As rebrand projects go, the transformation of what is now Air Serbia could well make the case studies folder at Harvard Business School.

Air Serbia CEO Dane Kondić and his management team took just six weeks to refleet and rebrand the former Jat Airways.  The exercise involved considerably more than new aircraft and color schemes. It saw the start of a root-and-branch reorganization of one of Europe’s forgotten airlines into a company with a real chance of competing.

Behind the transformation is Etihad Airways, whose president and CEO James Hogan has made a habit of picking up disparate airlines and melding them into a constellation of equity partner airlines orbiting Abu Dhabi-based Etihad.

Even Hogan may have had to think long and hard about Jat Airways; a perennial loss-maker, its small fleet of Boeing 737-300s and ATR turboprops was increasingly dilapidated. Its route network was a shadow of the 1970s and 1980s when its McDonnell Douglas DC-10s flew to North America and Asia. But Hogan believed that an airline that at one time had featured in the world’s top 15 carriers retained potential.

The Serbian government had twice unsuccessfully tried to privatize Jat before it announced in August 2013 that Etihad had taken a 49% stake, plus a five-year management contract, in the Belgrade-
based carrier.

Kondić, who had previously worked at Qantas, Malaysia Airlines and, latterly, as Sabre Airline Solutions’ southeast Asia regional director, was initially recruited purely as a member of the team running due diligence on Jat: “James realized that when you’re coming into a place where there isn’t all the data on hand to make a decision based around due diligence, what was missing was someone who knew the local lie of the land,” Kondić told ATW. As someone who has dual Australian and Serbian nationality and speaks Serbian, he was ideally placed.

However, his first board meetings at Jat Airways were like nothing he had ever previously experienced.

“I was amazed sitting in some of the early board meetings before the deal was done, at some of the things being discussed. Not once did anyone talk about sales or revenue performance,” he said. Instead, the talks revolved around how many aircraft were operational and how many grounded. “It may as well have been an operations meeting at board level.”

“One of the things Jat Airways always had a good reputation for was operational excellence; safe flying was always very high on the agenda,” Kondić noted.  However, having been born (as JAT Jugoslovenski Aerotransport) in Tito’s socialist Yugoslavia in 1947, the airline had never had a commercial mandate: “It was about moving people from A to B safely,” Kondić said. “Time had stood still. When I came in, the airline was insolvent. It only existed because the government was paying its tab.”

Why was continuing to pick up the bill no longer a viable option, in the name of maintaining a national carrier?  “At some point in time you can’t afford to pay for pride,” Kondić said. “When pensions aren’t being paid and hospitals are being squeezed, it’s a fairly expensive hobby to say that you should continue to have an airline that’s continually losing money.”

From September 2013, when Kondić became CEO, he quickly learned that there were “a lot of games, brinkmanship and agendas” being played out internally: “It’s like playing water polo. You see what’s happening above the waterline and not below and it’s a dirty business below the waterline. I needed to go underwater more than a few times to understand what was happening.”

Promoting Serbia

But back to that rebranding: new aircraft had to be secured and cabins, uniforms and brand redesigned.

There was understandable resistance to ditching the airline’s name: if eastern European airlines such as LOT, CSA and Aeroflot had successfully rejuvenated their images, why not Jat?

“For me, the fundamental problem was that Jat was associated with a country that no longer existed,” Kondić explained. “We needed to promote Serbia as a country. It became clear that the only way you could do this was to have a [company] name that incorporated the name of the country. Once I had made that decision, it was a question of ‘what’s the brand?’ ”

He found it in an unusual manner. He wanted to recall the medieval period when Serbia was a regional power “and look for symbols that could take us back to the future.”

One such symbol was the Byzantine-era double-headed eagle. “I could have gone to a brand consultancy, but I wanted to go down a different path, so I started researching on the web. I then stumbled across this thing that a girl had designed as post-graduate design work—a rebranding of Jat.”

Kondić tracked her down and over a 10-day period she refined the logo into its current format.

Restructuring

Meanwhile, the new CEO was investigating his fiefdom and discovering that over-staffing was widespread: “When we got the organizational charts, the number of people in administration was astonishing. When I started going around asking people what they had been doing for the past few years, they said ‘not much.’

“It wasn’t the same on the operational side, but I realized I could put a knife through half the staff and not make an iota of difference.” A voluntary redundancy package cleared much of the dead wood.

Aircraft utilization was “horrific,” with the aging Boeing 737-300s and ATRs flying only five or six hours a day. Four of the Classic 737s—which despite their age have relatively low hours due to sanctions placed on Serbia during the 1990s civil war that restricted flying—have been refurbished and transferred to a new charter subsidiary, Aviolet.  This had a successful first year in 2014 and additional capacity may be brought in for 2015’s summer timetable.

The main fleet now consists of 10 leased Airbuses—two A320s and eight A319s—plus three owned ATR 72-200s and two more modern, leased -500s. Daily utilization has jumped to 12-13 hours, enabling Air Serbia to start expanding its route network from its Belgrade home base, Nikola Tesla Airport. There are four banks of flights daily, the first and third heading north and west, the second and fourth, south and east.

The airline has already announced it will buy 10 A320neos from Etihad—part of the latter’s large Airbus order—with deliveries from late 2018.

Kondić admits the ATRs are getting old. Their replacements are likely to be leased turboprops, with a decision on type to be made in two or three years. He declined to say which type he prefers, but says the ATR has “fantastic economics.”

As important as new aircraft are new crews. Many old-era cabin crew left the business and their younger replacements are trained at Etihad’s Abu Dhabi HQ, because “If you want to deliver the best, you go and learn from the best.”

Air Serbia has become something of a poster child for the government’s efforts to rehabilitate state-owned enterprises and young people, in particular, are keen to work there, Kondić said; in February, 1,700 people turned up at a cabin crew recruiting session for just 35 positions.

In 2013, the airline posted a net loss of €73 million ($79 million). The figures for 2014, issued in March, showed a €2.7 million net profit. Kondić describes the turnaround as remarkable. Those who recall Jat Airways’ might be inclined to agree.