«Embraer’s turboprop looks interesting to Air Serbia»

You have recently announced flights to Tianjin. Why did you choose China as your first long-haul destination in the East?
In the long-haul business China is one of the top three markets. And it’s forecasted to grow much faster than already mature markets like North America. It also offers demand in the passenger as well as in the cargo segment. Another reason is that Chinese visitors don’t need to get a visa to visit Serbia and Serbian citizens don’t need visa for China. That’s very rare in Europe. So, China was the logical choice for Air Serbia.

But why Tianjin?
We would have preferred to start with Beijing and Shanghai. However, there are very strict restrictions in China because of the pandemic and also in terms of market access. So, you cannot just fly wherever you want to. Tianjin was the best alternative.

So, will you give up Tianjin when you are able to fly to Beijing and Shanghai?
Even once we will be able to open the routes Belgrade – Beijing and Belgrade – Shanghai, we might keep it. Tianjin is linked with Beijing by high speed train in 30 minutes and it is one of the biggest cargo hubs in the country. So, at the moment it is an alternative, but one with the potential to become a permanent destination of Air Serbia.

What frequencies are you planning for your China flights?
Our plan is to have at least two weekly flights to Beijing and two to Shanghai with the potential to grow up to three per week and based on results to also maintain Tianjin.

What about other destinations in Asia, for instance Thailand, Japan or Korea?
Our core strategic approach is to look at destinations which can offer full year operations. China offers that and therefore first we will develop the Chinese market. But in the long run, we might look into other destinations, maybe in the Far East or closer.

Up to now New York is still your only long-haul destination. In the industry it is often said, one destination alone cannot work. Why did it work for Air Serbia?
It all depends on your size, business model and your market. You need sufficient feed in your region. We have that in the case of New York because there is a strong diaspora in the USA not only from Serbia, but from the whole Balkan region. And that is providing us with a sufficient load factor in both directions. On top of that, we should not forget the cargo business, which is having a significant impact also on the New York route.

You don’t have a partner in North America yet. That would make the flights even more profitable because of all the feeder traffic.
Currently we have interline agreements in place which work pretty well. But we are working on going to the next level which is a codeshare cooperation with one of the big airlines in the United States. We are in the final stage of negotiations and believe that we will be able to announce it before the end of the year.

You will launch Chicago as your second North American destination in March 2023. Los Angeles and Toronto also have big Serbian diasporas. Are those cities on Air Serbia’s list as well?
We are looking into more destinations in the USA. But again, our main strategy is to try to go for the destinations which have full year potential. We do not want to increase the seasonality which is already high in our region. That’s one of the reasons why, for example, Chicago is preferred over Toronto because the Canadian city is not only extremely seasonal, but also extremely directional. You will have the flight full in one direction at the beginning of the season and in the other direction at the end of the season.

For all the new destinations in Asia and North America you will need more aircraft. You will get a second Airbus A330 in October and have announced that you are thinking of introducing a third one. How big will Air Serbia’s long-haul fleet in the long term be?
In 2023 we will be operating with two Airbus A330s. If China proves to be a success story and markets will start opening up, we might expand to three aircraft. I can imagine a long- haul fleet size of around five aircraft in the long term.

Will the second and third A330 also get a special livery like your first that shows inventor and scientist Nikola Tesla on its tailfin?
Yes. The second one will show physicist Mihailo Pupin. For the possible third A330 nothing is decided yet.

A female scientist?
Who knows …

But this will not be something we will see on other models?
No. We are currently developing another concept for our ATR fleet which will not necessarily be connected with people. It will be something more related to our homeland and we will reveal the details in autumn.

Will you stick with the A330 Ceo or are you thinking of switching to the A330 neo at some point?
Currently the two aircraft coming in are A330 ceo which present good value for money and we already have great experience in operating this aircraft. However, in a narrow body market we are not limiting ourselves to ceo options only, because covid market is pretty dynamic and volatile and we will capitalize on any good opportunity we find.

Let’s switch to the short and medium haul market. Most European airlines have upgauged their fleet to larger aircraft like the Airbus A320 Neo or Boeing 737 Max. You still operate 11 smaller Airbus A319. Why?
We are a smaller regional airline and want to grow with the market in a profitable and sustainable way. Before the pandemic the Airbus A319 in combination with the ATR 72 turboprops worked well for our hub and spoke model where we prefer frequencies over the size. A320s would have worked definitely well for a couple of months during the summer, but you would have had difficulties filling them during the winter back then. But during the Coronavirus crisis we saw that our market proved to be relatively stable and it is recovering fast. In July we broke a record and transported more than 400.000 passengers – that’s more than ever. We outperform 2019 levels by 9 percent this year when at the same time we have only added one percent of capacity. This is giving us some confidence that the market here is growing at a faster pace organically than what was expected before. On top of that, the propensity of travel per capita is growing faster in Serbia than in the rest of Europe.

So, you want bigger planes?
Yes, we are starting to shift from A319 to A320s. We got the last Airbus A319 in June and the next aircraft that we are getting will be an A320. Future replacements when a lease is ending will be mostly A320s. Doing this we are also taking advantage of the attractive terms that exist in the leasing market right now. Additionally we plan to grow approximately by one jet each year. If we see opportunities, we might also move faster.

But won’t you have too many big aircraft then?
The switch from Airbus A319 to A320s might open a door for regional jets, because between the Airbus A320 with 180 seats and the ATR with 72 seats there’s a gap. It could be filled with a third model, not in the short, but in the medium term.

Your predecessor held talks with UAC from Russia about integrating Superjet 100s into Air Serbia’s fleet. Is this still an option?
This has always been a pure speculation and never a specific plan by Air Serbia.

So if you say regional jets and rule out the Superjet 100, there’s not much choice: Airbus or Embraer.
Yes and no. Either we choose the Airbus A220 or the Embraer E2. Both have advantages and disadvantages. But there’s also a third option. Right now, you can get favourable terms for the secondary market of Embraer E1 representing good value for money. And then there is even a fourth option …

… and that is?
The Embraer turboprop. It is still a project and exists on paper only, so we have to see what they really will offer. But it sounds interesting to us. With its up to 92 seats and keeping still two cabin crew members requirement it would represent interesting niche versus regional jets. So, we will for sure be looking at the Embraer turboprop, as well.

This summer, you operate in more than 1000 charter flights? Is this an area where you want to grow in the future?
This year our charter business is already more than 37 percent above 2019 levels. Last year we already surpassed the pre-pandemic levels. During Covid-19 two market segments worked very well. One is visiting friends and relatives and the other is leisure travel. That was also our guideline for this summer, opening up new destinations in the two segments. We are looking to turning more charter destinations into the scheduled next year.

You used to operate two Boeing 737 under the brand Aviolet for your charter business. Why did you dispose of them?
Those aircraft were very mature at the end of their lifecycle. It was complex to operate them along the ATRs and Airbus jets. And it was very expensive to maintain them operational for utilization during three months of the year. So during the pandemic and also under a sustainability aspect, we decided to dismiss the oldest aircraft in the fleet. Currently, we are in the process of finalizing the sale of the last one. Just as a side note: Our predecessor JAT was actually the launch customer for the Boeing 737-300 in Europe.

And the charter brand Aviolet, did you also get rid of it?
We suspended the use of the brand. We don’t really have any plans to use it again, but we still keep it, you never know. Right now, we prefer to have everything under the Air Serbia brand.

You became CEO eight months ago. What is your personal goal for the airline?
Air Serbia has been performing relatively well during the pandemic. In 2021 we significantly improved our operational performance and even reduced our loss. This year we are aiming to be profitable and we will continue to be on that path in the future as well. We want it to stay like that. Air Serbia will continue to be the leading regional carrier in Balkan region and we would like to keep our market share between 50 to 55 percent in Belgrade.

Etihad became a shareholder in 2013 and had big plans for Air Serbia. Those plans didn’t materialize. They still own 18 percent. Any plans for a full exit?
The issue of ownership is to be aligned between the shareholders. The task of the management of the company is to make it efficient and functional.

And what about the government? Will it stay a majority shareholder?
Air Serbia played a significant role during the pandemic, helping the Serbian government with repatriation flights, with delivering medical aid and so on. And I think we proved that not only connectivity, but also significant economic benefits are a result of our operation. We believe that the government would like to have a strong national airline that continues to grow. There are different models within the industry with different shareholding structure and different level of government involvement. Even the combinations of the private shareholding with the private and it is up to Serbian government to find the best suitable model for them.

Yugoslavia used to have one national airline, with the breakup of the country each newly independent country started its own national airline, some have disappeared since. Wouldn’t it be better if the countries in the region worked together in order to form one strong airline?
I think in Europe, the attachment to an airline brand not only on a country level, but even on a regional level, is very strong. Therefore any form of consolidation is very, very hard to imagine. Strategically, I believe it would make great sense. But being realistic, I don’t think that it will happen in the near future. There are no serious talks going on right now.

But you would like to grow in the Balkans…
Absolutely. We already fly to 15 destinations in the region, that’s more than any other airline. And we will continue to add frequencies to all the countries since they also offer us flows to connecting flights, especially our long-haul. In August we became a number one carrier in the Balkan region, in terms of weekly frequencies.

Credit: aeroTELEGRAPH

Air Serbia is not part of an alliance. Is that something that is of interest to you?
If you are a small airline, you contribute more to an alliance than you get in return. And you are limited in what you can do. Right now, we can cooperate with whomever we want, wherever we see benefits. For instance, we have very strong cooperation with Air France on one hand, and recently we are building a very strong cooperation with Turkish Airlines – they are in different alliances. So, no. It’s not in our plans to become a member in an alliance at the moment.

So instead you want to do more codesharing?
We believe our hub in Belgrade and our regional network are a great asset we can offer to codeshare partners.

Do you ever see Air Serbia being part of a bigger group?
I strongly believe that we can be profitable independently in the mid term. However, for the long term sustainability, closer cooperation with one of the bigger groups might bring certain advantages. You can better cope with market volatility. But this is not something we are looking at it right now. First we want to develop our existing partnerships. For instance, we are working on a joint venture with Turkish Airlines, but it is still at a very early stage.

Before the pandemic Air Serbia counted 2.8 million passengers annually. When will you be above that figure?
In 2022 we will be slightly below 2019, we will probably end up at around 91 percent of the pre pandemic level. Of course if nothing negative happens. In 2023 Air Serbia will definitely surpass 2019 levels and from then on we would like to grow between 10 and 15 percent each year.

And what about profitability?
The rise of fuel prices is taking its toll and we are not hedged. As an airline you can pass on approximately 60 percent of the increase to customers. So of course we are suffering. But even with current fuel prices, we believe that we can achieve break even this year.

You currently serve 63 destinations. Where do you want to grow?
When we celebrated our 95th anniversary, I made the statement that by the 100th anniversary, we would like to serve 100 destinations. Many people have been surprised, but it’s achievable. This year, we opened more than 10 new destinations. We plan with more or less the same amount next year. We already have a decent amount of destinations within Europe. So we will be increasing faster the number of frequencies than opening up new routes there. Otherwise we’ve been looking at Central Asia, like Azerbaijan, Armenia, Georgia because Belgrade would be a good option for them to connect to Europe. The Middle East is in our radar as well. And as we already discussed, we want to grow in the long haul market.

Did you also experience a difficult summer at airports?
We are going through the summer season quite stable compared to many competitors. We have one of the lowest cancellations rates which is around 0,3 percent. And of these many were forced cancellations because airports like Amsterdam and London-Heathrow introduced capacity restrictions. However, delays at European airports have affected us heavily as well. It creates a ripple effect. Because of these external effects, we are not able to deliver to our passengers what we would like to at a full extent and we would like to apologize to all our customers which are affected and we are doing our best to deliver them the level of service we are committed to.

* Jiri Marek (48) has been CEO of Air Serbia since January 1, 2022. The geography graduate started at the Serbian national airline in July 2019 and was initially responsible for commercial and strategic management. Previously, he worked at Alitalia in the strategy department. Again, before that, he spent 19 years in the aviation industry, working for Lot, Czech Airlines and Malev. Marek is a Czech citizen.