[Business Scene] Trade Air Acquired Airbuses During the Pandemic and Now Achieves Record Revenues Despite the Air Transport Crisis

Believe it or not, last year in Croatia, there were as many as 45 companies registered for passenger air transport. However, most are oriented towards local excursion and scenic flights, and only three achieved revenues exceeding 100 million kuna.  The state-owned Croatia Airlines is by far the largest company in the sector, but it is a chronic loss-maker with all the problems that plague national carriers, which escalated during the pandemic.

However, the private company Trade Air not only compensated for the loss from 2020 last year but also achieved a record revenue exceeding 240 million kuna, which is almost a threefold increase compared to 2020, and 12 percent higher than the previously record year of 2019. What is the recipe for success, we ask the owner and director Mark Cvijin:

– Just before the pandemic, we were in a low start position to acquire an Airbus 320. Then everything stopped, but we saw an opportunity. We initiated negotiations with leasing companies, achieved a lower price and more favorable payment terms, with a deferral. In the meantime, we acquired two more A320 aircraft and one Airbus 319 on financial leasing, intending for both to become ours – says Cvijin, explaining how a larger fleet is the reason for higher revenues. At the beginning of this summer, we took the last Airbus 320 on financial lease until the end of 2024, so we believe that we will also have additional revenue growth this year.

And what is the price of a used aircraft? One Airbus – depending on the condition of the engines and fuselage, as well as a large number of other details – costs between 10 and 15 million dollars. Therefore, the head of Trade Air concludes that those who had money and were good negotiators profited during the crisis. His company has managed to negotiate well since the beginning of the pandemic and double its fleet, which today consists of four Airbus 320s, one Airbus 319, and one Fokker 100. All these aircraft operate on the basis of seasonal contracts, and since there are not enough aviation capacities, it is not a problem to rent them to tour operators and other airlines. Thus, two Airbuses are leased to Air Montenegro and Norwegian Airlines, two connect Pristina with destinations in Western Europe, one Airbus is on tourist flights from Ljubljana to the Greek islands, as well as to Turkey and Egypt, and the Fokker is in Innsbruck, from where it also flies for tourist purposes. Therefore, almost all operations take place abroad. Trade Air used to maintain a connection from Osijek to Dalmatian destinations, which could be repeated this summer.

However, Cvijin explains that regular operations are significantly more complicated, as planes can fly empty or half-empty, or there is too much interest, while the situation with charters is much simpler. After all, they sell flight hours, and the partner is responsible for the occupancy.

An unavoidable comparison is with Croatia Airlines. Despite the different profile, we note that each CA employee generated less than one million kuna in revenue last year, while in Trade Air, the annual contribution is at the level of 3.65 million kuna. Cvijin is reserved about this comparison, respects CA, and understands that significant changes are necessary. He welcomes that the business base has become Split over the summer, as he believes that a good portion of passengers is lost on connections, and thinks that other Adriatic destinations should also have more direct flights. He appreciates all the assistance provided by CA when his company started purchasing its first Airbus in 2016.

The consultants’ proposal to replace CA’s fleet with the latest generation Airbuses is considered a good long-term strategy, despite the initially higher price of these new aircraft, which will return in the medium and long term through the benefits of lower maintenance costs and costs related to fuel consumption and emissions. 

The rise in fuel prices is one of the key factors that has especially recently undermined profitability. Traditionally, the share of fuel costs in flight costs was about one-third of the total cost, and now this share has reached almost half of the total flight costs on some flights.  

Therefore, the profit last year, despite a price correction of 10-15 percent, was significantly thinner than before the pandemic, and a similar situation is likely to occur this year as well.  However, it also matters where the aircraft is ‘refueled’. The rule is that the larger the airport, the cheaper the fuel due to better logistical conditions at such airports and better storage options, and among Trade Air’s destinations, the most expensive is on the Greek islands. This is not favorable for Trade Air as it mainly flies from smaller regional airports. On the other hand, because of this, they do not feel the negative consequences of the lack of airport staff, which affects larger hubs and creates chaos in air traffic. However, the only larger destination for Trade Air, Stockholm, is currently bypassing this crisis. They are not suffering from a lack of their own cabin and technical staff either, and for pilots, they largely engage EU flight personnel and have managed to navigate the sudden awakening of the market in April, which no one expected.

As tourism is a seasonal business, the winter lull is being utilized as best as possible, so last winter, a three-month ‘relocation’ to African destinations proved to be an excellent move. Otherwise, Trade Air mainly operates on regional routes. Does it have ambitions to acquire larger aircraft for intercontinental flights?

– That would be a challenge for me as a pilot, but as a manager, I am very reserved. Long-range was the most affected by the pandemic, the margin is much smaller there, and just the fuel to the USA costs at least 100,000 dollars one way, not to mention other costs – concludes Cvijin on the topic of the ‘intercontinental challenge’. 

Regarding medium-term plans, Cvijin intends to sell the Fokker 100 aircraft and continue to maintain and renew only the Airbus fleet. He would keep 5-6 Airbuses, which he plans to pay off to be in company ownership, but without significant branching and additional fleet growth. Cvijin does not plan to acquire other companies, nor to sell his own.

– I am not thinking about that for now, although I am sure there would be buyers if I announced a sale. I have several years ahead of me, I hope for health, and for my kids, it is still too early to see if they will continue this family business, which I also took over from my father.

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