaller variant, B737-500. Munich will see two frequencies cut from 21 weekly to 19. Flight LH 1724 will be operated 5 times per week using the Crj-900.

Lufthansa could be considered as the most successful airline in Belgrade, with an average yearly growth of 20%. Last year the airline carried a total of 295,287 passengers achieving yearly growth of 9%. In the first 8 months of 2011 the airline did not record any considerable growth as it carried only 461 more passengers than the same period last year.

 

What is wrong with the airport?

In the statement published on the website of Belgrade international airport on the 15th of September, we were informed that as of December 2011 the Hungarian lowcost airline Wizz Air will be increasing its frequencies to Malmo. The airline currently operates the route three times per week; however from December they will switch their twice weekly rotation to Eindhoven in favour of Malmo. Eindhoven will be operated by an aircraft originating in the Netherlands.

Since the PR team of Belgrade airport is so eager to announce that Wizz Air will be adding more flights, how come they have not informed the public of several other airlines increasing, or even launching, their own flights to Belgrade?

Since the above mentioned team has not done so, below you can find information about the additional flights added this winter to Belgrade.

As of the winter timetable Austrian Airlines will be increasing their frequencies to Belgrade with an additional 6 frequencies.

Flight OS 735 will leave Vienna at 16:45 with the scheduled arrival time in Belgrade at 17:55. The return OS 736 is scheduled to leave Belgrade at 18:30 with its arrival time in Vienna as 19:50. Austrian Airlines will operate up to 4 daily rotations from Vienna, so through their codeshare with Jat Airways that number goes up to 6 daily flights.

Belgrade-Vienna will see tough competition as the Austrian no-frills airline Niki has announced it will double its presence in Belgrade by adding an additional 6 frequencies!

Its schedule has been revised in order to facilitate one-day trips to both cities in addition to increasing transit possibilities in Vienna.

Below is the new flight schedule of Niki for the upcoming winter season:

123456-

Vienna-Belgrade  08:40-09:55

Belgrade-Vienna  11:30-12:45

12345-7

Vienna-Belgrade  16:55-18:10

Belgrade-Vienna  19:15-20:35

In total there will be 49 weekly frequencies between Belgrade and Vienna, on average 7 every day.

Another airline that was not mentioned, nor have its flights been loaded on the airport website is the Bern based SkyWork airline. They are scheduled to inaugurate two weekly frequencies this coming winter season, on Tuesdays and Saturdays. Flights depart Bern at 11:30, arriving  Belgrade at 14:05. Return flight is scheduled to leave Belgrade at 14:05 with the arrival time in Bern expected at 16:10.

The changes introduced by these three airlines are going to have a far greater impact on the situation at Belgrade airport than the additional two frequencies of Wizz Air.

Belgrade airport management is known for their ‘proud moments’. Some of the best ones had to be when they clearly showed us that they do not know the difference between ‘sit’ and ‘seat’; or how they informed us ‘To Copenhagen by plane’, for those who do not remember this was the title used when they announced the launch of flights by Cimber last year. After reading that post it made me wonder, what did Jat use to transport their own passengers to Copenhagen before the arrival of Cimber? Carriages? Buses?

There is no point in mentioning the professionalism of the Belgrade airport management. If there were any traces of it our airport would not look like a glorified bus station in a third world country!

 

 

 

 

 

 

 

 

One hot summer

 

Belgrade airport is still reporting phenomenal results, a trend started with the lifting of Schengen visas for Serbian citizens in December 2009.

Last year the airport handled a total of 2,698,730 passengers which represents an increase of 13% when compared to the 2009 results.

 

As we approached 2011, many wondered if the airport would be able to maintain this amazing trend.

Since January the airport has been recording an average monthly growth of 20%! If this trend continues the airport will come extremely close to replacing Sofia as the third busiest airport in the region, behind Budapest and Bucharest.

With the summer season officially in place, the airport should be more than satisfied with the new frequencies announced by various airlines.

Additional frequencies will be available on routes to Istanbul’s main gateway, Ataturk airport. Turkish Airlines has requested an additional two frequencies which should complement their current daily flights. Once the flights receive government approval there will a total of 14 weekly frequencies between the two cities.

TK 1083 arr. BEG

1-3—- 18:20

TK 1084 dep. BEG

1-3—- 19:15

It will be interesting to follow the developments in the Serbian-Turkish market. In addition to Turkish Airlines, the Serbian national carrier operates this route 5 times per week.

Shortly before the crisis and the liberalization of the Serbian market, Turkish lowcost airline Pegasus was planning on opening up the Sabiha Gokcen-Belgrade route. The original plan was to operate the route twice per week using their B737-800 aircraft.

Currently Pegasus is expanding in the region with Bucharest being their newest destination. It remains to be seen what happens. There is always a possibility of higher frequencies from Turkish Airlines or Jat, or we could see Wizz Air inaugurating flights to Istanbul (probably Sabiha Gokcen airport) once they base their second aircraft in Belgrade. Who knows? Maybe we’ll see Pegasus back in Belgrade as they currently operate summer charter flights from Antalya.

Another recent announcement came from Belgrade’s northern neighbour. Malev has announced that from July 1st it will be adding an additional two frequencies to Belgrade.

In the first couple of months of operations in Belgrade, Malev recorded impressive results. Part of this success was due to the promotional campaign where passengers could purchase tickets for as little as €1! Very soon their Dash-8 aircraft became too small for their daily operations to Belgrade and their Boeing aircraft became a common sight at the airport.

This trend did not continue once the promotional campaign was over. There was a very sharp drop in passenger numbers and the airline was forced to reduce capacity from 68 seats to just over 30 per day. In time frequencies were reduced from daily to 4 times per week.

However, summer 2011 will see Malev operate daily flights until July 1st when the two additional flights will be added. These flights will spend the night in Belgrade with a very early departure in order to provide passengers with decent connections through Budapest.

MA 478 arr. BEG

-2–5– 00:40

MA 479 dep. BEG

-2–5– 04:55

With CSA’s possible withdrawal, Malev should be more than satisfied as passengers who previously used Prague as their transit airport can now connect via Budapest. It would be a great shame to see CSA leave the Serbian market since it has been present there since 1946.

One airline which has announced drastic changes to its Belgrade flights is the Austrian lowcost carrier Niki.

Until the start of the winter season (31.10) the airline will keep its current 6 flights per week. Since the inauguration of its flights Niki has aimed at the large Serbian diaspora living in Vienna. With its upcoming membership of the oneworld alliance the airline has revised its schedule in order to cater for the needs of business and connecting passengers.

VIE-BEG

arr. as HG 8026 at 07:15   12345–

arr. as HG 8028 at 20:00   12345-7

BEG-VIE

dep. as HG 8027 at 08:00  12345–

dep. as HG 8029 at 20:35  12345-7

Both Malev and Niki have remained as the only carriers from the oneworld alliance to offer direct flights to Belgrade from their hubs.

Several months ago British Airways axed Belgrade due to tough competition from Jat Airways and Wizz Air.

With the above mentioned changes Vienna will see up to 7 daily flights operated by three airlines. As of 31.10 departure times to Vienna from Belgrade will be as follows:

    05:15, 07:55, 08:00, 08:10, 15:15, 16:50, 20:35

This particular route is important for both Austrian Airlines and Niki. Vienna is one of the few destinations out of Belgrade where airlines have the opportunity to offer convenient connecting possibilities while relying on the considerable origin and destination market (Serbian diaspora).

While these two carriers fight it out with each other, Jat Airways maintains its double daily flight on the route. Jat mostly aims at the origin and destination market between the two countries. Even if their flights are perfectly timed to offer connections to several ex-Yugoslav cities my personal belief is that they will lose in the long run. Both Austrian Airlines and Niki have expressed strong interest in expanding in the ex-Yugoslav/Balkan market. Austrian Airlines is a very well established carrier in this region, whereas Niki has just begun its own expansion in the region. After launching Belgrade, Sofia and Bucharest the airline has recently announced plans to open direct links between Vienna and Skopje.

Jat’s failure to modernize will result in its demise. The more we see these Austrian carriers expand in the region the less passengers will opt to fly with Jat. Demand between Belgrade and other ex-Yugoslav cities (with the exception of Montenegro) is far from enough to sustain profitable flights. Jat’s daily frequency to the regional cities cannot compare with those offered by its neighbours such as Adria, Malev or even Croatia Airlines. If Jat is unable to compete with these airlines then how can they even think of fighting off airlines which are backed by Lufthansa and Air Berlin?

It’s a race against time for Jat and for it to preserve what is left of its past glory. It seems to me that recently they have adopted a different strategy, one that will see the airline concentrate on fighting off competition at its home base in Belgrade and therefore regain some of the lost O&D market. Some of the recent changes to their timetable include daily flights to Dusseldorf and Athens, a sixthweekly frequency to Istanbul (pending government approval) and an additional 4 frequencies will be added to Paris CDG.

Only time will tell if these changes will prove to be successful. We will have to wait until the end of summer season to know who is the real winner and who is the real loser in Belgrade.

Summer 2011 on Final Approach (Part 5)

In today’s post we continue to look at the changes taking place in Belgrade during the coming summer season. Today’s topic will take a look at changes introduced by the lowcost carriers.

Norwegian Air Shuttle has been flying to Belgrade for several years now. Originally the airline operated flights from Oslo to Belgrade. With their growing network of bases across Scandinavia, Stockholm was added shortly after.

This summer season the usual changes will be introduced. Their Oslo-Belgrade route will be increased from one weekly to two weekly. In addition to their current flight on Wednesday a Saturday flight will be added.

Belgrade-Oslo
–3—-  13:00-15:50
—–6-  20:15-23:05

Stockholm-Belgrade will see an additional frequency, bringing the total to two weekly. The only change on this route is the departure time of the flight on Saturday.

Belgrade-Stockholm
-2—-    13:30-16:05
—–6-  09:35-12:10

Norwegian operates into Stockholm’s Arlanda airport where it will face direct competition from Serbia’s national carrier, Jat Airways. Wizz Air will launch Belgrade-Stockholm Skavsta from the 1st of April after the opening of its base in Belgrade.

Germanwings and Norwegian have been the pioneers of lowcost operations in Belgrade. They have launched flights at a time when Serbian citizens needed visas to travel to the Schengen zone. Today, Germanwings operates flights from Cologne and Stuttgart to Belgrade.

This summer season we will see minor changes in their timetable to Belgrade.

Belgrade-Cologne will be scheduled to fly 4 times per week instead of the current three.

Belgrade-Cologne
1-3—-   13:25-15:35
—-5–   12:15-14:25
——7   15:50-18:00

Belgrade-Stuttgart will be operated three times per week. On this route Jat Airways and Germanwings directly compete with each other .

Belgrade-Stuttgart
-2—–   12:25-14:15
—4—   13:20-15:10
——7   14:20:16:10

Niki, a semi-lowcost airline, will keep its six weekly frequencies from Vienna to Belgrade. By entering the Serbian market Niki had put an end to the duopoly of Jat Airways and Austrian Airlines.

With up to five daily flights on Jat Airways and Austrian Airlines and an additional flight on Niki, ranks Belgrade-Vienna as the most competitive route out of the Serbian hub. However with Air Berlin and Niki’s entry into the oneworld airline alliance things might start to change. With British Airways gone, Malév has been left as the only airline from the alliance to operate flights to Belgrade. Once member, it can attract some of the loyal passengers to both Air Berlin and oneworld travelling to Serbia. Currently Niki operates the route using their Embraer E190 with a capacity of 112 seats.

Finally, as previously announced, Wizz Air will be increasing their presence in Belgrade by opening their base in April. One of their Airbus A320 will be based at airport operating routes to Sweden, Germany, The Netherlands and Italy.

More on Wizz Air’s base in Belgrade here: https://aviationoverview.wordpress.com/2011/02/22/wizz-air-lands-in-belgrade/