By posting a profit to the 2014 year end, Adria Airways has bucked the trend of recent times, going someway to ‘stop the rot’ of operating in the red for the last seven years. Whilst this news is undoubtedly encouraging, volatility in the aviation sector and the ongoing uncertainty surrounding the privatisation of Adria dictates that such positivity is tempered by drilling down far further into the financial health of Slovenia’s flag carrier, rather than solely relying on superficial prima facie evidence.

Despite like-for-like revenue falling by 1% compared to 2013 lower passenger-associated costs and a dip in fuel prices helped offset the drop in income but, it is doubtful such parameters will positively effect the business performance of the airline throughout 2015. With costs per passenger pared to the bone creating an almost exclusively budget-airline model, it is hard to see how further savings can be achieved in this way without seriously alienating its client-base. I indeed remember travelling with Adria in the early part of this millennium when it was still commonplace to receive a ‘complimentary’ meal, even on a relatively short route such as Manchester-Ljubljana. Airline tickets also physically bear little resemblance to their erstwhile predecessors; whilst everyone likes a bargain, there does come a point when parsimony and thrift cease to be viewed positively in the face of operations seemingly being stripped back to the very basics. World oil production has recently far exceeded demand, accounting for a drop in prices that is unlikely to last once the OPEC countries start to restrict output. This in turn will ensure that fuel prices again begin to rise, with the aviation industry by and large uninsulated against knock on effects such as increased ticket prices that are largely dictated by oscillating fuel costs.

The fall in revenue has largely been attributed to a dramatic dip in custom from Russia, where life has become much tougher since EU-backed sanctions have bitten deeply. Adria’s service into Sheremetyevo is a long-standing route but the harsh economic realities in Putin’s modern day Russia have seen all areas of life negatively effected. It is with this in mind I therefore find it somewhat strange that Adria are considered introducing a route into Russia in 2016, from Maribor, their reintroduced secondary Slovenian base.

The exact level of ongoing debt carried by Adria is unknown but by paying down over €22 million a tangible commitment to placing the business on a sounder footing is encouraging. This though must be weighted against a raft of drastic measures entered into during 2014 to keep the airline in the skies, including sale and lease back agreements involving several of its fleet and notably, a bridging loan.

There are though positive, some would say defiant, noises emanating from CEO Mark Anzur regarding the future, with very much a feeling of Adria getting on with business instead of engaging in hand-wringing over a privatisation process yet to yield any publicised, binding offers. Having previously gone through the process in 2012 there will inevitable be scepticism attached to Adria moving from state to private ownership; there appears to be little evidence that the airline are pursuing market objectives just to satisfy potential suitors. By announcing a base in the Polish city of Lodz and a determination to decrease the amount of unsold seats, Adria, despite exhibiting many traits associated almost exclusively with a low-cost model, are seeking to broaden its appeal to a whole range of demographics, not in the least those wishing to travel on a budget.

Despite confidently stating privatisation is not a necessity for the ongoing viability of the airline it seems the first shot across the bows towards denationalisation have been sounded, with the news of Bank of America Merrill Lynch acquiring €6.3 million of Adria’s debt, the first foray into the Slovenia by the investment leviathan. Such a development surely heralds further developments in the near future.

Adria engenders much goodwill from times past as well as from those wishing the airline to remain state-owned. However increasingly unlikely this outcome seems to be, it is heartening to see the airline’s desire to innovate, not only in restarting services from Maribor but by putting in place a business strategy for the next five years. There is little merit to be gained from waiting and wondering what the future will hold; rather, in the meantime, Adria is doing the correct thing by at least attempting to shape its immediate future whilst ensuring its presence in the skies continues, whether its privatisation comes to pass or not.

Further reading on this subject can be viewed at: Ex Yugoslav Aviation: Adria Airways post first profit for seven years