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CSA MAKES HAEDWAY IN SMALL MARKET

Things may have started off on a modest scale, but the Czechoslovaks became involved in the early days of air transport before most other countries in Europe: when the first Lufthansa aircraft took off in April 1926, three years had already passed since Ceskoslovenské Státni Aerolinie CSA had completed its first flight. On 29 October 1923 an Aero A14 Brandenburg biplane flew the 329km journey from Prague-Kbely to Bratislava with a single passenger on board plus several bags of air mail.

The Czechoslovak Army Air Service had already operated the A14 on that route since 1 March 1923 and sold several A14's to the fledgling civilian airline, while the necessary personnel were provided free of charge.

It was then at the beginning of 1924 that CSA commenced regular flight operations, initially confining itself to domestic flights. On 1 July 1930 CSA inaugurated the first international route, flying with a Ford Tri-Motor via Brünn and Bratislava to Zagreb. With the opening of Prague-Ruzyne airport, which still exists, in April 1937, the route network expanded rapidly, although this came to an abrupt end in September 1938. Under the terms of the Munich Agreement, Germany annexed the Sudetenland. Then in March 1939 the Germans occupied the rest of Czechoslovakia and the CSA fleet was taken over by Lufthansa and the Luftwaffe.

Following the end of the war a new state airline, CSA Ceskoslovenské Aerolinie, was founded, and finally on 1 March 1946 the Prague-Zurich service was resumed. Despite the difficult post-war conditions, within the first year the route network had been extended to Paris, Amsterdam, Brussels, Stockholm, Warsaw, Belgrade, Copenhagen, Oslo and Bucharest. Already in 1947 there were plans to fly across the North Atlantic and to start flights to India.

But then all the airline's hopes were abruptly shattered after the Communists came to power in February 1948. It was not until 1954 that trade relations with Western Europe were restored and the first air links to that region were resumed. At that time CSA assumed a pioneering role among the Eastern Bloc airlines. 9 December 1957 saw CSA fly a jet from Prague to Moscow for the first time, the 75-seater Tupolev Tu-104A. A total of six of these aircraft later came to be in service in the CSA fleet, making the Czechoslovaks for some time the first non-Soviet airline to have any jets at all, as well as the first IATA airline to fly twin-engined jets.

In 1960 CSA acquired the four-engine propeller workhorse, the Ilyushin Il-18, which was used above all on African routes. 3 February 1962 marked the start of transatlantic flights served by the Bristol Britannia 310. This too had four piston engines and was the first Western aircraft type to be adopted in the CSA fleet. The Britannias were leased from the Cuban company, Cubana, and were flown to Havana, with intermediate stops in Shannon and Gander.

By 1967 CSA had worked its way up to the position of leading Eastern Bloc airline, and if one ignores Aeroflot, then CSA with its vast 95,000km route network covering four continents was the biggest airline of the East.

It was impossible to obtain modern Western aircraft, so the airline was forced to make do with the four-engined Ilyushin Il-62. This was initially used on the London route from 1968, and then from 4 May 1970 on the new Prague-Montreal-New York service. At the same time it replaced the Il-18 on a number of routes. At the end of 1971 the Tu-134A joined the CSA fleet as a replacement for the Tu-104.

Domestic travel within Czechoslovakia increasingly declined in importance, and at the time of the fall of the Iron Curtain in 1990 it accounted for only five per cent of turnover. Up to then CSA had had to seek its main customers outside of the domestic market, in particular among exiled Czechoslovaks and tourists, as its own citizens were subject to stringent travelling restrictions.

"At that time 80% of our flights were to our "brother states" to the east and south," recalls Vaclav Kral, who has worked for CSA since the late 1970s and today functions in Prague as Vice President Marketing & Sales. Already in 1989 the Communist, but reform-oriented government had transformed CSA into a state "enterprise" which was to manage itself independently. "I went to Frankfurt in March 1990 as CSA representative. At that time we had a single daily flight to Rhine/Main," says Kral. "In the autumn of 1990 Hamburg followed and on that route we used the tri-jet Yak-40. The plane actually had 28 seats, but that was unacceptable in the West, so we reduced the capacity to a 16-seat 'deluxe version'."

Everything proceeded at breakneck speed after that. The challenges were enormous and the opportunities very limited. "We had to rebuild the fleet, but we had virtually nothing to build it with," says Kral.

The first step towards fleet renewal was the acquisition under lease of two Airbus A310-300's, albeit on extremely unfavourable terms. The two jets were delivered in 1991. CSA was unable to return them later, but had to make hefty payments on them for ten years. It was not until a few months ago that the A310's were finally paid off and became the airline's property, but actually they are somewhat long in the tooth now. With a touch of sadness, Kral holds a model of the Boeing 767-400 in CSA colours in his hand. "We would have loved to be able to fly the 767, or the A330, but we just can't afford it."

The entanglement of the airline with other areas of air transport such as airports and catering, as was customary in the Eastern Bloc, was terminated in 1990. In other areas too the transition from planned economy to market economy did not proceed smoothly. "Our staff had a monopoly mentality for too long," complains the former head of CSA, Antonin Jakubse, years after the collapse of the Communist regime. And the airline quickly paid the penalty. "The Czech passengers were curious about Western airlines, and up to around 1994 they just didn't want to fly with CSA any more," says Kral, "whereas Western customers were afraid of us as an Eastern Bloc carrier flying Russian aircraft." These factors were not without effect, and in 1993 CSA was on the verge of bankruptcy, with high debts and without adequate liquid reserves. At that time the domestic market had declined overnight by almost one-half following the secession of the Slovak Republic into an independent state, so that the potential pool of customers was now confined to the Czech Republic, with a population of only 10.3 million.

But the airline kept going, and slowly the domestic economy picked up. Besides, the stream of tourists to Prague provided a steady, substantial source of revenue and the route network was finally structured using profitability as the all-important criterion. One of the most significant developments was the scrapping of longhaul flights to south-east Asia: since 1959 CSA had been represented in Jakarta, and in the early 1990s Kuala Lumpur, Singapore and Bangkok were still in the flight schedule. With the exception of Bangkok, these destinations were all discontinued, while the capital of Thailand was itself discontinued in March 2001.

Instead, the two A310's, which spend up to 12 hours a day in the air, now fly 13 times a week across the Atlantic. Since the 2001 summer flight schedule came into effect, CSA has been the smallest member of the SkyTeam alliance led by Air France and Delta Air Lines, although the Czechs refused to allow their own longhaul routes to be taken away from them. Seven times a week they fly to Delta's hub, New York-JFK, and apart from that to Newark, Toronto and Montreal.

At least, before the terrorist attacks on New York, Kral was saying, "Our transatlantic services cover their costs, and there was never any discussion with our SkyTeam partners about stopping them. For Delta it is important that we fly to JFK."

But the main problem remains, and in an astonishing way it is as if history were repeating itself: CSA cannot support itself from an adequate domestic market. In the past it was the travel restrictions that prevented their fellow countryman from flying. Today it is their lack of purchasing power. "Czechs make a statistical average of 0.1 journeys per head per year, whereas the Germans fly almost three times per head per year," says Kral. Another problem is the fact that the proportion of business travel is very low compared with the industry as a whole, comprising a mere twelve per cent out of 2.4 million passenger movements in 2000. Between 40 and 50% of passengers on average are tourists, and on some routes the figure is as high as 80%.

The critical factor here continues to be the magnet-like attraction exerted by the over 1000 year old metropolis of Prague. Around 6 million tourists visit the capital city every year. Industry experts say jokingly that on this account one could rename the airline "Air Prague". This would not be without a certain element of truth, as in fact the city owns just under 3% of the shares in CSA, the rest being held by six other state institutions. A part-privatisation of up to 35% of the shares is planned for 2003, and Delta and Air France have an option to come on board their smallest partner. "Privatisation should definitely not be linked to an alliance decision, as in the case of Malev or LOT. Their problems bear this out," says Kral. "We want to be privatised even though the influence of the state is no longer that big."

The Czech state is currently expanding terminal capacity at Prague-Ruzyne airport, and this will have a major impact on the future of CSA. After all, the airport handles some 6 million passengers a year, although no one has any illusions about it developing into a hub. "It is mainly the big European airlines that fly here and suck up the passengers," says Kral, but CSA is joining forces with them.

Thus, for example, all flights between Germany and Prague are code-shared between CSA and Lufthansa. CSA's share of flights from Prague itself is 54.2%, and its strongest routes are feeder connections to Frankfurt and London Heathrow. The first six months of 2001 were encouraging: passenger revenue was up in Prague overall by 14%, but CSA achieved 20% growth. The record results for 2000, when CSA made an after-tax profit of $29.5 million, may well turn out to have been a one-off in the light of the recent events in America.

Although the Czechs only have a small fleet and limited resources, fleet planning is central to their strategy for the future. Next year eleven out of the 30 aircraft will become the property of the company, significantly reducing the burden of leasing costs.

At the Paris Air Show 2001 CSA ordered a total of eight 728JET regional jets, four of them directly from the manufacturer, Fairchild Dornier, and the rest from the leasing company GECAS. The first of the new twin-engined planes are expected to arrive from the Oberpfaffenhofen factory in mid-2003. "That is urgently required additional capacity. Above all we want to replace our ATRs and Boeing 737's on medium-range routes," says Kral Thus, CSA would like to take over the route to Lyon from Air France, "but the ATR is too slow for that and the 737 is too big."

Whereas fleet changes on longhaul routes are not under discussion, the next decisions will affect medium-range operations. "We have to make a decision for the period after 2003/2004 regarding a successor to the 737. A 737-800 or -900 purchase is one possibility," says Kral. It is not that long since Tupelevs were in service with CSA - the last of three Tu-154M's used on charter flights left the fleet only in January 2000.

From page 30 of FLUG REVUE 11/2001