Non-financial statement 2018 by Croatia Airlines

Nonfinancial Statement for 2018

A 1

Contents Sadržaj

Š. Lugarov

A FOREWORD BY THE PRESIDENT AND CEO

ABOUT THE NONFINANCIAL STATEMENT

2.1.

ENTITIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS

KEY PERFORMANCE INDICATORS

ABOUT THE ORGANISATION

4.1.

COMPANY NAME AND HEAD OFFICE

4.2.

OWNERSHIP AND LEGAL FORM

4.3.

MAJOR SHAREHOLDERS

4.4.

MANAGEMENT STRUCTURE

4.5.

SIGNIFICANT CHANGES DURING THE REPORTING PERIOD

4.6.

CROATIA AIRLINES AS A BRAND

4.7.

FLEET AND CAPACITIES

4.8.

MAIN SERVICES AND ACTIVITIES

4.9.

COUNTRIES/MARKETS OF OPERATION

4.10.

DESTINATIONS/AIRPORTS/ROUTES

4.11.

OTHER SERVICES

4.12.

EMPLOYEE DATA

4.13.

SUPPLY CHAIN

4.14.

MEMBERSHIP IN PROFESSIONAL ASSOCIATIONS AND ORGANISATIONS

4.15.

COMPANY HISTORY

BUSINESS MODEL FOR SUSTAINABILITY

5.1.

OPERATIONAL RISKS AND OPPORTUNITIES

5.2.

STAKEHOLDERS

5.3.

THE MATERIAL ASPECTS OF THE COMPANY’S BUSINESS OPERATIONS AND THEIR EFFECT ON SUSTAINABLE DEVELOPMENT

5.4.

SAFETY AND ADVANCEMENTS AS BUSINESS IMPERATIVES

5.5.

RESPONSIBILITY TO EMPLOYEES

5.6.

BUSINESS ETHICS

5.7.

ANTI-CORRUPTION PROGRAM

5.8.

RESPONSIBILITY TO PASSENGERS

5.9.

HELPING THE COMMUNITY – INCLUSION AND DEVELOPMENT PROGRAMS

5.10.

ENVIRONMENTAL IMPACT OF BUSINESS ACTIVITIES

INDEPENDENT ASSURANCE REPORT OF CROATIA AIRLINES’ NONFINANCIAL REPORT FOR 2018

GRI INDEX

Dear readers, being consistent in our endeavours to bring the business operations of our company closer to you and to make the same more transparent, it gives us great pleasure to present the Nonfinancial Statement of Croatia Airlines for the second consecutive year. Just like last year’s report, this report too has been prepared in accordance with GRI standards which reflect the best practice worldwide in reporting bility. On this occasion, we would also like to share with you the fact that our Nonfinancial Statement was the first nonfinancial statement in the Republic of Croatia to have been prepared in accordance with GRI standards. This only confirms the excellence of even this segment of our business operations. Respecting all of our current and future stakeholders, with this report we have tried to present all our activities in the field of corporate social responsibility, communicate all the important components of our corporate culture and our daily business operations, and outline in brief all that makes us proud to carry the name and truly be on a daily basis – the Croatian national carrier. We believe that you will agree that Croatia Airlines is very often one’s first contact with the Republic of Croatia, with our culture and our entire heritage, which is another reason why we have been designing all our activities with great care, attempting to present our country in the best possible way and to continuously contribute to the enhancement of the reputation of our company and society as a whole. Also, the recognisable visual identity of Croatia Airlines’ aircraft bearing the inscription CROATIA contributes significantly to the promotion of Croatia as a destination with our everyday presence at all the airports that Croatia Airlines flies to.

An increasingly turbulent and demanding environment requires that we adapt continually and just as quickly. New technologies, innovations, trends, changes in customer habits and behaviours, and regulatory changes are challenges that we are faced with every day. In this, always keeping in mind the sustainability of our business operations, we know that corporate social responsibility is a prerequisite for its continuation, a prerequisite for building and maintaining trust with our passengers, our stakeholders – in brief, our position in the future. Conducting business responsibly and sustainably strengthens our competitive position in the market and builds our comparative advantage in modern business processes, which in turn reflects on the stability of our business. The fact that the development and application of the company’s practices of sustainable development have been further enhanced by our company’s membership in international aviation associations and federations – based on which we have been continuously expanding horizons for all our stakeholders, as well as for us as a company – is also worth highlighting. Croatia Airlines’ corporate social responsibility is embedded in our mission, in consequence of which we pay particular attention to suiting our services to current market needs, striving to satisfy all involved stakeholders through business processes and their improvement. Croatia Airlines is actively involved in the implementation of the global aviation strategy for environmental protection and supports all measures that contribute to the reduction of air pollution caused by aviation, but the company also supports the growth and development of the industry. In its development, Croatia Airlines is guided by the principles of sustainable development in the following main areas of its operations – fleet selection and the application of appropriate procedures that reduce fuel consumption, CO2 emissions and noise. One of the most important challenges of sustainable development in aviation today is the dynamic growth of air transport and its impact on global climate change through greenhouse gas emissions, CO2 in particular. Accordingly, we use this opportunity to recall that, in 2018, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) regulation was adopted, according to which, as of the beginning of 2019, the sec-

Š. Lugarov

tor of aviation is required to carry out CO2 emission measurements on all international flights. By applying this regulation, all flights operated by Croatia Airlines are part of one of the CO2 emission measurement systems or 102-14

CO2 emission trading systems (EU ETS, CORSIA, Swiss ETS), thanks to which we have joined a large number

A. Grubelić

within the framework of corporate social responsi-

of companies and countries that invest great efforts and initiatives in the global reduction of greenhouse gas emissions in the volunteer stage of the system. In turn, Croatia Airlines is also planning to renew its fleet in the upcoming period by replacing its existing A319 and A320 aircraft with brand new and most modern Airbus 320 neo aircraft, which are distinguished by reduced fuel consumption, reduced noise levels and reduced greenhouse gas emissions. In addition to having recognised environmental protection as a principle and the contribution we have made by conducting concrete activities in the field of environmental protection, I would like to emphasise our efforts to adopt and implement sustainable business practices in the other segments of our business operations as much as possible. I am proud to be able to highlight that, in the year ahead of us in which we are celebrating the 30th anniversary of the company, Croatia Airlines has been operating successfully to the benefit of the wider community. More specifically, Croatia Airlines is Croatia’s important link with the world, a company that meets the needs of many domestic and foreign passengers by not only interconnecting Croatia within its borders, but also by connecting Croatia with the whole world, thus contributing significantly to the development of Croatian tourism, its regions and Croatia’s economy in general. 2018 is the third consecutive year in which we continued to expand our network of flights, making us today richer for ten new European destinations or twelve new routes. In 2018, three new seasonal international flights were also introduced – namely, from Zagreb to Dublin, from Split to Copenhagen, and from Dubrovnik to Munich – as well as flights from Zagreb to Mostar operated throughout the entire year. With the above, we have not only set ourselves new challenges, but have also created achievements – in 2018, we flew a total of 2,168,863 passengers, which is a record number of passengers in the history of our company. Croatia Airlines is today a safe and reliable airline company within the European framework. As far as the company’s contribution to Croatia’s economy is concerned, I proudly point out that we have been amongst the top ten largest exporters in the Republic of Croatia for a number of years. At the beginning of the year, by a decision passed by the Government of the Republic of Croatia, Croatia Airlines was put back on the List of Companies of Strategic and Special Interest to the Republic of Croatia. In consequence, Croatia Airlines has become part of the National Reform Programme, according to which the aims listed are ensuring the company’s further development, and strengthening the competitive advantages

and position of Croatia Airlines in the air traffic market through quality strategic partnership. This is what we can surely expect in the future, something we shall be writing about in the forewords to our upcoming financial and nonfinancial statements. Before we end this foreword, we shall share with you the fact that we are always here for our community and its members, whom we often provide with direct support by flying people who need help and by partaking in charity events. Knowing that transparency and sustainability are the only principles that will maintain the company’s competitive position in the market, what remains for me to share with you is the news that, since March 2018, I have been a member of the Board of the European Regions Airline Association (ERA), a non-profit trade association representing the European aviation industry. Considering this to be a special both personal and business challenge, in the upcoming period I shall strive to make the necessary contribution in this segment as well, which, I am convinced, will contribute not only to Croatia Airlines, but also to the Croatian aviation industry as a whole, while undoubtedly enhancing the international reputation of our company. Until the next nonfinancial statement, we commit ourselves to continuing to work with the same enthusiasm and necessary investment, strengthening and increasing awareness of the importance of corporate social responsibility and of contributing to sustainable development with a view to creating, through joint forces, an environment for the common good and a better quality future for all our stakeholders. Yours faithfully,

Jasmin Bajić

Š. Lugarov

President and CEO

2. About the Nonfinancial Statement The Nonfinancial Statement of Croatia Airlines is in compliance with the 2018 Annual Report of the Management Board and is its supplement. Croatia Airlines’ Nonfinancial Statement has been prepared in accordance with the standards of the Global Reporting Initiative (GRI). The core compliance option has been selected. The report covers the period from 1st January to 31st December 2018, and is published annually. Croatia Airlines recognises that economic goals, the needs of society and environmental protection are important, interconnected and aligned. With a view to making the company’s business more transparent, these issues were reported on responsibly in previous years within the company’s Corporate Governance Report. The first report prepared in accordance with GRI standards was the 2017 report and was not subject to external verification. The company’s 2018 report was reviewed by members of The Croatian Institute for CSR and their expert review is available on page 61. The report was prepared in PDF format and has been posted on the company’s publicly accessible website at http://www.croatiaairlines.com/hr. For any questions or clarifications related to the Nonfinancial Statement of Croatia Airlines please feel free to contact us at: ana-marija.jurkovic@croatiaairlines.hr.

2.1. Entities included in consolidated financial statements Croatia Airlines Group comprises Croatia Airlines d.d. (joint-stock company) and the following associate companies: Obzor putovanja d.o.o. (limited company), whose 100% of shares are owned by Croatia Airlines d.d., and Amadeus Croatia d.d., whose 95% of shares are owned by Croatia Airlines d.d. The Obzor putovanja travel agency was founded in 1993. It provides top-quality services that include the organisation of individual or group travels within Croatia and abroad, the sale of domestic and international airline tickets (IATA licence), the arrangement of hotel accommodation in Croatia and abroad, cultural tourism, the organisation of conferences, etc.

Being part of a joint booking system of European airlines, Amadeus Croatia is a national marketing company responsible for the local market, i.e. for the distribution, presentation and all other matters related to Amadeus, with rights to operate in the market of Bosnia and Herzegovina as well. Total revenues and expenses of the associate companies comprise less than 1% of consolidated revenues and expenses, which indicates that the effect of their operations on those of Croatia Airlines is insignificant. The data presented in the Nonfinancial Statement pertain to Croatia Airlines d.d. alone.

102-45 102-48 102-49 102-50 102-51

102-53 102-54 102-56

Š. Lugarov

102-52

3. Key performance indicators

Key performance indicators

Three core activities:

Croatia Airlines ended 2018 with a net loss of HRK 82.9 million. Total revenues amounted to HRK 1,758 million, while total expenses amounted to HRK 1,840

Passenger transport

million. In the structure of revenues, most of the revenues were generated from passenger revenues amounting to 88 percent, the share of other revenues was 11 D. Fabijanić

percent, while cargo revenues amounted to only 1 percent. Business expenses are divided functionally. The biggest share of expenses in the total structure of expenses pertains to cost of operation – primarily flight costs,

Cargo transport

within which fuel costs are the biggest, followed by costs related to passenger and air traffic services, and aircraft maintenance.

Operating revenues - structure

Aircraft maintenance

Financial indicators

2018

2017

2016

2018/2017 (%)

2017/2016 (%)

Operating revenues (HRK 000)

1.701.343

1.767.477

1.561.184

-3,7%

13,2%

Operating expenses (HRK 000)

1.777.846

1.727.665

1.553.415

2,9%

11,2%

EBIT (HRK 000)

-76.503

39.812

7.769

Net result (HRK 000)

-82.937

24.941

8.042

Net margin %

-4,87

1,41

0,52

Operating revenue per employee (HRK 000)

1.774

1.913

1.661

-7,3%

15,2%

RTK/employee (000)

167.869

166.114

148.845

1,1%

11,6%

Assets value (HRK 000)

862.134

855.105

862.412

0,8%

-0,8%

Capital and reserves (HRK 000)

304.118

404.295

379.064

-24,8%

6,7%

Investments (HRK 000)

156.301

154.442

116.221

1,2%

32,9%

Number of seats offered (million)

3,050

2,982

2,904

2,3%

2,7%

Fleet gross carrying capacity (t)

251,2

0,0%

Fleet net carrying capacity (t)

142,8

0,0%

2.169

2.125

1.939

2,1%

9,6%

Number of flights

28.003

27.491

26.848

1,9%

2,4%

Flights in km (thousand)

18.793

18.321

17.220

2,6%

6,4%

2.264

2.273

2.591

-0,4%

-12,3%

PLF %

73,5

74,4

70,0

-1,2%

6,3%

WLF %

70,4

71,3

68,1

-1,3%

4,7%

ASK (million)

2.267

2.191

2.066

3,4%

6,1%

RPK (million)

1.666

1.630

1.446

2,2%

12,7%

Capacities

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Passengers 88% Cargo 1% Other 11%

Traffic indicators Passengers carried (thousand)

Flight costs

33%

Maintenance

14% 7%

Air traffic services

22%

Promotion and sales

13%

General and administrative costs

Depreciation and amortisation

Other expenses

ICaO code

IaTa code

10 D. Fabijanić

Passenger services

D. Fabijanić

Operating expenses - structure

aircraft 31 Dec 2018

flights per day

airports

countries

Cargo transported (t)

102-7

destinations

flights in 2018

million passengers in 2018

employees

million (US$) in sales revenues

Frequent-flyer award programme

Global airline association

4. About the organisation 4.1. Company name and head office Croatia Airlines d.d. The company is headquartered in Zagreb (Buzin, No. 75 b Bani).

4.2. Ownership and legal form Croatia Airlines d.d. is a joint-stock company, whose majority of shares are owned by the state. The company’s capital base in the amount of HRK 277,879,530 has been fully paid. Its total number of ordinary shares is 27,787,953 whose nominal value is HRK 10.00. During 2018, no changes in the size, structure or ownership of Croatia Airlines occurred. Given that, at the beginning of the year, the company was put back on the List of Companies of Strategic and Special Interest to the Republic of Croatia, so one of the company’s shareholders is now the Ministry of State Property of the Republic of Croatia instead of the Restructuring and Sales Centre (CERP).

4.3. Major shareholders Shareholder

Number of shares

27,010,821

97.2033

ZAGREB INTERNATIONAL AIRPORT

477,121

1.7170

HPB FOR THE REPUBLIC OF CROATIA

173,768

0.6253

JANAF d.d. (j.s.c.)

22,000

0.0792

CROATIA INSURANCE d.d. (j.s.c.)

10,270

0.0370

CROATIAN LOTTERY d.o.o. (ltd.)

4,000

0.0144

ASTRA INTERNATIONAL d.d. (j.s.c.) IN BANKRUPTCY

3,682

0.0133

CROATIAN POST d.d. (j.s.c.)

2,750

0.0099

TURISTHOTEL d.d. (j.s.c.)

2,090

0.0075

TANKERKOMERC d.d. (j.s.c.)

2,090

0.0075

THE MINISTRY OF STATE PROPERTY

102-1 102-2 102-3 102-4 102-5 102-6 102-7 102-8

102-10 102-13 102-18

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102-9

4.4. Management structure

4.6. Croatia Airlines as a brand Croatia Airlines is today a recognisable brand in Europe and the world, and actively contributes to the development of Croatia’s potential for tourism.

Shareholders

The company’s branding started in parallel with its founding in 1989. The development of the company’s

Shareholders’ General Assembly

visual image is one of the most important features of this process. The visual identity of Croatia Airlines has undoubtedly contributed to the recognisability of Croatia Airlines as a Croatian brand. The company’s corporate design seeks to not only project the image of the airline company in Croatia, but also to present Croatia across the world. The Croatian flag is the basis of the identity of our company. The company’s visual identity aims to illustrate the safety, reliability and technical precision of our company.

Supervisory Board

As a member of Star Alliance, the world’s largest airline alliance, the company is required to use the logos

Audit Committee

of Croatia Airlines and Star Alliance on all both printed and electronic promotional materials, and at different places. All members of the alliance are required to feature the trademark of the alliance. At professional meetings and lectures, the employees of Croatia Airlines are conveyed the importance of respecting the rules of trademarking, because featuring the trademark is an indication that the company is affiliated with Star Alliance, and this with a view to having the value of the brand be recognised by passengers. Passen-

Management Board

gers are offered a service within a global network of flights of an international group of airline companies that they can trust. More specifically, in cooperation with partners, passengers are offered the fastest connection to their final destination, a high standard of fleet maintenance and a variety of rewards through the alliance’s frequent flyer programme.

SHAREHOLDERS’ GENERAL ASSEMBLY – a body through which shareholders exercise their rights. The

Within the framework of the Inspired by Croatia project, we always offer our passengers quality meals that

competence of the Shareholders’ General Assembly is regulated by the Companies Act of the Republic of

promote Croatia’s cuisine, and this based on authentic Croatian recipes and ingredients.

Croatia and by the company’s Articles of Association.

To mark the occasion of the great success of the Croatian National Football Team in 2018, Croatia Airlines

SUPERVISORY BOARD – a body whose main task is supervision of the Management Board in running the

had an Airbus 319 aircraft specially decorated with an inscription, which read Bravo Vatreni! (Well done,

company’s business operations. According to the Articles of Association, the Supervisory Board is made up

Vatreni!), and the seats of the aircraft were decorated with red-and-white chequered headrest covers.

of five members, one of whom is an employee representative. At present, the Supervisory Board of Croatia Airlines is composed of four members because during the year one member resigned from the Supervisory Board. Members of the Supervisory Board receive remuneration in accordance with the Decision on Remuneration of Members of the Supervisory Board and the Management Board. In 2018, the Supervisory Board held 5 regular meetings and 2 ad hoc meetings. In 2018, the composition of the Supervisory Board changed as one of its members, namely Darija Jurica Vuković, resigned from the Supervisory Board. The Supervisory Board appointed an Audit Committee which consists of 3 members. During 2018, the Audit within the framework of its regular sessions. MANAGEMENT BOARD – manages the company’s business activities. The competence and role of the Management Board are regulated by the Companies Act of the Republic of Croatia, the company’s Articles of Association and other internal rules and regulations. During the year, no changes occurred within the company’s Management Board. The company applies the Corporate Governance Code of Zagrebačka Burza d.d. (Zagreb Stock Exchange) and the Corporate Code of Governance of Companies in which the Republic of Croatia Has Shares or Interests, and fulfils all the obligations arising therefrom.

4.5. Significant changes during the reporting period At the beginning of 2018, by a decision passed by the Government of the Republic of Croatia, Croatia Airlines was put back on the List of Companies of Strategic and Special Interest to the Republic of Croatia, and became part of the National Reform Programme, according to which the goals listed are ensuring the company’s further development, and strengthening the competitive advantages and position of Croatia Airlines in the air traffic market through quality strategic partnership. To this end, in 2018 the company prepared a call for tenders for the procurement of a financial advisor, whose assistance is to ensure that the said goals are achieved, and that through their achievement the long-term sustainability of the company is secured.

Committee held 4 meetings. The Audit Committee presents its conclusions orally to the Supervisory Board

4.7. Fleet and capacities In 2018, Croatia Airlines operated a fleet of 12 aircraft: six Airbus aircraft, of which an Airbus A320 was under an operating lease, and six Q400 aircraft, all of which were under an operating lease. Due to an increase in the number of flights operated during the summer timetable, Croatia Airlines leased two 100-seat CRJ 1000 aircraft in the period between May and October. In accordance with the company’s development plans, aircraft of such capacity were introduced to the fleet as an addition to the company’s existing fleet of Airbuses and Dashes, and are the third type of aircraft in its fleet.

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Our fleet comprises the following aircraft: Airbus A320-200, Airbus A319-100 and Dash8-Q400.

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Specifications

Airbus A320-200

Airbus A319-100

Dash8 - Q400

Wing span (m/ft)

34,1 / 111

28,42 / 93,24

Fuselage length (m/ft)

37,6 / 123

33,84 / 111

32,83 / 107,71

Maximum ground takeoff weight (kg)

73 500

70 000

29 257

Maximum cruising altitude (m/ft)

11 920 / 39 100

11 900 / 39 000

7620 / 25 000

Wing area (m2/ft2)

122,40 / 1318

63,08 / 679

Maximum cruising speed (km/h)

834 (450 KTS)

667 (360 KTS)

Aircraft power plant

engines x 2 CFM 56

engines x 2 PW 150A

Number of aircraft in fleet

Number of seats

174

144

4.8. Main services and activities

4.11. Other services

As the national flag carrier, Croatia Airlines recognises its social responsibility in ensuring that the Republic of

Charter flights

Croatia is connected optimally with the world, with an emphasis on contributing to the development of Cro-

In addition to scheduled flights, Croatia Airlines also offers charter flights, whether for the purpose of organ-

atian tourism. Croatia Airlines has continually been adapting to the needs of the tourist industry and devel-

ising a charter flight for a company, school, sports organisation or a series of charter flights.

opment, and plans its network of direct flights from both Zagreb as the capital city and from destinations on

https://www.croatiaairlines.com/Additional-services/Charter-transport/Ask-for-charter-service

the Adriatic coast accordingly. It also provides passengers with good connections to their final destinations in cooperation with its airline partners, as well as partners offering other means of transport.

Cargo and mail transport

In the twenty nine years of its existence and delivery of air traffic service, Croatia Airlines connected Croatian

Croatia Airlines also offers the service of cargo transport. Either independently and/or in cooperation with

cities with the most important European cities, and in collaboration with its airline partners with the whole

other airlines, Croatia Airlines transports fragile goods, large shipments, animals or perishable goods, such

world. Croatia Airlines, as a member of Star Alliance, the world’s largest airline association, provides its pas-

as fresh fish, daily press, flowers, medicines, etc.

sengers access to a global network of flights coupled with additional benefits.

https://www.croatiaairlines.com/Additional-services/cargo/Transport-capacity Supervision services at Croatian airports

4.9. Countries/markets of operation Croatia Airlines also offers supervision services intended primarily for airlines that have no representatives During the 2018 tourist season, Croatia Airlines flew directly to 38 destinations in 24 European countries. Dur-

in Croatia and for companies that are unable to cover all of their traffic demands with the existing number of

ing the winter period, from January to March, Croatia Airlines flew directly to 19 destinations in 14 countries.

personnel. These services are offered at the airports in Zagreb, Dubrovnik and Split.

At the end of the year, Croatia Airlines continued to operate flights on the routes from Zagreb to Mostar and

The services include supervision of the work of handling agents, support in the event of traffic irregularities,

from Rijeka to Munich, thus flying directly to 21 destinations in 14 countries.

and representation of airlines at destination airports.

At the beginning of May 2018, regular international flights on the Zagreb-Dublin route were introduced for the

Further information is available at the following link:

first time in the company’s history, and after 15 years the Zagreb-Mostar route was re-introduced, on which

https://www.croatiaairlines.com/Additional-services/supervision/Supervision-services

flights are operated throughout the year. The network of international flights operated by Croatia Airlines was Aircraft maintenance services

additionally expanded by the introduction of seasonal flights on the Split-Copenhagen and Dubrovnik-Munich routes. Our destinations are: Amsterdam, Athens, Barcelona, Vienna, Belgrade, Berlin, Brussels, Bucharest, Copenhagen, Dublin, Düsseldorf, Frankfurt, Lisbon, London, Lyon, Milan, Mostar, Munich, Oslo, Paris,

Croatia Airlines’ Technical Centre offers different services in the field of base and line maintenance, engi-

Prague, Rome, Sarajevo, Skopje, Stockholm, Helsinki, Sankt Petersburg, Tel Aviv, Venice and Zurich.

neering services, and technical and logistics support for other companies. To date, over 300 major works have been conducted on the company’s own fleet and on those of other companies. Further information on

ENG season Zagreb is also connected with Rijeka, Osijek and Bol on the Island of Brač. In cooperation with other Within Croatia, Croatia Airlines connects Zagreb with Dubrovnik, Split, Zadar and Pula, and during the tourist airlines, we are well connected with the US, Canadian and other distant markets.

4.10. Destinations/airports/routes

18 Stockholm

St. Petersburg

Commercial training Our training courses are founded on IATA’s standard programmes, and are held by Croatia Airlines’ highly experienced trainers. We also train the employees of other companies, as well as individuals from Croatia and abroad. Applications can be submitted via our website. Croatia Airlines’ Training Centre has been offering a wide range of training courses in the fields of booking, tariffs and ticketing. The company’s Flight Operation Training Centre offers courses for pilots and ground EASA (European Aviation Safety Agency) regulations and approved by the Croatian Civil Aviation Agency. Croatia Airlines’ Technical Training Centre is a certified organisation for the training of aircrew and technical

Dublin Copenhagen

personnel, and is located at the Zagreb International Airport. It offers a wide range of training courses in accordance with Part-147 standard, which includes training for different types of aircraft, a basic training

Berlin Amsterdam Dusseldorf

London

programme and a large number of specialised training courses for the needs of the Technical Centre of

Brussels Paris

Frankfurt

Croatia Airlines and third parties:

Prague

Munich

https://www.croatiaairlines.com/Additional-services/Training-centers/Technical-training-center

Vienna

Zürich Lyon

Milan Venice Pula

Barcelona

http://www.croatiaairlines.com/Technical-Services

operations personnel, and for cabin crew. All courses are founded on certified programmes harmonised with

Helsinki Oslo

Lisbon

the maintenance services offered are available on the company’s website at

Zagreb

Osijek Belgrade Sarajevo

Bucharest

Rijeka

Zadar Split Rome Mostar Bol Dubrovnik

Skopje

Athens

Tel Aviv

4.12. Employee data

Number of employees (full-time/part-time)

Total number of contract-based employees (indefinite and fixed-term employment contracts) in Republic of Croatia and abroad

employees Men 52% Women 48% - Average employee age: 43 years - Average employment length: 15 years

full-time 99% (951)

employees in the Republic of Croatia 96% (923)

part-time 1% (8)

employees abroad 4% (36)

- 90% of employees employed on indefinite employment contract basis - No work is performed for CA by All employees have equal development and advancement opportunities regardless of their parental status.

employees outside CA

In 2018, a total of 36 employees were on parental leave. Out of that number, 17 employees returned to work after a year, while the rest extended their parental leave. All the employees who returned to work after having been on parental leave continue to be employees of the company. From the data presented, the return-to-work rate was 47.2%. Structure by age and gender

Manager structure by age and gender 595

Men

282

313 239

125

Women 3

Year

117 122

29 30-50 years of age

above 50 years of age

30-50 years of age

above 50 years of age

S. Jungić

up to 30 years of age

2018

A 21

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total

5 Manager number

Employee number

Women

Gender

Total number of employees who were on parental leave

Total number of employees who returned to work after parental leave

Total number of employees who continued working for 12 months after returning to work after having been on parental leave

4.13. Supply chain

Moreover, with a view to ensuring that the required standards of quality, and the standards of supply and operations safety are met, Croatia Airlines carries out inspections of suppliers under its membership in IATA Fuel Quality Pool (IFQP), which carries out inspections at all airports that Croatia Airlines operates on.

Supplier structure

Ground service providers Ground services include aircraft ground handling services, flight operation services and air traffic control Domestic suppliers 38%

services, by way of which the safe and regular provision of passenger and cargo transport through airports

38%

is ensured using airport infrastructure and the services of handling agents.

Foreign suppliers 62%

These services are provided by 25 domestic and as many as 149 foreign suppliers at regular destination airports. In addition, more than 100 suppliers have the status of occasional supplier depending on operational, seasonal and charter transport needs. The vast majority of suppliers are from the EU, and in 2018

62%

services were also provided by suppliers at 6 regular destination airports outside the EU that Croatia Airline flies to. With a view to providing top-quality services in line with its Business Plan, Croatia Airlines uses a complex

All handling agents of ground service providers are verified and approved by civil aviation authorities and

supply chain adapted to the specific requirements of air traffic. In terms of fields of supply, the supply chain is

licensing bodies competent to issue service provision licences. A specificity of flight operations in the win-

managed through larger groups comprising the supply of: goods and services, aviation fuel, ground services,

ter period is the service of de-icing and anti-icing within the De/Anti-Icing Quality Control Pool (DAQCP)

technical equipment, etc.

system.

During 2018, Croatia Airlines conducted business with a total of 2,019 suppliers, of which 1,253 or 61% were foreign suppliers. Also, given that the highest turnover is had on foreign markets, of the total supply turnover

All ground service providers at regular Croatia Airlines destinations undergo company quality assurance.

of HRK 1.8 billion, over one billion is generated with foreign suppliers.

Those who are members of IATA, an umbrella association of airline companies, have been accredited IATA’s

In terms of regions, in 2018 the highest turnover was had with suppliers from Europe.

Safety Audit for Ground Operations (ISAGO) certification, which guarantees that safety standards are met.

Cooperation with domestic suppliers comprises more than a third of total turnover. The share of domestic suppliers in the total number of suppliers is approximately 38 percent. In the structure of turnover with domestic

Aircraft catering service suppliers

suppliers, the highest turnover was generated with airports and in the segment of fuel procurement. The biggest share of international transactions was had with suppliers from Germany, both in terms of total

Catering service suppliers provide the service of supplying aircraft with food and beverages. There are

transaction volumes and in the number of suppliers. In terms of type of service in international traffic, the highest turnover was had in fleet maintenance services, route and navigation costs, airport services, fuel procurement and operating leases. Supplier countries according to turnover generated Supplier country

Turnover in HRK (million)

Share in total turnover

Number of suppliers

Share in total number of suppliers

five domestic and two foreign suppliers (Sarajevo and Skopje) which, in collaboration with Croatia Airlines’ cabin crew, provide passengers flying with Croatia Airlines with quality food. In addition to food and beverage suppliers, there are also 39 domestic and 35 foreign suppliers of newspapers, consumables and disposables. All suppliers are obliged to act in accordance with the provisions of the Food Act of the Republic of Croatia and to have the HACCP standard implemented, which is subject to control within the company’s quality assurance system. Aircraft parts and maintenance service suppliers

Croatia

625,7

35%

766

38%

Germany

299,7

17%

209

10%

United Kingdom

130,2

148

Given that Croatia Airlines maintains aircraft both from its own and the fleet of other carriers adhering to

Belgium

124,2

Ireland

111,0

the same international and manufacturer standards, the supply chain includes the procurement of aircraft

France

88,3

124

Spain

78,9

USA

47,0

The Netherlands

40,9

Others

252,5

14%

509

25%

Total

1.798

100%

2.019

100%

parts, materials, tools and equipment, and the procurement of part, tool and equipment maintenance services, with a view to ensuring the continuing airworthiness of its fleet and the material basis for the maintenance of aircraft of other companies. Procurement takes place on the free market, and is facilitated by qualified aviation suppliers. More specifically, each supplier must be licensed to sell its products and approved by the user within its quality assurance system. Due to the specificity of procurement of aircraft parts and materials governed by relevant aviation industry

Jet fuel (petroleum-based fuel) suppliers Jet fuel is supplied by one domestic supplier and approximately 20 foreign suppliers. Jet fuel suppliers are selected based on the quality of fuel, service and price, that are three major parameters key for the safety and cost-effectiveness. Jet fuel suppliers supply aircraft with fuel at airports in accordance with fuelling needs which are planned for each individual flight. Jet fuel suppliers are licensed to supply jet fuel at airports by domicile civil aviation authorities.

regulations, this procurement procedure is exempt from the provisions of the Procurement Regulations. Cargo and customs clearance agents Freight forwarding and cargo agents provide the service of transport and customs clearance, and most often include 39 domestic and 35 international agents for all cargo and mail transported by Croatia Airlines.

4.14. Membership in professional associations and organisations

4.15. Company history

Croatia Airlines is a member of professional associations, financial organisations, and economic and business organisations which it participates in by paying regular membership fees. Croatia Airlines’ membership and participation in the work of the industry’s umbrella associations – from amongst which IATA and Star Alliance are to be singled out – is of utmost importance for the operations of the company. IATA (International Air Transport Association) is an international association of airline companies whose business standards are the basis for the operations of all carriers offering scheduled flights in international air transport of passengers and cargo. Croatia Airlines’ membership of Star Alliance is exceptionally important commercially and strategically. Owing to its membership of the world’s biggest airline alliance, Croatia Airlines has maintained a strong competitive position in the market and the position of leading air transport service provider not only in the Croatian market, but also in the entire region. Since January 2017, Croatia Airlines has been a member of the European Regions Airline Association (ERA), a non-profit association whose main objective is improving the conditions of business operations in the European airline sector, covering through membership the entire aviation industry representing 50 airlines and 144 air service providers, including aircraft and engine manufacturers, airports, service providers and suppliers from across Europe. In March 2018, the President and CEO of Croatia Airlines, Mr Jasmin Bajić, was elected to the Board of the European Regions Airline Association (ERA) for a three-year term.

AIRLINE ASSOCIATIONS

OTHER ASSOCIATIONS Croatian Chamber of Economy Croatian Employers’ Association Croatian Association of Corporate Treasures Croatian Chamber of Architects Croatian Public Relations Association Croatian Information Technology Association

Š. Lugarov

5. Sustainable Business model

5.1. Operational risks and opportunities Airline companies’ systematic and integrated risk management is a critical dimension of corporate governance. All competitors in the market are faced with a series of strategic, operational and financial risks,

MISSION

whose specificities are related to the characteristics of individual markets, which depend on the level of

Our mission is to generate profit by providing air services. Our priority is to provide our customers with

economic development, the features of demand (seasonality, tourism, etc.), current and future levels of

optimum connections between Croatia and the world via our own flights and those of our partners, and

competition, and the size and financial strength of individual carriers.

to contribute to the development of tourism in the Republic of Croatia.

Taking account of the industry’s specific requirements, Croatia Airlines uses, as a rule, the COSO ERM

VISION

(Committee of Sponsoring Organizations of the Treadway Commission – Enterprise Risk Management)

CROATIA AIRLINES aims to be the first choice of every passenger travelling from or to Croatia.

framework and the ISO 31000 risk management standard as a basis for defining the company’s risk management policy. COSO ERM is a process in which risks are monitored on an ongoing basis, in line with the probability of their emergence and their effect on the achievement of goals.

In line with its mission and vision, Croatia Airlines applies the business model of a network operator within the Star Alliance airline association, which underlines in all of its key business documents the necessity

In its business operations, Croatia Airlines is exposed to the effects of numerous external and internal

of maintaining a high level of traffic safety, reliability, quality and punctuality.

risks. It is important to note that, as far as operations safety and security, aircraft maintenance and personnel training are concerned, the company’s standards are more stringent than the standards of regu-

Croatia Airlines bases its business model on being a strong network carrier orientated towards a strong and well-connected hub at the Zagreb International Airport.

latory requirements, and are continually monitored in line with Croatia Airlines’ quality assurance system. 102-2

The strategy of network traffic is based on clearly defining primary, secondary and tertiary routes, that is, domestic and regional routes, and at the same time defining their specific importance and optimising the number of their frequency.

102-9

Risk groups in Croatia Airlines’ business operations

102-10 102-11 102-12 102-15

With regard to the company’s market segmentation strategy, domestic air transport, which is of particular

102-16

interest to the Republic of Croatia, is defined as a separate market subsidised by the state through a

102-40

state aid programme. Pursuant to a contract signed with the Ministry of Maritime Affairs, Transport and

102-41

Infrastructure of the Republic of Croatia, Croatia Airlines has undertaken to provide domestic air tran-

102-42

sport service for the purposes of maintaining traffic connections between the regions and the economic

102-43

development of the Republic of Croatia until March 2020. By separating unprofitable domestic from

102-44

scheduled international air transport, the latter has become the cornerstone of the company’s profitable

102-46

growth strategy.

102-47 103-1 103-2

Croatia Airlines’ business model

103-3

Emphasis on scheduled traffic - Domestic traffic - under the rules of PSO* - International traffic - profitable growth strategy of network carrier

Commercial collaboration - with Star Alliance and non-Star Alliance members

Social responsibility and environmental protection - Attitude to passengers, employees and environment

Optimisation of ownership and operating leases ratio

Safety and quality

302-1 303-1

303-2

*Public Service Obligation

Productivity growth - Aircraft, labour and fuel

201-1

Optimization of complementary development strategies - Operating, financial and human resource strategies Modernization of IT systems - Star Alliance standards

External risks

Internal risks

Economic environment (Croatia and destinations)

Company strategy

Air traffic charges and flight permits

Human resources

Competition

Capacity management

Star Alliance and partnerships

Operational disturbances

Suppliers

Sales and revenue management

Fuel, currencies, interest rates...

Liquidity risk

303-3

An overview of the most significant risks that Croatia Airlines was exposed to in its business operations in

303-4

2018 is given and explained in more detail in the 2018 Annual Report of Croatia Airlines d.d. and Croatia

303-5

Airlines Group on page 26.

305-1

In implementing risk management processes, the most serious risks are identified as to their possible

305-2

impact on the company’s business operations, whose monitoring should help to mitigate the possible ne-

305-4

gative consequences whenever possible. Most risks are managed in regular corporate governance proce-

306-1

sses. Responsibility for risk management and for supervision of effectiveness of risk management system

306-2

is on the Management Board of Croatia Airlines. The Management Board, which consists of members of

307-1

the Management Board and sector managers, analyses reports and key performance indicators, and sets

401-1 401-3 404-2 406-1 413-1 415-1 416-1 417-1

in motion concrete action in accordance with the level of deviation from the goals set. The company’s Revenue Committee also proposes activities and appropriate responses to risk with regard to sales and marketing activities. Also, when developing business plans, additional sensitivity analyses are prepared concerning possible changes in some of the high-risk categories of the company’s business operations so as to prepare alternative scenarios. In defining goals, it is essential that the company’s aims and objectives are aligned with the aims and objectives of each sector. Risks have been monitored so far only in relation to the company’s aims and objectives. In 2018, we endeavoured to improve the system of goal progress

monitoring, and for the first time, in 2019, we defined the risks of all sector aims and objectives planned, the

Having at the company’s disposal three aircraft maintenance facilities or hangars – in conditions of an

implementation of control activities controlling the achievement of aims, and possible opportunities arising

increase in the demand for such services – the precondition is met for an increase in maintenance works

from the achievement of a particular aim. All organisational units are required to implement and harmonise

on the aircraft of European airlines at Croatia Airlines’ Technical Centre. In this respect, the company also

defined goals and guidelines through their risk management procedures, with monitoring facilitated through

plans to expand its line maintenance service to include at least two new types of aircraft (e.g., A320neo,

internal control systems, through the company’s quality assurance system and internal audit.

CRJ900/1000, B737, A330, etc.) with a view to offering its line maintenance services to third parties and opening new line bases.

A consistent application of an integrated approach to external and internal risk management at Croatia Airlines enables the company to understand the true nature of individual risks, and increases its capacity to take

A rising demand for training services is yet another potential for development, where the company could

relevant measures in a timely manner. Managing all the said risks systematically increases the company’s

offer commercial training programmes intended for external users.

level of organisational efficiency, which also implies a decrease in costs and an increase in competitiveness. Raising further awareness and the adoption of risk culture at all levels of organisation is one of the key

What also lie ahead of the company are privatisation processes, which the vast majority of Europe’s traditi-

factors for the company’s future business operations to be sustainable.

onal carriers have already undergone. This is particularly important in the context of recapitalisation, which would facilitate the renewal of the fleet and the expansion of the company’s network of destinations.

All risks also have another side to them – opportunities that the company recognises as areas in which company capacities and potentials can be strengthened, and in which changes can be introduced into business operations that could facilitate enhancements and that could contribute to sustainability. Potentials for

5.2. Stakeholders

development are recognised in several key elements where the country’s potential for tourism and access to the common EU market are the driving force. Migrations within the EU and an increase in the demand for cargo transport services should not be ignored either.

In line with the company’s economic activities, Croatia Airlines cooperates with and affects a large num-

Exploiting the potential of commercial cooperation with airline companies through codeshare agreements,

ber of stakeholders whom it engages in continuous dialogue and exchanges information with through

both within and outside Star Alliance, is also important.

well-established channels of communication. The result of this communication is the identification of

Ancillary revenues are another segment of business operations in which airlines have in recent years found

key topics and interests (material aspects of the company’s business operations) that are included in the

room for development and differentiation (baggage charges, seat selection, priority boarding, booking chan-

company’s analyses and that are ultimately the contents of this Nonfinancial Report.

ges, in-flight food and beverages, award miles, entertainment, Internet access, marketing, etc.). Croatia

Croatia Airlines has identified and classified its stakeholders into the following three categories according

Airlines also sees potential for development in the ever-growing use of the Internet and new e-commerce

to their importance and impact on its business operations: key stakeholders, stakeholders whose impact

technologies as sales channels used by an increasing number of potential passengers.

is significant, and other stakeholders. In keeping with the spirit of maintaining a favourable business environment, communication with stakeholders is conducted professionally and in partnership throughout

A more efficient use of the company’s own capacities and intensifying efforts to make best use of the same

the year – both on an ongoing basis and as needed.

is seen as an additional internal factor in the company’s potential for development.

A 29

J. Škof

Š. Lugarov

Croatia Airlines has been cooperating with all of its business partners (domestic and foreign) by respecting

Forms of communication with our stakeholders are shown below:

the principles of due care, and taking account of the interests of the company’s owners or shareholders. The company strives to establish business cooperation with all its partners in good faith and to the satisfaction of all parties. Special attention is paid to respecting specific international aviation regulations and

STAKEHOLDERS

COMMUNICATION CHANNEL

Passengers

Official company website Call centre Fairs and congresses Miles & More loyalty programme Social networks Marketing campaigns Promotional materials CROATIA inflight magazine Inflight entertainment Service quality questionnaires

Service users (cargo, technical, training)

Business correspondence; telephone calls Face-to-face meetings Business reports External user trainings Events

Employees

Intranet e-mail e-news Internal meetings Works Council Workers’ meetings Business reports Education and training Management Board memos

Shareholders and investors

Regular and ad hoc meetings Written communication (mail, e-mail) Business reports Face-to-face meetings Official company website Official websites of Stock Exchange and the Croatian Financial Services Supervisory Agency (HANFA) Reports on supervisions (controls, audits) conducted

Suppliers

Business correspondence (e-mail, mail, telephone) Face-to-face meetings Business reports Fairs Website

Labour unions

Direct communication - meetings Written communication (e-mail, intranet, mail)

Government bodies

Written communication (mail, e-mail) Business reports Official company website Official websites of Stock Exchange and the Croatian Financial Services Supervisory Agency (HANFA) RReports on supervisions (controls, audits) conducted Memberships

Local community

Donations and sponsorships Official company website Direct contact; telephone; e-mail; mail Training and internships Organised hangar and aircraft tours

Financial service providers

Business reports Media releases Official website Official websites of Stock Exchange and the Croatian Financial Services Supervisory Agency (HANFA)

Airline associations

Memberships Written communication Conferences, business meetings Business reports

Media/public

Media releases Regular and ad hoc press conferences Official company website Promotional campaigns; reports; interviews Social networks Incentive travels

Academic/business/ professional community

Conferences Scientific and technical papers Memberships

Certification bodies and companies

Business correspondence (e-mail; mail; telephone) Face-to-face meetings Business reports Audits

recommendations, and national legal and technical regulations with respect to the company’s business operations as a whole. Croatia Airlines communicates with its stakeholders with a view to developing the company’s desired market position, and with a view to systematically informing the general public, and existing and potential users about the company, its services and news about its business operations. The most important goal is to build and cultivate a recognisable and positive image of Croatia Airlines in the wider public.

STAKEHOLDERS WITH SIGNIFICANT INFLUENCE

KEY STAKEHOLDERS - Passengers - Cargo, aircraft maintenance and training service buyers - Employees

- Shareholders and investors - Suppliers - Labour unions - Government bodies - Academic /business / professional community - Certification bodies and companies

OTHER STAKEHOLDERS - Local community - Financial service providers - Airline associations - Media/public

National and international laws and regulations

Croatia Airlines Management

Facebook - 147.614 fans Twitter - 3.374 followers Instagram - 16.100 followers Google + - 410 followers

Communication with Stakeholders

LinkedIn - 7.862 followers YouTube - 610 subscribers

We take pride in the fact that Croatia, the inflight magazine of the Croatian national carrier, received the

Great attention is also paid to employee satisfaction, given that highly motivated and satisfied employees are

Marco Polo – Famous Travel Writer award for best Croatian promotional travel magazine at this year’s

a key factor in achieving our goals. A sense of mutual respect, cooperation and teamwork are fostered. The

Marco Polo – Famous Travel Writer awards ceremony, a traditional event organised in December by the

latest resource management trends are applied. The company has been measuring employee performance

Croatian Association of Travel Journalists and Writers (FIJET Croatia) in collaboration with the Tourist Jo-

and has been actively involved in their career guidance, training and improving employee efficiency.

urnalists Assembly of the Croatian Journalists’ Association.

We also recognise our role in connecting Croatia with the world, and in maintaining air connectivity between Croatia’s regions throughout the year, thus directly contributing to the country’s economic development. In

Croatia Airlines has been publishing Croatia, the company’s inflight magazine, uninterruptedly since 1994

addition to our active involvement in strengthening the competitive position of Croatia’s tourism sector, in the

(it will be marking its 25th anniversary next year) four times a year, aiming to promote Croatian culture,

last several years we have been amongst the biggest national exporters.

heritage, natural attractions, bringing various interesting topics from Croatia and supporting Croatian tourism. With its visual identity as an integral part of the company’s visual identity, Croatia has been featuring

Great care is also given to the impact of the company’s business operations on the environment. Croatia Air-

Croatia’s national symbols successfully, thus contributing to the recognisability of Croatia in the world.

lines seeks to operate as a socially responsible company, taking account of the by-products of its business operations and their impact on the environment and community. By applying modern technologies and optimising our operations, we have been reducing the negative impact of aircraft operations on the environment,

5.3. The material aspects of the company’s business operations and their effect on sustainable development

thus contributing to environmental protection and sustainable development, and fulfilling our obligations to future generations.

Given the business environment in which the company operates, the approach to assessing and reporting

Identification of key material aspects has been approached in line with the guidelines for the drafting of non-

on the material aspects of the company’s business operations has remained the same as in the previous

financial reports through several steps: identification of material aspects, defining their relevance, confirming

reporting period.

their relevance and ultimately presenting them. A working group was formed for the purpose of implemen-

We are aware that, in today’s modern business environment, business success is not measured by financial

ting activities pertaining to corporate social responsibility comprising the key individuals from each sector

results alone, and that a company’s activities in the segment of social responsibility and contribution to

identified as a relevant for the fields and topics covered by nonfinancial statement. This working group has

sustainable development are equally important. Independently of the services we offer, we know that our

defined areas of importance for the company’s impact on society, the environment and economy, topics that

success in connecting Croatia with the world, and our respectable presentation of Croatia depend directly

can influence stakeholder assessments and decisions, and the boundaries of each aspect. The work of the

on the trust and satisfaction of our service users. Accordingly, responsibility to our passengers is one of the

working group was based on assessment of contribution to specific goals of sustainable development and

crucial aspects of our business. It is therefore our duty to understand their needs and do our best to meet

given the business environment in which the company operates, the approach to assessing the company’s

their expectations.

material aspects and goals has remained the same as in the previous reporting period. Identifying and gro-

We have been fostering successful business cooperation with our business partners, guided by the princi-

uping the stakeholders of the business processes of Croatia Airlines, and defining the impact of selected

ples of corporate excellence and business ethics. We strive to establish business cooperation with all our

material aspects on their attitudes and decisions was also part of this process.

partners in good faith and to the satisfaction of all parties. In the segment of social responsibility, Croatia Airlines has recognised safety as one of the key aspects, which is also an essential prerequisite of the company’s business operations. Affirming moral norms, and ethical business practices and conduct are amongst the most important corporate goals of Croatia Airlines. The company’s Anticorruption Programme is of particular importance for conducting its business operations in line with ethical business practices. Through many

sponsorships and donations, Croatia Airlines invests in the community in which it operates and in different segments of society.

Material aspects

Sustainable development goals

Social category Safety and security System quality User satisfaction Product responsibility Training and education Labour relations and decent work Marketing communication Local community development Freedom of association and collective bargaining Environmental category Legal frameworks for environmental protection Emissions and energy Waste management Economic category Economic impact Contribution to tourism development Procurement process and practice

SMANJENJE NEJEDNAKOST I

Direct economic value generated and distributed Economic impact Process and sustainability of supply chain

The economic aspects of Croatia Airlines affect the economic prospects of its stakeholders at local, regional

Safety and security

and national level.

System quality User satisfaction

As a for-profit organisation, Croatia Airlines recognises all economic aspects as material, with particular emp-

Product responsibility

hasis on the company’s contribution to the development of Croatian tourism and economy as a whole, as well

Training and education

as to the well-being of the individual. It regularly calculates and pays taxes, contributions and other levies in

Labour relations and decent work

line with applicable regulations, thus significantly contributing to the functioning of many business activities

Legal framework of environmental protection

that are important for the daily lives of the citizens of the Republic of Croatia. A detailed overview of the company’s financial results is prepared in accordance with the International Financial Reporting Standards (IFRS),

Contribution to tourism development

the Accounting Act and other applicable legal regulations, and the rules of the industry. It is set out in the Audit

Marketing communication

Report and in the 2018 Managament Business Report, where the key business changes in the reporting period are also elaborated. The company’s aim is to develop its business operations by making the right and timely decisions, with the ultimate goal of ensuring its sustainable development. The company has been managing its economic impact through annual and medium-term planning, by regularly monitoring the achievement of planned results on a monthly basis and taking timely measures in case of major negative deviations from the plan. The process of annual planning is partaken in by the entire company, as each sector/service delivers their planning framework for the year ahead. These are consolidated by the Controlling and Internal Audit Sector, which then delivers the final plan to the Management Board and the Supervisory Board for approval.

Croatia Airlines’ economic contribution in 2018

Croatia Airlines recognises as material aspects all those categories that may have more significant economic, environmental and social impact. Their recognition is aligned with the mission, vision and business operations of the company. All the listed material aspects are part of the company’s Business Report for 2018. Croatia Airlines undertakes to implement, analyse and update aspects of materiality in future reporting periods too.

Procurement procedure and practice The economic aspects of Croatia Airlines affect the economic prospects of its stakeholders at local, regional and national level. An ongoing task related to the procurement of goods and services is finding suppliers who can meet supply requirements in terms of quality, quantity, prices and delivery dates. For this purpose, the company applies appropriate supplier verification methods prescribed by law incorporated in the Flight and Ground Operations Procurement Procedures, the Aircraft Maintenance Procurement Procedures and the Procurement Regulations. In compliance with aviation regulations and standards, procurement procedures and Procurement Regulations, Croatia Airlines applies the same principles when selecting procurement procedures with respect to all economic entities – the principle of fair competition and equal treatment, the principle of non-discrimination, the principle of mutual recognition, the principles of proportionality and transparency, the principle of efficiency, and the principle of the free movement of goods, capital and services. Procurement procedures are decentralised in Croatia Airlines, which means that the company’s organisational units initiate and conduct procurement procedures on their own with the approval of the Management Board. Procurement procedures are conducted in a number of different forms of procurement depending on the type of procurement. Procurement procedures are conducted and suppliers selected in compliance with the Procurement Regulations and relevant Procurement Procedures, whereby the preparation of a specific procurement procedure, the selection of a supplier, the entering into a contract and the execution of a procurement contract must meet the criteria of timeliness and compliance with specification requirements, all with a view to facilitating efficient and effective procurement, and cost-effective procurement spending. The company’s Procurement Regulations recommend the application of “green and sustainable procurement” whenever possible given the circumstances in the market and in line with the company’s Environmental Protection and Energy Efficiency Guidelines. When procuring machines and devices that pose increased hazards, and hazardous substances, occupational health and safety measures must be taken account of.

In terms of correlation between procurement and environmental protection, any procurement of goods and services is subject to environmental impact assessment (if any). The company’s Procurement Regulations recommend applying elements of green public procurement whenever possible. The suppliers of Croatia

Airlines have been acquainted with the ISO14001/50001 certificates via official correspondence with all suppliers individually and through the information available on the company’s website. With these certificates, Croatia Airlines confirms its dedication to environmental protection, energy conservation and sustainable development. At the same time, Croatia Airlines appeals to all its suppliers to also contribute to environmental protection and energy efficiency through their own active and preventive actions, as well as by encouraging

their business partners to do the same. The company’s Environmental Protection Policy and the official correspondence sent to suppliers are available on the company’s website at the following link: https://www.croatiaairlines.com/about-us/corporate-values/sustainable-development?langid=en The prescribed procurement procedures and its core requirements are integrated into all other procurement

Š. Lugarov

R. Gropuzzo

sub-procedures in Croatia Airlines.

5.4. Safety and advancements as business imperatives Safety is of primary importance for all segments of Croatia Airlines’ corporate activities. There can be no compromise with safety. With a view to achieving a high level of safety, Croatia Airlines makes maximum investments in the training of flight, cabin, ground and technical personnel, and ensures that all its other employees have a relevant level of expertise. The company also ensures a high level of aircraft maintenance in compliance with the highest international aviation standards, adheres to all applicable regulations and standards, and continually invests technical resources to ensure that safety criteria are given priority to in all segments of business operations. Quality assurance system Croatia Airlines has introduced an integrated quality assurance system that meets the requirements of the following standards: Air Operations Regulation EASA Part 145, EASA Part 147, EASA Part M, Aircrew Regulation, Directive 2003/87/EC (EU ETS) and ICAO Annex 16 (CORSIA), ISO 9001, ISO 50001 and ISO 14001. The quality assurance system encompasses all organisational units of Croatia Airlines and their respective processes.

CROATIA AIRLINES’ QUALITY ASSURANCE SYSTEM - Finance and accounting - Legal affairs, human resource and asset management - Information Technology management - Sales and marketing - Network and revenue management - Controlling and internal audit Quality assurance for non-operating activities

- Flight operations - Ground operations

- Aircraft maintenance - Engineering and technical support

- Flight operations Training Centre

- Technical Training Centre

Flight operations quality assurance

Technical quality assurance

1. Air Operation Regulation CR (EU) 965/2012 CR (EU) 965/2012 is a European and Croatian standard laying down the requirements to be met by airlines in commercial air transport operations. After having fulfilled all certification criteria prescribed by the regulation, Croatia Airlines was issued an Air Operator Certificate (AOC) on 29th April 2003 by the Air Transport Directorate of the Ministry of the Sea, Tourism, Transport and Development of the Republic of Croatia (today’s Croatian Civil Aviation Agency). 2. Aircrew Regulation CR (EU) 1178/2011 Š. Lugarov

CR (EU) 1178/2012 is a European and Croatian standard laying down requirements related to civil aviation aircrew. Having fulfilled all certification criteria prescribed by the Regulation, Croatia Airlines obtained an ATO certificate – HR.ATO.001 via the AOC, i.e. an approved pilot training organisation.

3. Continuing Airworthiness CR (EU) 1321/2014

5. ISO 9001

- Part M

Our approach to quality management is defined by our core document – the company’s Quality Policy

At the end 2007, Croatia Airlines met all the requirements and was issued a 9A Part M certificate with a

Statement. Croatia Airlines established and in November 2003 certified its quality management system in

scope of authorisation specified in Subpart G, having thus acquired the right to control the airworthiness

compliance with the requirements of ISO 9001, a unique global standard for quality management systems.

of its fleet independently. As of January 2009, the scope of authorisation was extended to Subpart I, allowing the company a fully independent review of airworthiness and verification of the aircraft airworthiness

6. ISO 14001, ISO 50001

certificates. The acquisition of these certificates is based on the Continuing Airworthiness Management

By adopting the Environmental Protection and Energy Efficiency Guidelines/Policy, Croatia Airlines has opted

Organisation Manual and/or the Aircraft Maintenance Organisation Manual, which are fully compliant with

to manage the objectives and risks of its business operations by taking account of environmental protection

EU legislation. Upon Croatia’s accession to the EU, the Croatian approval HR.MG.001 became recognised

and improving energy efficiency, thus fulfilling our obligations to future generations. To this end, in 2016 an

and valid within the European Union.

environmental management system according to ISO 14001 and an energy management system according

- Part 145

to ISO 50001 were implemented. Croatia Airlines is highly dedicated to raising employee awareness about

In 2001, Croatia Airlines obtained the approval of the aircraft maintenance organisation in accordance with

the level of responsibility, the job importance and the way in which the successful performance of job-related

the then valid JAR 145 regulation. In 2004, this was superseded by EASA Part 145, an approval issued in

tasks contributes to achieving goals of quality. All employees at Croatia Airlines are acquainted with the laws,

line with the requirements of the European Aviation Safety Agency (EASA). Supervision of the company’s

regulations and procedures of all the countries which Croatia Airlines flies to and which are relevant to the

compliance with the EASA Part 145 standard is conducted every year through audits conducted by experts

performance of their tasks.

from LBA (Luftfahrt Bundesamt) on behalf of EASA. At the same time, Croatia Airlines has insisted on holding the equivalent Part 145 certificate, which was

Fatigue risk management

issued by the Air Transport Directorate of the Ministry of the Sea, Tourism, Transport and Development. This

Due to the specific working conditions of aircrew, a group responsible for coordinating all fatigue-related

certificate is today renewed by the Croatian Civil Aviation Agency (CCAA).

activities was formed in the company – the Fatigue Safety Action Group (FSAG). They are responsible for

Upon Croatia’s accession to the EU, the EASA Part 145 approval for non-EU members ceased to be valid

data collection and analysis, and reporting which facilitates the assessment of fatigue risk amongst aircrew.

and the Croatian approval HR.145.001 became recognised and valid within the European Union.

The group meets once a month and analyses fatigue reports sent by aircrews. In the period between 5th June

- Part 147

2018 and 13th December 2018, 68 reports were received, and each was analysed individually focusing on

In 2005, Croatia Airlines obtained the approval of the aircraft maintenance personnel training organisation

factors contributing to fatigue (e.g., hotel accommodation, noise, loud music into the small hours of the night

in accordance with the then valid JAR 147 regulation. In 2007, this was superseded by HR Part 147, an

because of which aircrew members cannot sleep, etc.). In each report, FSAG identifies the hazards and as-

approval issued in compliance with the then valid 9A-Part-147 regulation for all types of aircraft in its fleet.

sesses the risks, and makes recommendations for the reduction of factors contributing to fatigue and fatigue

As of 2012, Croatia Airlines holds an approval for basic training and several types of aircraft issued by the

risks to an acceptable level. These recommendations are then analysed by the Safety Action Group (SAG),

aircraft maintenance personnel training organisation.

which is managed by the Safety Manager, which decides on the final measures to be adopted.

Upon Croatia’s accession to the EU, the Croatian approval HR.147.001 became recognised and valid within the European Union. 4. IOSA Operator under the IATA Operational Safety Audit Programme The International Air Transport Association (IATA) set a global Standard Safety Assessment that applies to all members of the association. In December 2003, an IATA Operational Safety Audit (IOSA) was conducted at

Croatia Airlines, which confirmed a high level of flight safety. This certificate is subject to biannual renewal.

J. Škof

Working hours (that includes shift work, night work, changable and unpredictable flight crew scheduling) and specific working environment (aircraft cockpit and cabin) effects on sleep disorders and circadian rhythm disorders, which can result in fatigue, cumulative sleep loss, and reduced attention allocation during critical phases of flight (take-off and landing). The planning of flight operations schedules, which has to take into account – apart from economic and legal norms – the issues of fatigue emergence and dimensionality, plays a very important role in reducing fatigue risk. Fatigue affects various cognitive abilities, such as wakefulness, memory, spatial orientation, learning, problem solving, decision making, etc. As a result, fatigue is identified as a hazard to the safety of air transport. Accordingly, fatigue risk is analysed and recognised as a potential hazard to the safety of air operations. The tasks of the FSAG include: - developing fatigue reporting procedures; - developing and implementing procedures for identifying fatigue hazards; - ensuring the implementation of comprehensive risk assessment of fatigue hazards; - preparing recommendations and measures to reduce fatigue risks; - collaborating with the Safety Department on the development of a safety assurance process based on agreed indicators and safety objectives; - preparing briefs on scientific and operational progress in fatigue risk management, principles and practices; - responsibility for developing, updating and providing training guidelines and training materials; - ensuring that all relevant employees receive appropriate training in all relevant matters related to fatigue. Considering what fatigue hazards are, it is imperative to ensure that risk reduction measures are in place, with a view to reducing the level of risk to an acceptable level.

Projects co-financed by the EU

impact assessment was performed on key groups of personal data, as well as the analysis of the level of

For the last 18 months, our company has been involved in projects co-financed by the EU. At the end of

compliance of control measures in business processes and the IT system of the company with regard to

2017, the project of the modernisation of our DASH Q400 fleet started, facilitating precision landing using

the GDPR. A recommendation was issued to implement measures of data protection by design and data

satellite LPV approaches. With this project, the company follows the latest trends, and at the same time

protection by default, which are necessary to ensure compliance with the GDPR.

improves its efficiency and reduces its environmental impact. The project aims to modernise the company’s

In order to meet the requirements of the GDPR, the SAP Informatiko Lifecycle Management was installed

Q400 fleet by installing equipment that will enable using the satellite signal of the European satellite network,

on the SAP system, a software for managing the lifecycle of data and assisting in the simplification of IT

GALILEO, and the EGNOS navigation system. Many airports either already have implemented or will im-

infrastructure by removing older information and automatizing data storage in line with defined rules. This

plement new satellite-driven approach procedures, including LPV approaches. This will ensure a reduction

allowed the company to store the data in the form that enables data subject identification only to the extent

in fuel consumption and greenhouse gas emissions, and offer greater safety to passengers. Via a tender,

necessary for the purposes of data processing.

Croatia Airlines received EUR 627,537.00 from the Innovation and Networks Executive Agency (INEA), or

Emergency Response and Crisis Management (ERCM)

85% of the total amount needed for the project.

Despite the measures taken at Croatia Airlines to ensure protection and security, the occurrence of unexpected events should also be taken into account (incidents or aircraft accidents, hijacks, etc.). Given that

Via another project, the installation of appropriate aircraft monitoring equipment is being co-financed, which

the management of such crises has a major impact on the business continuity and future development of

will be standard as of 2020, and meeting this standard will be mandatory. The project aims to upgrade

the company, it has founded an Office for Emergency Response and Crisis Management (ERCM).

the company’s Airbus and Q400 fleet by installing Automatic Dependent Surveillance Broadcast (ADS-B

Emergency response and crisis management applies to all of our aircraft regardless of their location, wet-

Out) equipment. This new equipment will allow flight control to receive the GPS coordinates of an aircraft,

lease aircraft, aircraft of our STAR Alliance partners (for the territory of Croatia, Bosnia and Herzegovina, and

which is the most accurate report on any current position of the aircraft. As part of the European Air Traffic

Macedonia) and codeshare partners. The system is based on coordinated actions of ERCM teams, aimed at

Management Programme, this upgrade will meet the requirements of the interoperability of surveillance by

providing an appropriate and efficient response, minimising the negative impact of accidents and ensuring

enabling all surveillance methods envisioned by the Single European Sky, reducing at the same time the

business continuity.

amount of time an aircraft has to spend flying a hold awaiting a landing and/or take-off flight permit. For this In order to be as prepared as possible for crisis situations, Croatia Airlines took part in the largest field

project, the amount of EUR 150,000.00 was secured from EU funding (INEA).

exercise in this region, the ASAR Jastrebarsko drill, which took place in September 2018 and which was BI (Business Intelligence) - NEVENA

organized by the Croatian National Protection and Rescue Directorate. The aim of the drill was to evaluate

The existing business processes at the company are complex and supported by an array of applications

the coherence of action of all units of air search and rescue in case of an airplane crash on the mainland

from which data for a specific period is retrieved, i.e. SAP, Mona Lisa, Amadeus, NetLine, Amicos, HR Net

and in fresh waters, as well as the alignment of this system with first respondents to victims of civil aviation

etc. In order to keep pace with frequent market and business changes, it is important to make quality and

accidents and services aimed at helping their families.

up-to-date business decisions based on quality reporting. Business reporting at the company has been par-

For the purposes of the exercise, an airplane crash was simulated, and the internal processes and proce-

tially covered directly through transaction software (SAP, Mona Lisa i sl.), and it refers to reports that require

dures of all relevant authorities (The Croatian National Protection and Rescue Directorate; the Ministry of

additional processing and editing in another tool. Furthermore, data sources are often different bases that

Internal Affairs, the Ministry of Defence; the Ministry of Health, the Ministry of Foreign and European Affairs,

need to be additionally edited. This method of work is time-consuming and causes delays in information as well as errors. In order to improve business reporting, the company is currently introducing a Business Intelligence (BI) system. Business intelligence refers to a set of theories, methodologies, processes, architecture, and technologies through which raw data is transformed into a coherent, useful piece of information to be

Traffic Accidents Investigation Agency, the Franjo Tuđman International Airport, the Croatian Meteorological and Hydrological Service, the Croatian Mountain Rescue Service, the Croatian Firefighting Association, the Croatian Red Cross, the Croatian Institute for Toxicology and Antidoping) and Croatia Airlines were exam-

used for business purposes. This system aims to cover all business processes of the company. With the introduction of a business intelligence system, a single data source will be created, functioning as a modern data storage that will serve as a single source of truth, solving issues related to data inconsistency, and allowing users to gain quicker access to data and pre-structured reports.

the Croatian Institute for Emergency Medicine, Croatian Air Traffic Control, the Air, Maritime and Railway

ined. The role of Croatia Airlines was to provide support by gathering data on passengers and the aircraft involved, as well as psychosocial support on all necessary locations and to all persons affected by the event (families and friends of the passengers and flight crew). The drill showed the highest level of coordination both in the management centres and in the field, whereas

the gathered data and the experience enabled further development of the system. As a proud participant of this drill, our company will continue to further its cooperation with state institutions.

Data protection regulations in the Croatian law regarding data protection are the General Data Protection Regulation and the Act on Implementing the General Data Protection Regulation (NN 42/18). In accordance with the GDPR and the results of risk assessment, measures of data protection are continuously implemented in the infrastructural segments of the IT system of our company with the aim of strengthening security measures affecting personal data protection. All procedures required by the regulation have been implemented: risk assessment has been performed, safety measures adopted, internal acts amended, and data protection officers’ tasks added to existing work contracts. The following principles of processing have been implemented with regard to personal data: lawfulness, fairness and transparency; purpose limitation; data minimisation; accuracy; storage limitation; integrity and confidentiality; and accountability. The process of compliance to the GDPR included interviewing the participants of key business processes of the company and analysing the IT system of the company. The process had several stages: the features of the business processes and IT system components used in the services were analysed; a map of personal data was created, identifying all groups of personal data used in the personal processes of the company; the IT relevance of this data for the purposes of compliance to the GDPR was established. A data protection 1

Innovation and Networks Executive Agency

J. Škof

As of 25 May 2018, all EU member states apply the General Data Protection Regulation (GDPR). The basic

Mirna Žic

5.5. Responsibility to employees

Member of the Croatia Airlines’ aircraft cabin crew

SMANJENJE NEJEDNAKOST I

Dream job “We care for the safety of our passengers”.

Our employees are the company’s greatest asset and the main catalyst of business activities and development. We aim to offer passengers a lot more than just a comfortable flight by investing in aircraft and ground personnel. This is why we devote a lot of time to training in order to continuously improve the expertise of all employees. Working at Croatia Airlines offers opportunities for professional advancement in an international environment, which poses a challenge for all employees and contributes to their satisfaction and motivation. The company builds upon a working culture that promotes cooperation and teamwork, while readiness to learn and develop further is expected from each employee. Highly motivated and satisfied employees are

Siniša Kralj

the key for ensuring quality, so their motivation and professional interests are important factors when hiring

Croatia Airlines’ first officer

and developing the staff.

Flying is more than just a job.

The differences between employees with regard to education, skills, personal traits, interests, and work motivation indicate quite clearly that achieving sustainable development goals is not a simple or easy task.

“Dear passengers, fly with us!

By aligning individual interests of a large number of people and common interests of the organisation, we

You’re in safe hands”.

strive to organise the work in a way to make each individual satisfied and encourage them to make maximum contribution as a member of the organisation. Human resources management activities added value for the company in a way that the most competent person is assigned to the optimal workplace. Employment policy New recruitments, required competencies, and training for the successful performance of all work-related tasks are planned on an annual basis. The company regularly offers employees to apply for job vacancies within the company by way of internal hiring procedures and, in addition to regular education programs

Marina Hinić Croatia Airlines’ station manager assistant

“I live, sleep and wake up with planes on my mind”.

Flying is my life.

necessary for sustaining the business process, organises training courses to improve employee skills and knowledge. During 2018, a total of 163 persons were employed, of whom 161 on a long-term employment contract and 2 agency workers. At the end of 2018, there were 96 employees working on the basis of a long-term employment contract. Together with seasonal workers, the fluctuation of employees in 2018 totalled 13%. In 2018, 55 cabin staff members were employed on a seasonal basis. Occupational health and safety of employees Croatia Airlines has been continuously devoted to the protection of health and safety of employees at their workplaces and to the implementation of all prescribed occupational safety measures. In order to protect the health and safety of its employees, as early as in 1991, Croatia Airlines adopted the Occupational Safety Guidelines (which have been amended multiple times since due to legal regulations), which, in line with the relevant activity, technology, jobs performed in special working conditions, equipment, hazardous substances, and the number of workers, particularly in accordance with the Workplace Risk

Danijel Crnobrnja Croatia Airlines’ licensed aeromechanic

Assessment, set out the manner of ensuring workplace safety, related rules and rights, obligations and responsibilities of an authorised person of the Employer and workers where these issues are not regulated by the Occupational Safety Act, its subordinate regulations, and relevant employment contracts. Even though most jobs in the Technical Sector are high-risk jobs (working at heights, with hazardous chem-

Passionate about planes since

icals, with different machines and dangerous devices etc.), when it comes jobs performed in special condi-

childhood.

tions, only one severe injury took place in 2018 and no professional illnesses.

“We guarantee supreme fleet

A total of 14 injuries were reported in 2018: one was not legally recognized, whereas another is still being

maintenance”.

processed by the Croatian Health Insurance Fund. Work-related injuries amounted to a total of 1712 hours or 214 days of leave in 2018. Additional information related to occupational injuries can be found on page 15 of the company’s Annual Business Report.

The company looks after its employees’ health also by organising comprehensive health assessments,

Freedom of association and collective bargaining

preventive eye examinations in accordance with the Regulation on Working with Computers, flu jabs, and

The following labour unions operate within the company: Croatian Union of Air Traffic Pilots (HSPP), Air Cab-

dermatology checks.

in Staff Union (SKOZ), Independent Professional Union of Croatian Aeromechanics (SSSAH), Independent

Moreover, the company ensures all workplace protection measures for the employees performing their

Croatian Union of Airline Employees (SHSZUZ) and Union of Engineers and Technicians in Aviation (SITUZ).

tasks in special conditions in order to prevent potential harmful impacts.

As the Croatian legal framework sets out that representative unions are authorised for collective bargaining, in 2016 a new union, Croatia Airlines’ Employees Organisation (ORCA), was founded, gathering the mem-

Employee training and education

bers of the above-listed pilot, cabin staff and aeromechanic unions.

Through continuous investment in education, Croatia Airlines develops and strengthens human resources,

In 2018, intensive negotiations over a new collective bargaining agreement were underway, and despite the

having recognised since day one that its business activity is both capital and labour intensive. Due to ex-

fact that there is no valid collective bargaining agreement in place, the level of rights of all employees has

tremely sophisticated technology and demanding business processes, each year it invests considerable

remained on the level of the 2015 Collective Bargaining Agreement. The aim was to preserve the level of

funds in employee training, especially in the specialist training and maintaining the level of education of

social rights of all our employees. After over two years of collective bargaining, on 12 February 2019, the

the flight and cabin staff, as well as of all other employees. Additional information on employee training is

new Collective Bargaining Agreement was signed. Unlike the previous agreements, which were concluded

available in the Business Report for 2018 of Croatia Airlines d.d. and Croatia Airlines Group, on page 10.

for periods of two years at the most, this agreement was concluded for a period of five years, ensuring longterm social peace as an important prerequisite of regular and stable business, particularly during tourist

The training process for the employees of Croatia Airlines relies primarily on internal resources, implying

season, a period of highest turnover for our company.

the use of its own authorised instructors. In addition to financial savings, the nourishment of its own know-

The majority of employees are union members, but provisions of the collective bargaining agreement apply

how results in reduced dependence on external resources and promotes corporate culture and business

to all of them (100%). The level of rights contained in the collective bargaining agreement regulates many

strategy.

additional benefits of employees in order to improve their economic and social status, such as the number

The training of Croatia Airlines’ employees takes place on three levels: the training of operative staff, tech-

of days of annual leave, paid leave, salary bonuses, severance payments, etc., which are above legal mini-

nical staff, and non-operative staff.

mum. In case of more serious health problems, deaths, childbirths, long-term illnesses or similar situations requiring individual approach, the company helps its employees to the fullest extent possible by participating in the medical treatment costs and purchasing the necessary aids, thus protecting their social position.

The Croatia Airlines’ Technical Training Centre is a certified organisation providing aviation technical training under the EASA Part 147 approval. The Technical Training Centre offers a wide range of training solutions for a particular aircraft type and specialist courses for aeronautical engineers and technicians. Aircraft type

Non-discrimination and employee dignity

training is performed according to EASA Part 66 / Part 147, and is intended for Part 66, aircraft class A, B1,

The company has appointed a person responsible for protecting the dignity of workers and has drawn up a

B2 or C aircraft maintenance licensees and engineers. All other training courses are carried out according to

detailed procedure for the protection of dignity in accordance with relevant legal documents regulating the

the Part 66 standard in order to fully meet the needs of Part 145 aircraft maintenance.

protection from discrimination and harassment. Furthermore, the company regularly adopts an action plan for promoting and ensuring gender equality. There were no discriminatory treatments of employees in 2018.

The Croatia Airlines’ Flight Operation Training Centre offers a wide range of training courses intended for flight, cabin, and ground personnel. All training courses are based on certified programmes harmonised with EASA regulations and approved by the Croatian Civil Aviation Agency. Training courses are held by highly experienced Croatia Airlines instructors. For certain categories of specialised employee training courses, the company uses the services of the IATA and, if necessary, the services of external experts who carry out in-house programmes. Company employees regularly attend various expert conferences, symposia, and work groups, with the aim of getting familiar with operational and commercial innovations within the industry. Employees in direct contact with Croatia Airlines passengers regularly attend training courses required by Star Alliance standards, focusing on the

(International Air Transport Association) Training Centre and other international specialised training courses,

Special benefits for employees Croatia Airlines takes care of its employees and notifies them via its intranet site about its cooperation with a number of business entities (theatres, sports associations, banks, etc.) and offers them to use their services at a more favourable price (health services, catering and hospitality services, tickets for cultural events, etc.).

5.6. Business ethics

recognition and treatment of special status passengers pursuant to Star Alliance categories, and standard

Croatia Airlines and its Management Board deem that raising anti-corruption and ethical awareness of all

procedures in emergency situations with the aim of maintaining a high level of service quality and improving

employees and adopting zero tolerance to corruption is the key for an efficient prevention of corruption.

passenger satisfaction, while also covering extensive preparations for intensive sales activities before the

The company strives to promote ethical behaviour in all spheres of its business activities: among employ-

start of the main tourist season.

ees, toward its customers, business partners, segments of the industry, owners, shareholders, and all other entities it cooperates with. Croatia Airlines guarantees equality and equal treatment to all.

As the national airline company of Croatia, Croatia Airlines organises within its Training Centre a series of training courses needed by travel and commodity agencies for the acquisition of the IATA licence, training

Ethics Committee

courses for the employees of airports, freight forwarders, and airline companies.

The Committee for Monitoring the Ethics Code Implementation has been active within Croatia Airlines since 2002. Its purpose is to monitor the enforcement, implementation, and breach of provisions of the Code of

Works Council

Ethics in the company’s work, proposing to the Management Board methods of settling problems related to

In accordance with the regulations related to employment, the Works Council comprised of nine mem-

any reported breach of provisions as an independent body. Based on the relevant report, the Management

bers operates within the company. It informs, consults, and participates in decision-making processes

Board decides on sanctions that may be applied in the case of non-adherence or breach of ethical princi-

with regard to economic and social rights of workers. Up to twice a year, the Works Council organises, in

ples. Its main goal is to promote moral standards, ethical behaviour and business ethics.

cooperation with the employer, a workers’ meeting in order to inform them about the company’s current

By rectifying irregularities occurring as a result of non-adherence to the provisions of the Ethics Code, it

situation and development. The Works Council also appoints to and withdraws worker representatives from

aims to promote ethical behaviour to make work and professional activities at the company as pleasant

the Supervisory Board.

and well-balanced as possible. For this purpose, a system for reporting the cases of non-adherence to the

Ethics Code has been set up, allowing employees to report any case of breach thereof.

on a regular basis and communicate with our passengers in order to offer them services that meet their

The Committee meets when necessary, i.e. when it has found out or was informed by a company employee

expectations.

of a possible breach of the provisions of the Ethics Code. In accordance with the Ethics Code, all employees are required to act with due care and attention, following

Tailored service

the principle of integrity. The company pays particular attention to the choice of its business partners and

By segmenting the market, the company tailors its service to meet the needs of individual passenger seg-

refuses to do business with those who have committed a serious breach of contractual obligations and the

ments: we aim to provide simple and impeccable business travels; as for the tourist segment, during the

rules of business ethics.

summer timetable we expand the flight network to meet the requirements of feeder markets; to the private

In 2018, there was one reported case of breach of the Ethics Code. The Committee processed the com-

travel segment we offer high-quality service at a favourable price for many city-break destinations in Europe;

plaint and gave accordingly their opinion as well as their recommendations which were completely accept-

and to the segment of low-fare passengers we offer travelling without luggage at a lower cost.

ed by the Management Board.

In 2018, Croatia Airlines continued to develop digital channels by implementing new functionalities that

The Ethics Code of Croatia Airlines d.d. has also been published on the company’s website and must be

allow online users to organize their travels more easily and quickly.

adhered to by all employees.

The PNR Retrieve (Passenger Name Record) service was implemented, enabling users to change their contact data, enter their frequent flyer ID numbers or purchase additional services if they failed to do so while buying their tickets. The company has continued to work on the PNR Retrieve service in order to provide

5.7. Anti-corruption Program

more functionalities for users in the future, as well as on the implementation of sales of additional services. In October, the company implemented the redesigned confirmations for users who purchase airplane tickets online. We have also initiated several projects for users who organize their travels mainly via mobile devices.

PIn early 2010, Croatia Airlines started implementing its Anti-corruption Program with the aim of improving the legal and institutional framework for efficient and systematic prevention of corruption and the promotion of zero tolerance to corruption. Any breach or non-adherence to the Anti-corruption Program is considered

Special meals for passengers

a breach of ethical principles and standards.

Our most important task is to ensure customer satisfaction with the service provided. All meals and bev-

The primary goals of Croatia Airlines’ Anti-corruption Program are:

erages on our flights are free of charge and the service depends on the flight duration and the time of day.

Strengthening work integrity, responsibility and transparency;

Passengers on all business flights and on certain flights in the economy class can enjoy special meals that

Creating conditions for the prevention of corruption on all levels;

need to be ordered in advance, such as special diet meals, meals in line with health and religious require-

Promoting zero tolerance to corruption.

ments, meals for children, etc.

Anti-corruption Action Plan is published on the company’s website and must be adhered to by all employees. Moreover, the Ethics Code has been published on the company intranet site, which all employees can

Health and safety of passengers

access, providing the employees with an insight into the company’s dedication to affirming zero tolerance

Health and safety of passengers, crews, and employees is of high priority to Croatia Airlines, and is ensured

to corruption. In 2018, there were no reported cases related to any form of corruption.

through an integrated quality assurance system encompassing all of its business processes and organisa-

5.8. Responsibility to passengers At Croatia Airlines, we continuously observe customer expectations with regard to service quality. Being tomers, we invest every possible effort to meet or even go beyond customer expectations. In order to achieve this, it is crucial to identify, understand, and consistently apply customer demands and all applicable requirements of relevant regulations. Various methods are used to manage risks and opportunities possibly affecting the quality and compliance of our products and services, and consequently customer satisfaction.

aware that the success of the company directly depends on the satisfaction of passengers and other cus-

tional units. A more detailed description of the Croatia Airlines’ quality management system can be found on page 39 of this Statement. The system is continuously certified and advanced through regular internal supervision and the supervision of relevant domestic and international organisations. The supervision encompasses regular audits and inspections of Croatian civil aviation authorities, i.e. Croatian Civil Aviation Agency (CCAA). Croatia Airlines fully implements professional IATA standards related to air traffic safety. In order to protect the health of the company’s customers, all food and beverages served in aircraft must meet certain health standards. Croatia Airlines regularly checks the preparation of passenger meals by catering services in Croatian airports. The procurement and storage of ingredients, preparation and storage of meals, and their transport to aircraft are regulated by applicable Croatian laws and related ordinances. The basic acts are: Food Act, Act

In line with the above, the company creates a flight schedule, adjusts the flight network to passenger needs,

on General Use Items, Veterinary Act, Act on the Protection of the Population from Infectious Diseases, and

as well as monitors, measures, and manages the processes that are directly focused on creating customer

the Act on the Provision of Food Information to Consumers. Sanitary inspectors are responsible for ensuring

service, such as market research and analysis, measuring customer satisfaction, marketing activities, and cus-

the implementation of relevant laws and ordinances.

tomer relationships. Our customers can make oral or written complaints, commendations, and suggestions.

The cabin crew must adhere to the provisions of the Act on the Protection of the Population from Infectious

We have been carrying out a customer satisfaction survey since 2004. The quality of service should go be-

Diseases. They are obligated to obtain sanitary certificates, which have to be renewed every year, and at-

yond our customers’ expectations and contribute to their loyalty, thus increasing the company’s profitability.

tend training courses on minimum hygiene standards every five years.

The survey is carried out throughout the year by way of a passenger questionnaire. In 2018, passengers on 668 flights were asked to complete the questionnaire.

Product information

The aim of our market research is to continuously monitor the entire service delivery process. The main

Information about offers, travel planning and booking, the Miles&More programme and all other travel-relat-

survey parameters are customer satisfaction with the service, likelihood of reusing our service, and the

ed information can be found on our website www. croatiaairlines.com.

likelihood of recommending Croatia Airlines as a carrier. We also monitor the experience of our customers

Existing and potential customers are informed about Croatia Airlines’ transport service also through planned

in relation to the competition, and the general opinion of passengers about our brand. We manage products

promotional activities, media releases, participation in domestic and international fairs, distribution of pro-

and make decisions on improving our products and services or introducing new ones on the basis of the

motional material, sponsorships, and direct communication with our sales personnel.

survey results.

Croatia Airlines’ General Conditions of Carriage are available to customers at all sales locations, branch

We want our passengers to enjoy the benefits of good connectivity, reliability, and safety by providing

offices, and representative offices of Croatia Airlines, and have also been posted on the following webpage:

high-quality service during the flight. We also want to make their travels simpler, so we carry out research

https://www.croatiaairlines.com/Legal-information/General-conditions-of-carriage/

10 A

5.9. Helping the community – inclusion and development programs Croatia Airlines regularly carries out various sponsorship and donation activities in the field of culture, science, sports, etc. We are guided by principles of social responsibility, which includes the selection of projects or events we wish to take part in. We have established ongoing cooperation with the nearby “aviation town” of Velika Gorica and participate in major events related to aviation. We also cooperate with the Rudolf Perešin Secondary School for Aviation, whose students complete their internship at our Technical Training Sector and later often gain employment here. Furthermore, we successfully cooperate with the Faculty of Mechanical Engineering and Naval Architecture and the Faculty of Transport and Traffic Sciences in Zagreb. Some of our employees are visiting lecturers for certain courses held at the Faculty of Transport and Traffic Sciences. As a potential employer, we have been participating in Student Career Days for a number of years, donating airline tickets to students within the prize competition we organise on a regular basis. We actively participate in aviation-related projects of the Faculty of Transport and Traffic Sciences and related expert meetings, and we also hire its graduates. Croatia Airlines signed a Knowledge Alliance in Air Transport (KAAT) Collaboration Agreement on 3rd October 2018 at the Faculty of Transport and Traffic Sciences in Zagreb. This was the first time that an airline company from the industry sector in Croatia started actively collaborating with the academic community on a major European project aiming to enhance J. Škof

innovations in higher education. Air traffic requires constant development of its affairs and services carried out by a highly qualified workforce with multidisciplinary knowledge and skills. The project aims to develop, at partner level from six EU countries, a new joint study curriculum via the application of innovative approaches to teaching and studying, and to set up a strong collaboration network between the scientific community on the one hand and the industry and the economy on the other. Our company also participates in the Bora Project, aiming to reduce the impact of the bora wind on aircraft operations at Dubrovnik Airport. Within its projects, the company successfully cooperates with Croatian Air Traffic Control, the Geophysics Department of the Faculty of Science in Zagreb, Croatian Meteorological and Hydrological Service,

Croatia Airlines fosters and encourages humanitarian activities and strives to support, whenever possible, institutions that need charity aid or participate in humanitarian projects. It has been providing direct help by granting cost-free transport for severely ill patients or persons in need, and it gladly partakes in humanitarian

Dubrovnik Airport, etc.

activities by providing free transport. Over Christmas 2018, we made donations to SOS Children’s Village Lekenik and the Gornja Bistra Special Hospital for Chronic Diseases of Children. Pilots and flight attendants of Croatia Airlines, were happy to visit the Gornja Bistra Special Hospital for Chronic Diseases of Children. On the occasion, they exchanged their experience with the hospital’s staff, who what they have in common with is work-related stress, and witnessed their teamwork. Croatia Airlines’s flight and cabin crew gladly accepted the hospital’s staff’s invitation to join them in their daily walk with the children that they take care of so selflessly. In line with its internal rules and regulations, Croatia Airlines does not offer sponsorships, donations or grants to political parties and state organisations, or organisations supporting racial, religious, minority or

http://www.croatiaairlines.com/hr/O-nama/Korporativne-vrijednosti/Sponzorstva-i-donacije

Š. Lugarov

any other form of discrimination:

5.10. Environmental impact of business activities Croatia Airlines is aware of the importance of preserving the environment and natural resources and of the fact that, by rendering its services, it makes a considerable impact on the environment. It is, therefore, dedicated to managing business goals and risks while taking into account environmental protection and the improvement of energy efficiency. The impact of Croatia Airlines on the environment can be seen in the activities of its various segments. The Flight Operations Sector is the most intensive in terms of greenhouse gas emissions, the Technical Sector in terms of hazardous and non-hazardous waste, whereas the other sectors affect the environment at a considerably lower level. Croatia Airlines has identified greenhouse gas emissions as the most important aspect of the environmental impact of its business activities and is focused the most on addressing this issue. Aircraft operate in higher layers of the Earth’s atmosphere and are the only anthropogenic pollutant that can affect the ozone layer. Greenhouse gases, particularly CO2, are the cause of climate change on Earth and as such are subject to the greatest number of regulatory obligations of Croatia Airlines. In order to mitigate the impact of greenhouse gas emissions, the company has since the very start introduced a system for measuring and monitoring aircraft fuel consumption, and it meets all related regulatory requirements (both domestic and international). Regulatory requirements are continuously evaluated on a monthly basis, thus ensuring their timely implementation in the company’s business operations. Croatia Airlines endorses the global aviation strategy of environmental protection, which is based upon four pillars: investing in technology, optimising air traffic and improving aviation infrastructure, boosting operational performance, and enhancing appropriate economic measures. Croatia Airlines supports all measures contributing to reducing pressure on the environment and reducing aircraft emissions while boosting the growth and development of the airline industry.

FLEET

CARBON FOOTPRINT

Average fleet age: 14.6 years

TMT CO2 a 9% increase compared to 2017

aircraft

CO2 DISTRIBUTION

A 73-tonne A320: 33 kg of CO2 per passenger

aircraft

99.9%

other

0.1%

A 70-tonne A319: 38 kg of CO2 per passenger A 30-tonne Dash8: 30 kg of CO2 per passenger An average vehicle of 1.5 tonnes: 46 kg of CO2 per passenger

ELECTRICITY 1.8 MWh

NOISE

+1% compared to 2017

MOTOR FUELS

Š. Lugarov

GAS a 9% decrease compared to 2017

-4% compared to 2017

From a global perspective, the European Union leads the way when it comes to creating and implementing

Alternative fuels represent a practical challenge, especially in view of their price and the fact that they cannot

environmental protection objectives, and so does the Republic of Croatia as an EU member state and Cro-

be bought in larger quantities on the market, while in Croatia they are not available at all. The company is

atia Airlines as a company operating in this area. Croatia Airlines has been participating in the EU ETS pro-

informed on the availability and possible uses of alternative fuels through professional alliances.

cess since 2010. In 2018, it joined the Swiss emissions trading scheme, and as of 1 January 2019, it joined

Environmental protection management systems have been set up to ensure more efficient monitoring of en-

the CORSIA process after developing new procedures and monitoring plans in 2018. Having accepted the

vironmental protection and better coordination at company level. The introduction of the system has enabled

CORSIA system, Croatia Airlines needed to adapt the existing EU ETS system (Emissions Trading System)

the company to check and monitor relevant indicators and facilitated the identification of related goals. This

in order to extend its operations to a larger number of flights. After the regulation applied, all Croatia Airlines

allowed the company to introduce positive business practices in its processes.

flights have joined one of the CO2 measurement and emissions trading systems (EU ETS, CORSIA, Swiss ETS), allowing the company to join the increasing number of companies and countries that invest significant

Croatia Airlines implements several policies within its management system. The first and most important one

efforts and initiatives for the global reduction of greenhouse gases emissions. The new company system for

is the Safety Policy, followed by the Quality Assurance Policy, Aircraft Maintenance Quality Policy, Protection

monitoring, reporting on and trading emissions has been named EOS (Emissions Offseting System).

Policy and the Environmental Protection and Energy Efficiency Policy. By introducing ISO 50001 (Energy Management System) and ISO 14001 (Environmental Management

Activities related to the reduction of greenhouse gas emissions directly affect the company’s economic

System) systems in late 2016, Croatia Airlines joined a small circle of global airline companies with an im-

balance. A reduction of fuel consumption in tonnes through technical and operational activities reduces the

plemented range of ISO management systems (ISO 9001/14001/50001). Their introduction and subsequent

cost of fuel. Consequently, the level of emissions has been dropping, which implies lower costs related to

monitoring have resulted in certain savings, shown by indicators for which 2015 is taken as base year.

emissions credits, so every initiative aimed at reducing fuel consumption results in both an environmental and economic impact. Moreover, various fees for waste, emissions, and noise are part of the service price

The company adheres to all applicable legal regulations on environmental protection and energy preservation

with related to every flight destination of Croatia Airlines, thus directly affecting its financial operations.

at national and international level, including waste management regulations.

Besides limiting greenhouse gas emissions through the EU ETS system, it is also important to consider the

The company also strives to implement new technologies and measures for permanent improvement of

relationship between passenger growth and emissions. An increase in the number of passengers at every

energy performance, monitor and reduce greenhouse gas emissions, and raise awareness about efficient

flight positively affects emission indicators per passenger seat at a certain distance since the volume of emis-

environmental protection and the strengthening of energy efficiency standards through employee educati-

sions does not increase proportionally to the number of passengers. For example, by comparing the average

on. Material aspects have also been harmonised with business partners using the same infrastructure, for

aircraft and car load, in terms of emissions, air travel is often more environmentally friendly. The physical

example, with Zagreb International Airport, with which Croatia Airlines shares water drainage infrastructure.

properties of aircraft/vehicles and the fact that usually only one passenger travels by car (the driver) should

The application of all principles of sustainable development is limited by certain restrictions arising from the

also be taken into account. As we witness a growing number of technical and technological initiatives in the

particular nature of air transport. This primarily applies to the Safety Policy, regarded as the most important

automotive industry, the airline industry tries to keep pace and be competitive in environmental terms as well.

policy on whose principles the Quality Assurance Policy and the Environmental Protection and Energy Efficiency Policy are based. In 2018, Croatia Airlines recorded no cases of non-compliance with the laws regu-

Croatia Airlines is actively meeting all regulatory requirements and improving its business processes in line

lating environmental protection and energy consumption.

with available capacities in order to reduce, to the extent possible, their impact on the environment. Furthermore, it strives to improve its attitude towards the environment by adopting proposals of other stakeholders. Forms of environmental impact are monitored through the company’s environmental and energy management system certified in accordance with international ISO14001 and ISO50001 standards. The system encompasses all activities that are carried out in a number of the company’s business sectors with regard to principles of sustainable development in the following key areas: fleet selection and application of relevant procedures aimed at reducing fuel consumption, CO2 emissions, and noise. As aircraft fuel consumption represents the most prominent aspect of environmental impact and energy

the environmental protection and conservation of energy. The growth of Croatia Airlines is based on the

Due to the particular nature of its business operations, the consumption of energy and resources within Croatia Airlines is analysed in three separate segments: flight operations, Technical Sector, and the administrative segment of the company. Flight operations are the most energy-intensive at Croatia Airlines, with regulations and procedures related to safe air traffic having absolute priority. Due to congested airspace, the EU carriers are constrained to act in accordance with many factors of air traffic, which sometimes hinders the implementation of ecological approach to business. In 2018, Croatia Airlines leased two new CRJ1000 aircraft for its summer timetable, which resulted in an increase in the absolute amount of CO2 emissions. A standard EU ETS MRV method was used to collect CO2

consumption of Croatia Airlines, the biggest improvements are expected in this very segment. With each im-

emissions data through the use of the 3.15 emission factor, meaning that one tonne of aviation fuel produces

provement of our technical resources (primarily in relation to aircraft), the company strives to enhance energy

3.15 tonnes of CO2. The consumption of aircraft fuel in tonnes is considered a business secret and as such

efficiency. It is expected that during 2022/2023 new A320neo aircraft will be delivered to replace the existing

is not stated herein.

fleet. Estimates show that fuel consumption per passenger seat will thus be reduced by approximately 15%, according to documentation made available by the manufacturer, Airbus.

Energy and water consumption

Since it was not possible to install the so-called wake vortex system on aircraft wings during the 2017/2018

In 2018, the company’s administrative segment consumed 1% less electricity compared to 2017, or 391,892

winter season, a modification of the existing Airbus fleet during the 2018/2019 winter season is planned, whi-

kWh. We should mention here that the electricity used by Croatia Airlines holds a HEP ZelEn certificate,

ch will reduce the noise arising from take-off and landing operations by approximately 9dB in accordance with

meaning that it is produced from renewable sources and that the greenhouse emissions amount to zero.

stakeholder requirements, particularly at Gatwick Airport. For this reason, in 2018 Croatia Airlines paid 98.040

The Technical Sector consumed 1.433,716 kWh during various aircraft maintenance activities, or 1% more

GBP in penalties to Gatwick Airport due to excess noise. Two individual complaints submitted in Brussels

compared to the previous year. The minimum increase in the consumption of electricity occurred due to

were also related to noise, and they are still under review by Croatia Airlines and other stakeholders in the area.

the complexity of certain aircraft maintenance activities. It should be noted here that aircraft maintenance activities are focused primarily on the quality of work and safety, with energy efficiency following suit.

The introduction of the environmental protection and energy management system in 2016 was followed by

Along with maintaining Croatia Airlines’ fleet, the Technical Sector also performs maintenance work for other

the introduction of related process measurements and supervision. In 2017, a project of gasification of the

companies. Considering that the demand for such work is growing, we can expect an increase in the use of

Technical Sector was completed, converting from heating oil to a more environmentally friendly energy pro-

resources and the amount of hazardous and non-hazardous waste. The segment of basic aircraft mainte-

duct. In 2018, its base value was established, as shown in the tables.

nance (major check-ups) shows the biggest growth.

Carbon Offsetting and Reduction Scheme for International Aviation

Energy and water consumption Electrical energy Electrical energy consumption - total Electrical energy consumption - Buzin Electrical energy consumption - Technical Sector

Measurement unit

2018

2017

2016

2015

Index 2018/2017

Index 2018/2015

1,825,608 391,892 1,433,716

1,802,820 389,482 1,413,338

1,778,360 394,042 1,384,318

1,690,244 436,972 1,253,272

101 101 101

108 90 114

Measurement unit

CO2 emissions

2018

2017

2016

2015

Index 2018/2017

Index 2018/2015

Total CO2 emissions

kWh kWh kWh

CO2 amount (aircrafts)

204,880,366

188,387,687

176,956,819

177,967,887 109

115

CO2e amount (total)

205,071,700

188,591,495

177,128,998

178,130,840 109

115

Amount of CO2 emissions within Croatia by RPK

0,179

0,173

0,189

0,188

103

Amount of CO2 emission in international traffic by RPK

0,114

0,112

0,119

102

Q400 aircrafts Amount of CO2 emissions within Croatia by RPK

0,167

0,168

0,173

0,175

Amount of CO2 emission in international traffic by RPK

0,126

0,125

0,131

100

Amount of CO2 emissions within Croatia by RPK

0,168

0,148

113

Amount of CO2 emission in international traffic by RPK

0,120

0,113

106

A320/A319 aircraft

Gas Gas consumption - total Gas consumption - Buzin Gas consumption - Technical Sector

m3 m3 m3

42,382 20,546 21,836

46,500 26,995 19,505

28,844 26,573 2,271

25,785 25,785 0

91 76 112

164 80 -

Motor fuels Eurosuper 95 consumption Eurodiesel consumption Eurosuper 95 consumption Eurodiesel consumption

litre litre l/km l/km

30,391 15,921 0,089 0,126

31,026 17,149 0,107 0,120

31,028 17,731 0,124 0,135

30,230 17,110 0,130 0,150

98 93 83 105

101 93 83 84

Sum of energy used Electrical energy Gas Eurosuper 95 Eurodiesel Total

MJ MJ MJ MJ MJ

6,572,006,24 1,637,546,25 1,020,287,90 609,620,06 9,839,460,45

6,489,971,72 1,796,656,62 1,041,606,15 656,640,57 9,984,875,06

6,401,918,16 1,114,467,98 1,041,673,29 678,925,54 9,236,984,97

6,084,709,38 996,275,08 1,014,882,80 655,147,24 8,751,014,50

101 91 98 93 101

108 164 101 93 112

Water Water conspumption - total Water consumption - Buzin Water consumption - Technical Sector

m3 m3 m3

7,370 2,977 4,393

4,765 3,519 1,246

3,597 1,293 2,304

3,176 1,025 2,151

155 85 353

232 290 204

CRJ 1000 aircrafts

The applied calculation methodology was developed on the basis of official traffic performance statistics of Croatia Airlines, verified data for Croatia Airlines from the EU ETS database, and the selected CO2/RPK indicator, most commonly used in the airline industry for presenting the data. The factor used to calculate the total direct emissions of other energy products in use was the GHG Protocol Corporate Standard developed by the World Resources Institute (WRI) and the World Business Council on Sustainable Development (WBCSD) in accordance with IPCC 2006 Guidelines for National Greenhouse Gas

Energy consumption data was retrieved using US Energy Information Administration databases.

Inventories. In 2018, an additional data analysis was conducted, and methodologies were further developed, which

In 2018, an additional data analysis was conducted, and methodologies were further developed, which

allowed for the identification of errors and corrections in this year’s and last year’s overviews.

The total direct emissions of the company in 2018 with regard to consumed energy products amounted to

The company’s administrative segment recorded a slight increase in the consumption of electricity, while the consumption of gas (used for heating) decreased. A mild increase in the consumption of gas (12%) was recorded in 2018 at the Technical Sector, with 21,836m3 of consumed gas. According to the data of the Croatian Meteorological and Hydrological Service, in 2018 the average annual temperature was 14.1 °C, while in 2017 it was 13.6 °C, making 2018 the hottest year since the measurement in Zagreb began.

ding, so new and accurate data about the base value of consumption weren’t available until 2018, amounting to 2,977 m3 annually. Even though there is no water recovery system, it is considered that all the water spent was released to appropriate drainage systems according to earlier data on both key locations. At the end of 2018, the average age of the vehicle fleet was 12.3 years, which contributed to the expected increase of consumption indicators, even though costs were reduced due to a more considerate use of cars. The fact that the vehicles of the Technical Sector are used for a specific purpose requires the adherence to additional safety rules related to vehicle movement on airport surfaces; nevertheless, the consumption index shows a considerable decrease due to the optimisation of Croatia Airlines’ operations on the new terminal of Zagreb International Airport. CO emissions The company’s CO2 emissions in 2018 include those from aircraft and those occurring due to the consumption of various energy products. As expected, aircraft traffic accounts for the largest share in CO2 emissions. In 2018, aircraft of other companies were used on a short-term basis due to disruptions in operations and their impact on emissions was included in the overall emissions of Croatia Airlines as well as in the emissions trading systems. An analysis of CO2 emissions per revenue passenger kilometre (RPK) as an indicator of energy consumption and volume of emissions shows an improvement due to increased cabin occupancy and successfully implemented saving measures with regard to aircraft. The overview includes the results for CRJ 1000 aircraft, leased for the first time in 2017 and used throughout 2018.

As for water consumption, in June 2017, a separate water meter was installed for the administrative buil-

191,334 CO2. In 2017, the volume of direct emissions of the company was 203,808 kg CO2. The improvement occurred as a result of the gasification of the Technical Sector during 2016/2017. In 2015, the base year, they amounted to 162,953 kg CO2. Since the company uses the HEP ZelEn certified electricity, there are no greenhouse gas emissions for this segment (Scope 2), which may be emphasized as a very positive and outstanding business achievement. Through its product ZelEn, HEP Supply sells the electricity generated in HEP’s hydro power plants registered in the relevant database of guarantees of origin and delivers the proof of origin to its customers based on the Methodology for Establishing the Origin of Electricity (OG 133/14). Croatian Energy Market Operator (HROTE) is responsible for issuing guarantees of origin and for setting up and managing a database of guarantees of origin. In 2018, Croatia Airlines’ cumulative CO2 emission impact amounted to 205,071,700 kg CO2e. Compared to 2017, the total volume of CO2e rose by 9% due to an increase in the number of operating aircraft units in 2018, resulting from the expansion of the destinations network. Unfortunately, the bigger picture indicates that the improvement trend has slowed down given that CO2 emission indicators per RPK for each individual type of aircraft recorded a stagnation or increase ranging from 2 to 3%, which has led to the development of action plans that would bring the indicators back to the given parameters. Waste Waste is delivered to an authorised waste collector and data is entered into the Hazardous Waste Register with regard to the following: the quantity, the manner in which it has been produced, and the methods of waste management, in accordance with relevant laws on waste management. At the general organisational level, the company successfully engaged in rationalising the consumption of stationery and office supplies. Where applicable, the print default on single-model printers was set on both pages. Furthermore, the employees were familiarised with the need for conscious printing, by which the company makes savings on both the input (paper, toner, electricity) and output (waste management, archiving as by-products) resources.

6. Independent Assurance Report of Croatia Airlines’ Nonfinancial Report for 2018

Croatia Airlines has in place a waste disposal system and pays equal attention to the managing of both hazardous and non-hazardous waste. Along with communal waste, separate waste collection can be carried out within the Technical Sector, the biggest waste producer, and the appropriate management thereof eliminates the impact on the environment and ensures a sustainable development of the company’s technical activities. In 2018, increased capacities for waste management were still in effect and a more precise waste separation further enabled. According to the waste documentation, in 2017, the Technical Sector located in Zagreb produced 45,021 kg of hazardous waste as a result of more complex works on the company’s fleet and those performed on third party aircraft and 16,286 kg of non-hazardous waste; in 2018, it produced 18,261 kg of hazardous waste and 13,004 kg of non-hazardous waste. The higher margin refers to the presence of waste kerosene, which can vary significantly due to the specific nature of aircraft maintenance and has been separately indicated in the tables. During 2018, Croatia Airlines made a formal request to its partners, asking for better planning of the remaining fuel on aircraft brought in for maintenance, which resulted in a significant decrease in waste kerosene.

Independent Assurance Report of Croatia Airlines’ Nonfinancial Report for 2018

The collection of communal waste in administrative segments is performed in accordance with applicable regulations on the state and local level, with separate waste collection depending on the capacity of a local community. In this segment, paper represents the most significant type of waste: 2,870 kg of paper were collected in 2018 compared to 4,483 kg collected the year before (introduction of larger waste paper

INTRODUCTION The Croatian Institute for Corporate Social Responsibility (IDOP) was appointed by Croatia Airlines Ltd. to conduct an independent moderate assurance engagement in accordance with AA1000AS (2008) in relation to Croatia Airlines’ 2018 non-financial report (“the Report”) for the financial year ending on 31 December 2018.

containers and paper saving schemes) and 2,593 kg of plastic, i.e. 328 kg more compared to the previous year. The company looks forward to a thorough implementation of waste management plans in the City of Zagreb and the Zagreb County as this will increase the percentage of waste separation and thus reduce the impact on the environment.

WASTE

2018

2017

2016

2015

kg kg

6.700 11.927

32.100 12.921

6.150 9.821

13.004

16.286

4.253

Measurement

Index 2018/2017

Index 2018/2015

1.000 11.845

21 92

670 101

1.375

946

unit

MANAGEMENT RESPONSIBILITIES The management of Croatia Airlines is responsible for the preparation and presentation of the Report in accordance with the GRI Standards delivered by the Global Reporting Initiative. The management is also responsible for the information and assertions contained within the Report; for the implementation of processes and procedures which adhere to the principles set out in the AA1000AS AccountAbility Principles Standard 2008 (AA1000AS), including the identification of stakeholders and material issues; and for establishing and maintaining appropriate performance management systems from which the reported performance information is derived.

Hazardous waste Kerosene waste Other hazardous waste Non-hazardous waste Non-hazardous waste

Total waste weight by type and disposal method

Measurement

2018

2017

unit

Reuse

Recycling (paper and clean plastic)

8.199

10.346

Composting

Recovery, including energy recovery

Incineration (hazardous waste without kerosene and contaminated plastics)

11.927

12.921

Incineration (kerosene)

6.700

32.100

Deep well injection

Storage

On-site storage

Other

4.805

5.940

58,9% incineration (hazardous waste and contaminated plastics)

25,92% recycling (paper and clean plastics)

15,20% other

Index 2018/2017

102-56

ASSURANCE PROVIDER RESPONSIBILITIES IDOP has a responsibility to carry out a review to provide a reasonable assurance conclusion based on a system and process analysis of material topics related to the AA1000AS AccountAbility principles of inclusivity, materiality and responsiveness). IDOP should also provide recommendations on the further development of the stakeholder dialogue. As a result of professional and scientific knowledge and experience in the field of compiling nonfinancial reports and as a certified assurance provider of non-financial reports according to the AA1000AS Standard, IDOP possesses the necessary expertise to perform this assurance. In the process of providing assurance of a non-financial report, IDOP adheres to ethical requirements and performs the verification process with due regard to the principles of the AA1000AS Standard in order to express a conclusion with the moderate level of assurance requested by Croatia Airlines. SCOPE AND LEVEL OF ASSURANCE The scope and level of review of this report are defined according to the moderate level of assurance (AA1000AS) and the principles of inclusiveness, significance and response: 1. Inclusivity: the principle which evaluates the full coverage of the topics from the reporting process as well as the reporting parties. 2. Materiality: this principle relates to determining the relevance and significance of issues to the organization and its stakeholders. 3. Responsiveness: this principle evaluates how an organization responds to stakeholder issues that affect its sustainability performance.

RECCOMMENDATIONS As a result of our assurance, we would like to put forward certain comments and recommendations relating to areas for improvement in the application of the principles of the AA1000AS Standard (inclusivity, materiality and responsiveness). We set out the following most significant recommendations, which do not modify the conclusions expressed in this report:

CRITERIA AND STANDARDS USED IN THE ASSURANCE PROCESS In the assurance process of the Report, IDOP has applied the AccountAbiity AA1000AS Standard to ensure a moderate assurance. The assurance process consisted of making enquiries among the management and persons responsible for the preparation of information presented in the Report, and applying analytical and other evidence gathering procedures. These procedures included: Interviews with the management and responsible persons at Croatia Airlines to verify business policies and management procedures in order to understand the management processes used and to obtain the necessary information to verify compliance with the AA1000AS principles. An analysis of the processes used in the compiling and validation of the information presented in the GRI Index on page 61 of the Report. A review of the results obtained from the dialogue process with stakeholders on issues relevant to Croatia Airlines. A review of activities related to identifying and considering stakeholders carried out during the year, based on Croatia Airlines’ understanding of its stakeholder requirements. An analysis of the compliance of the Report with GRI Standards and the principles of the AA1000AS Standard.

Inclusivity During 2018, Croatia Airlines implemented the process of incorporating stakeholders initiated in 2017. For 2019, as a continuation of a recognized committed dialogue with stakeholders, Croatia Airlines should seek to continue its lead in the diversity of its communication channels. Materiality In 2017, the Management Board of Croatia Airlines approved identified material topics in relation to the company's impact on the society, environment, economy and the perception of stakeholders. In the following reporting periods, in case of significant changes in the business environment, it is advisable to carry out a new materiality process of identifying material topics and defining a new corporate CSR strategy by determining goals and key indicators that measure the achievement of the defined goal.

LIMITATIONS The scope of assurance at a moderate level is substantially lower than for a high level of assurance or audit, hence giving less warranty. Under no circumstances can this report be considered an audit report. CONCLUSIONS Based on the results of the assurance, nothing has come to our attention that causes us to believe that the Report consists significant mistakes or has not been prepared, in all material respect, in accordance with the GRI Standards. Furthermore, nothing has come to our attention that causes us to believe that the Report has not been prepared, in all material respect, in accordance with the principles of inclusivity, materiality and responsiveness established under the AA1000AS Standard: With respect to the principle of inclusivity, nothing has come to our attention that causes us to believe that the Management Board of Croatia Airlines has not established a process of involvement of the stakeholders through identifying significant stakeholders and meeting their demands and expectations. With respect to the principle of materiality, nothing has come to our attention that causes us to believe that the Management Board of Croatia Airlines does not have a balanced understanding of the sustainable topics that are significant for the business of the company and its stakeholders. • With respect to the principle of the responsiveness, nothing has come to our attention that causes us to believe that the Management Board of Croatia Airlines does not have a process for providing the appropriate response to relevant matters and the expectations of the stakeholders.

Responsiveness Significant non-financial indicators, processes of managing and monitoring key non-financial indicators were defined in 2017, and implementation continued in 2018. Croatia Airlines should continue to advance in line with the best practice in the field of non-financial reporting in order to strategically respond to changes in the environment and manage risks. We can conclude that the Report is prepared by using GRI standards in accordance with the Core option. In 2019, it will be necessary to progress with the improvements in stakeholder dialogue, as described in the GRI Standards. Zagreb, 20 May 2019

63 Nikolina Markota Vukić, PhD Croatian Institute for Corporate Social Responsibility (IDOP)

The Institute for Corporate Social Responsibility is licensed independent assurance provider of non-financial reports by the international AccountAbility organization.

7. GRI indeks

A 65

J. Škof

102-55