The Slovenia Times

Push to create new flag carrier gains momentum

Adria Airways aircraft. Photo: Bor Slana/STA

Slovenia has been beset by poor air connectivity since the demise of Adria Airways in 2019 and has struggled to attract foreign carriers to Ljubljana with subsidies. After months of rumours, it appears a push will now be made to create a new air carrier based on studies showing that not having a national carrier has had a significant impact on the economy.

Commissioned by the Infrastructure Ministry, two studies presented on 1 June indicate the most appropriate model would be a public-private tie-up with a strategic partner and, at least initially, a conservative approach to the scope of operations, a plan that Infrastructure Minister Alenka Bratušek supports.

The launch of a new national airline is fiscally viable, Bratušek said. A final decision is yet to be made, but she said the government now has concrete, realistic assessments of the poor state of air connectivity based on which it can make an informed decision in what will be a complex process that could take "a year and a half or two years of hard work".

Significant economic impact

The author of one of the two studies, the economist Jože P. Damijan, estimates the number of lost passengers due to poor air connectivity and the demise of flag carrier Adria Airways at around 1.5 million.

The overall macroeconomic effect of this loss of passengers is estimated at EUR 260 million on an annual basis, with an additional €170 million in negative effect on tourism. During the entire studied period, this totals €1.8 billion, according to Damijan's calculations.

A second study shows that the recovery of passenger numbers after the pandemic has been worst among all European countries: compared to 2019, the numbers at Ljubljana Jože Pučnik Airport reached 43% for direct flights and 55% for connecting flights last year, which compares to the average recovery rate of 89% for comparable regional airports.

A conservative assessment is that at least 300,000 potential passengers use neighbouring countries' airports every year. The potential of Ljubljana airport is currently estimated at 1.6 million passengers, which is 10% less than in the best-performing year 2018.

Public-private partnership seen as the best solution

The Damijan study, which has not been published in full, acknowledges that the state can improve air connectivity in several ways - by means of public service or by subsidising air carriers, by establishing an airline of its own, or by entering a public-private partnership.

All of these ideas have been floating around since Adria's collapse and Slovenia has tried one, subsidising airlines, but the most recent call, for annual subsidies in excess of €5 million per year, attracted only two small carriers, from Luxembourg and Montenegro.

The study, however, identified a public-private partnership as the best scenario, despite repeated warnings by aviation experts that this might not be the best idea since the most profitable routes are already taken; some have proposed that it would be better to convince an existing carrier to use Ljubljana as a secondary hub.

If a new national airline is to be established, the most appropriate model for Slovenia would be a tie-up with a strategic partner, the study suggests. The basic scenario is the leasing of three small aircraft, the launch of eleven routes to the destinations that were the most desired in the past, and 60 weekly connections.

In this case, the break-even point would be the seventh year. The cumulative loss would reach €35 million in the sixth year, and after the tenth year it would be €28 million.

The authors of the study have estimated that the partners would have to make an initial capital injection of at least €35 million, or €70 million in the case of a more ambitious initial number of flights. If they each initially invested €50 million, the airline would be solvent for ten years under any scenario.

Onus now on government

Establishing a new airline could be economically viable under certain assumptions, said Damijan, adding that the new company would have to be lean, commercially successful and, at least initially, conservative in its business model.

A public-private partnership could be more favourable for the state than the subsidising of air carriers on an annual basis, he concluded.

This is also the conclusion reached by a government task force, which said that a national airline established through a public-private partnership would be the most optimal solution. The task force has advised the ministry to initiate procedure as soon as possible.

Bratušek said that if the decision to establish a new airline was made, the carrier could start operating in the summer of 2025 under a "very optimistic scenario". She noted that the path to this decision was still long.


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