Nefinancijsko izvješće 2023

balance development sustainability responsibility

We are guided by the principles of responsibility, ethical conduct, transparency and best business practices.

A1Dear readers,

The growth in traffic and the positive financial result achieved last year, after the historic losses suffered by the entire aviation industry as a result of the coronavirus pandemic and the associated travel restrictions in previous years, give reason to be satisfied with the results achieved in 2023 and to remain optimistic about the Croatian flag carrier’s operations. With all the extensive optimisation and rationalisation measures implemented, the support of all our stakeholders, the professional expertise of our employees and the confidence of our passengers in 2023, we truly have reason to be proud: based on our Post-COVID Strategy, we have made and implemented decisions that will significantly improve the Company’s business in the years to come. Every period in the life of a company has its own particularities, but in the aviation industry there are certain key moments that really change the perspective. And one of them is certainly the acquisition and introduction of new aircraft. With this in mind, in addition to all our regular business activities, in 2023 we worked intensively on the procurement and introduction of new Airbus A220 aircraft, which will completely replace our old aircraft, represent a significant technological breakthrough and ensure greater energy effi-

ciency (25% lower fuel consumption), while at the same time increasing passenger and employee satisfaction. Croatia Airlines’ Post-COVID Strategy envisages a fleet of 15 new aircraft. According to the plan, the first two A220s should be delivered in 2024, the next six in 2025, four in 2026 and the last three in 2027. The purchase of new aircraft is the largest project in the history of Croatia Airlines, which will enable its further development, and successful and sustainable operations in the years to come. We have carefully studied the trends in our market, and assessed the real needs based on our previous experience and knowledge. As a result, we know that with the new and higher quality A220 aircraft, with a capacity of 148 and 127 seats respectively, we will be able to provide an even better response to the specific needs of our passengers and a more efficient business model. This will allow us to create new business opportunities and gradually expand our network of flights, thus ensuring greater satisfaction for our passengers, our owner and our employees, and creating all the necessary conditions for further improvement and sustainable development.

If we look at tourism globally, we will agree that 2023 was also a year of recovery, while Croatia took the position of one of the most successful tourist destinations in the Mediterranean. Air carriers also played an important role in this success, and Croatia Airlines deserves a special place as a strategically important part of Croatia’s transport and tourism infrastructure. Specifically, in the 2023 summer tourist season, we connected Croatia with 24 international destinations, i.e. 25 European airports, and our aircraft flew on 47 international routes. We introduced four new routes: Dubrovnik - Prague, Split - Skopje, Split - Oslo and Bol - Munich. I believe that with our network of direct international flights we strongly supported the development of Croatia’s tourism and economy, and once again proved our indispensable position as the flag carrier.

In 2023, the Company’s focus in terms of environmental protection was on revising its regulatory obligations and on technical and technological innovations (primarily decisions on fleet renewal and standardisation). The EU ETS was revised as part of the ‘Fit for 55’ legislative package, followed by the introduction of the Refuel EU Aviation Regulation, which will require suppliers to ensure that all fuel supplied to aircraft operators contains Sustainable Aviation Fuel (SAF) from 2025. Importantly, Refuel EU also introduces obligations to adapt the infrastructure for hydrogen and electricity,which will allow aircraft operators to be even more environmentally efficient.

It also limits the economic practice of carrying fuel for return flights in order to further reduce aircraft consumption, all in line with the industry (IATA/STAR) target of net zero carbon emissions by 2050.

As a member of the world’s largest airline association, Star Alliance, Croatia Airlines is also committed to achieving common goals in the areas of waste, use of sustainable fuels, reduction of harmful emissions (net zero by 2050) and impact on the supply chain. We therefore plan to set benchmarks and make steady progress in these areas over the coming years. It is also important to note that as a member of Star Alliance, our company is continuously involved in the innovations of this association, whose aim is to provide our passengers with a flawless travel experience through unique loyalty programmes, thus ensuring the added value they rightly expect.

Finally, I would like to emphasise that despite all the challenges and changes we are experiencing, we remain committed to our primary goal: connecting the Republic of Croatia with the world all year round. At the same time, we continue to develop the business model of a full-service network carrier, offering our users basic services, but also introducing some new ones.

Croatia Airlines will continue to support its passengers and strive to provide them with high quality transport services, thus strongly supporting Croatian tourism and the economy as a whole. The knowledge and experience we have acquired over the years will enable us to open up new frontiers and write new chapters that will lead us to be even more proactive, always taking into account the needs of our stakeholders and creating competitive advantages that belong to the national flag carrier.

S poštovanjem,

predsjednik Uprave

2. ABOUT THE NON-FINANCIAL STATEMENT

Croatia Airlines’ annual report on corporate social responsibility covers the period from 1 January to 31 December 2023. It has been drawn up in line with the Sustainability Reporting Guidelines (Global Reporting Initiative – GRI Standards) – the Core option.

As Croatia Airlines is strongly focused on sustainable business operations and corporate social responsibility, it already regularly covered this topic in its business reports.

This Statement has been prepared in PDF and posted on the Company’s public website https:// www.croatiaairlines.com/hr

For any questions, clarifications or suggestions related to Croatia Airlines’ Non-financial Statement please contact us at the following email address: 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., 100%-owned by Croatia Airlines d.d., and Amadeus Croatia d.d., 95%-owned by Croatia Airlines d.d.

The Obzor putovanja travel agency was founded in 1993. It provides top-quality services that include organisation of individual or group travels within Croatia and abroad, sale of domestic and international airline tickets (IATA licence), arrangement of hotel accommodation in Croatia and abroad, cultural tourism, organisation of conferences, etc.

Being part of a joint reservation system of European airlines, Amadeus Croatia d.d. is a national marketing company responsible for the local market, i.e. for the distribution, presentation and all other matters related to Amadeus. Amadeus is a joint reservation system that was set up by the European airlines – Air France, SAS, Iberia and Lufthansa (SAS later backed out, and its place was taken by the U.S. airline Continental) and began operating in Europe in the early 1990s. Today, Amadeus is a leading provider of advanced technology solutions to the global travel industry, catering to the needs of service providers (airlines, hotels, car rental companies, railways and others), service sellers (travel agencies and online portals) and service users (corporations and travellers).

Total revenues and expenses of the associate companies account for less than 1% of the consolidated revenues and expenses, with an insignificant impact of their operations on those of Croatia Airlines. The data set out in the Non-financial Statement pertain to Croatia Airlines d.d. alone.

A demand for air traffic services that started in 2022, following the two pandemic years, continued throughout 2023 and Croatia Airlines kept increasing frequencies and introducing new routes, which led to an 11% increase in block time compared to 2022.

In 2023, Croatia Airlines’ aircraft operated a total of 25,977 flights, or 11% more than in 2022, with the block time of 36,213 block hours also topping the preceding year by 11%. Altogether 1,733,529 passengers were transported, or 19% more compared to 2022. The realised passenger kilometres rose by 18%, with the passenger load factor (PLF) being 65.3%, i.e. 3.3 pp higher than in 2022. Given the traffic results, passenger traffic is evidently getting back on track after the period of crisis caused by the coronavirus pandemic.

The implementation of the strategic initiatives defined by the Post-COVID Strategy, positive market trends, income growth and lower fuel prices all contributed to a significantly better financial result in 2023, and Croatia Airlines generated an operating profit of EUR 4.1 million. With the net financing result included, its net profit was EUR 2.3 million. Both operating revenues and costs rose significantly compared to 2022, in line with the traffic growth.

The Company’s operating revenues were 20% higher compared to 2022, as a result of a growth in passenger revenues. Revenues from passenger traffic rose by 24%, with 19% more passengers being transported than in 2022. Besides the evident growth of the overall revenues compared to 2022, the very revenue structure also noticeably changed: passenger revenues rose, making up 83% of the operating revenues (80% in 2022), while others declined, making up 17% (19% in 2022). The share of cargo transport revenues accounted for less than 1% of operating revenues. Operating costs were 11% higher compared to 2022, primarily as a result of an increased number of flights (+11%) and passengers (+19%), and partly also due to inflation trends. In addition to the growth of overall cost levels compared to 2022, the costs structure also noticeably changed – in favour of aircraft maintenance costs, the share of which rose by 3% as a result of an increase in block time and unit prices of services. A 4% lower share of flight costs stems from a lower fuel price in 2023 compared to 2022, despite the block time increase.

More detailed information on the Company’s financial operations are available in its Annual Business Report posted on its website: https://www.croatiaairlines.com/hr/o-kompaniji/korporativno-upravljanje

Glavni pokazatelji

INDICATORS

71 OU 13 CTN 32 19

25,977

4.1. Company name and head office

Croatia Airlines d.d.

The Company’s head office is in Zagreb, Bani 75 b, Buzin.

4.2. Ownership and legal form

Croatia Airlines d.d. is a joint-stock company majority-owned by the state. Its share capital has been fully paid up.

On 31 December 2023, the Company’s share capital amounted to EUR 92,387,953 and was divided into 92,387,953 ordinary shares with the nominal value of EUR 1.00 each.

4.3. Major shareholders

4.4. Management structure

Shareholders Supervisory Board Management Board

General Assembly Audit Committee

SHAREHOLDERS’ GENERAL ASSEMBLY – a body through which the shareholders exercise their rights. The scope of the authority of the General Assembly is prescribed by the Companies Act and the Company’s Articles of Association.

SUPERVISORY BOARD – a body whose main task is to supervise the Management Board in running the Company’s business operations. According to the Articles of Association, the Supervisory Board is made up of five members, one of whom is the representative of employees. 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 2023, the Supervisory Board held five regular meetings, which were attended by all members. It made decisions on issues within its domain on three occasions (in digital format, without meetings being held), all in accordance with the provisions of the Articles of Association. The Audit Committee held five meetings in 2023. It presents its conclusion to the Supervisory Board orally, within regular meetings.

COMPANY MANAGEMENT – manages the Company’s business activities. Its competence and role are regulated by the Companies Act, the Company’s Articles of Association and other internal rules and regulations. No changes occurred within the Company’s Management Board in 2023. 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 obligations arising therefrom.

4.5.

Significant changes during the reporting period

The main strategic initiative set out in Croatia Airlines’ Post-COVID Strategy is replacement of the existing fleet with newer and more cost-effective aircraft, via operating lease. In early 2023, Croatia Airlines entered into an operating lease contract for six Airbus A220 (four A220-300 and two A220-100) with Air Lease Corporation. On 30 October 2023, it entered into an operating lease contract for three Airbus A220 with lessor Azzora. In the second half of December 2023 it arranged for the financing of six A220 with Griffin Global Asset Management. The six aircraft were ordered directly from Airbus, as part of an annex to the contract dating from 2008. The financing refers to prepayments and operating lease of the six aircraft.

4.6. Croatia Airlines as a brand

Croatia Airlines is a distinctive brand in both Europe and the rest of the world, actively contributing to the development of tourism in Croatia. The branding of the Company began parallel with its founding, on 7 August 1989, with the development of its corporate visual identity being one of the most important components of this process. Croatia Airlines’ visual identity undeniably contributes to its being recognised as a Croatian brand. It is important to note that the brand is largely created in-house, by the Company’s very own experts. As a member of Star Alliance, the world’s largest airline association, the Company is obligated to use both the Croatia Airlines and Star Alliance logos on its promotional materials. The Company’s corporate design aims to project the image of a highly reputable airline not only in Croatia

102-1

Abut all over the world. The Croatian flag forms the basis of the Company’s identity, and the ‘Croatia’ logo on its aircraft is of particular importance as it promotes the country throughout Europe. Its visual identity reflects safety, reliability and technical precision.

As part of the Inspired by Croatia project, Croatia Airlines offered its passengers quality meals promoting the country’s cuisine based on traditional recipes and ingredients.

From 1 December 2022 to 31 March 2023, in cooperation with the Zagreb Tourist Board, it offered its passengers Zagreb-inspired meals called the Zagreb Snack, and promoted the country’s capital city through leaflets and films featured on flights.

In the period from 1 April to 31 July 2023, in cooperation with the Croatian National Tourist Board, the Tourist Board of Split and the Tourist Board of the Split-Dalmatia County, the Company offered its passengers meals inspired by Dalmatia, titled the Dalmatian Snack.

In cooperation with the Croatian National Tourist Board and the Kvarner Region Tourist Board, Croatia Airlines promoted The Flavours of Kvarner from 1 August to 30 November 2023.

Owing to the cooperation with the Zagreb Tourist Board, passengers flying Croatia Airlines between 1 December 2023 and 31 March 2024 could once again enjoy the Zagreb Snack.

The airline’s inflight magazine Croatia has a great role in the Company’s visual corporate identity, as well as in promoting the country. It is a recipient of the Marco Polo award for Croatia’s best tourism promotion magazine. It places emphasis on the country’s stunning nature, historical values and cultural events. In cooperation with the Croatian Tourist Board, local tourist boards and numerous advertisers, the Company publishes advertisements and articles in the magazine, while films promoting various Croatian regions are shown on Airbus flights.

Croatia Airlines supports sport in Croatia. In 2023, it was again the official airline of the Croatian Olympic Committee, the Croatian Paralympic Committee and the national football team, promoting the country and contributing to its global visibility.

Facebook – 161,825 followers

Twitter – 5,545 followers

Instagram – 28,753 followers

LinkedIn – 20,801 followers

YouTube – 1,170 pretplatnika

TikTok - 392 followers

Š.Lugarov

4.7. Fleet and capacities

In 2023, Croatia Airlines operated a fleet of 13 aircraft: seven Airbus – two A320 and five A319, and six Q400, all under an operating lease.

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

In September 2023, the Company entered into a sale and leaseback transaction for five of its Airbus aircraft in order to have the flexibility to implement its fleet renewal plan between 2024 and 2027, and transferred the risks associated with the disposal of non-airworthy aircraft to the lessor. The other aircraft (Dash 8-Q400 fleet) will be returned to their owners/lessors at the end of the lease term. One Airbus A319 was returned to the lessor at the end of October 2023. Specifications

KTS)

(360 KTS)

* Four aircraft have 144, and one has 150 seats

Š. Lugarov

Dash8 - Q400

Airbus A320-200

Airbus A319-100

4.8. Key services and activities

As the national flag carrier, Croatia Airlines is aware of its social responsibility to ensure optimal connection of the Republic of Croatia with the rest of the world, with an emphasis on contributing to the development of tourism in the country. It has been continually adapting to the needs of the tourism industry and development, and planning its network of direct flights from both capital Zagreb and destinations on the Adriatic coast accordingly. It also provides passengers with good connections to their final destinations in cooperation with its airline partners and those offering other means of transport. In its thirty-fourth year of operation, Croatia Airlines connected Croatian cities with major European metropolises and, in cooperation with its airline partners, with the whole world. As a member of Star Alliance, the world’s largest airline association, it offers its passengers access to the global network of flights and numerous benefits.

4.9. Countries/markets served

In 2023, Croatia Airlines’ flight network directly connected Zagreb, Split, Dubrovnik, Osijek, Pula, Rijeka, Zadar and Bol on the island of Brač with 24 international destinations and Croatia with 18 European countries. Our destinations are: Amsterdam, Athens, Vienna, Berlin, Brussels, Bucharest, Copenhagen, Dublin, Düsseldorf, Frankfurt, London Heathrow and Gatwick, Lyon, Milan, Mostar, Munich, Oslo, Paris, Prague, Rome, Sarajevo, Skopje, Stockholm and Zurich. Within Croatia, the Company’s aircraft connected Zagreb with Dubrovnik, Split, Zadar, Pula and Bol on the island of Brač. New routes in Croatia Airlines’ summer flight schedule are Dubrovnik - Prague, Split - Skopje, Split - Oslo and Bol - Munich. The Company also reintroduced scheduled international flights on the Zagreb - Mostar route. In cooperation with other airlines, we offer good connections to the U.S., Canadian and other distant markets.

4.10. Destinations/airports /routes

A4Charter flights

Croatia Airlines also offers charter flights, i.e. the possibility of organising individual or series of flights for any company or organisation that requires a personalised, reliable and commercially optimal air transport service.

https://www.croatiaairlines.com/hr/ostale-usluge/charter-prijevoz

Goods and mail transport

Cargo transport is also a part of Croatia Airlines’ services. Whether on its own and/or in cooperation with other airlines, the Company transports fragile goods, large shipments, animals or easily perishable goods, such as fresh fish, daily press, flowers, medicines, etc..

https://www.croatiaairlines.com/hr/ostale-usluge/cargo-prijevoz

Supervision services at Croatian airports

Croatia Airlines also offers supervision services, intended primarily for airlines that have no representatives in Croatia and for the companies that are unable to cover all their traffic needs with their existing personnel. These services are provided at Dubrovnik, Split and Zagreb airports. The services include supervision of the handling agents’ work, support in the event of traffic irregularities, and representation of airlines at destination airports. Additional information is available at: https://www.croatiaairlines.com/hr/Dodatne-usluge/Zemaljske-usluge/Usluge-supervizije

Aircraft maintenance services

Croatia Airlines’ Technical Centre offers various services in the field of base and line maintenance, engineering services, and technical and logistics support for other companies. To date, it has performed several hundred major works on its own fleet and that of other companies. All information on maintenance services can be found on the Company’s webpage:

https://www.croatiaairlines.com/services/technical-services

Commercial training

Our training courses are based on IATA’s standard programmes, and are held at the Training Centre by Croatia Airlines’ highly experienced instructors. Since 1993, the Company has been organising a wide range of training courses needed by travel and commodity agencies for the acquisition of the IATA licence, as well as training courses for the employees of airports, freight forwarders and airlines.

The Company’s Flight Operations Training Centre offers courses for the flight, cabin and ground operations personnel. All training courses are based on certified programmes harmonised with EASA regulations and approved by the Croatian Civil Aviation Agency.

Croatia Airlines’ Technical Training Centre is a certified organisation for the training of aircraft and technical personnel, offering a wide range of training courses for specific aircraft types, and specialist training courses for aviation engineers and technicians. Aircraft type training is provided in accordance with the EASA Part 66/ Part 147 standard, and is intended for the holders of Part 66 licence for the maintenance of A, B1, B2 or C category aircraft and for engineers.

https://www.croatiaairlines.com/hr/ostale-usluge/skolovanja

4.12. Information on employees

Average employee age: 44 years

Average employment time: 17 years

94% of employees employed on an indefinite contract basis

No employees outside CA performing work for CA

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

Total number of contract employees (permanent contract/temporary contract) in the Republic of Croatia and abroad

AFull time: 906; 99%

Part time: 5; 1%

Employees abroad: 27; 4 %

All of our employees have equal development and advancement opportunities, regardless of their parental status. A total of 50 employees were on parental leave in 2023. Of this number, 33 employees returned to work after a year, while the rest of them opted for extended leave. All employees who returned from parental leave continued working with the Company.

Based on the data shown below, the return to work rate was 66%.

Total number of employees on parental leave

Total number of employees that returned to work after parental leave

Total number of employees retained for 12 months after returning to work following parental leave

Employees in the Republic of Croatia: 884; 96%

Supplier structure

Domestic suppliers: 39%

Foreign suppliers: 61%

Croatia Airlines za kvalitetnu realizaciju svojih usluga, a sukladno Planu poslovanja kompanije, koristi složen dobavljački lanac koji je prilagođen specifičnim zahtjevima u zračnom prijevozu. S obzirom na područja nabave, dobavljački se lanac ostvaruje putem većih skupina koje čine nabava roba i usluga, nabava zrakoplovnog goriva, nabava zemaljskih usluga te nabava tehničke opreme i ostalo. Tijekom 2023. Croatia Airlines poslovao je s ukupno 1.456 dobavljača od kojih se 889 dobavljača ili 61 posto odnosi na inozemne dobavljače. Veći dio prometa ostvaruje se na inozemnom tržištu, pa tako od ukupno ostvarenog iznosa prometa s dobavljačima od 242 milijuna EUR, 150 milijuna EUR otpada na inozemne dobavljače. S obzirom na regije, najznačajniji opseg prometa u 2023. godini ostvaren je s dobavljačima s područja Europe. Domaći dobavljači čine oko 39 posto udjela u ukupnom broju dobavljača. U strukturi prometa s domaćim dobavljačima najveći prometi ostvareni su u poslovanju sa zračnim lukama te u segmentu nabave goriva. Međunarodni promet u najvećem se opsegu u 2023. godini ostvario u poslovnoj suradnji s dobavljačima s područja Irske i Njemačke. Međunarodni promet prema broju dobavljača najveći je s područja Njemačke. S obzirom na vrstu usluge u međunarodnom prometu, najveći prometi ostvareni su u uslugama održavanja flote, preleta zrakoplova i usluga zračnih luka, operativnih najmova i nabave goriva.

Supplier countries according to turnover generated

Jet fuel (petroleum-based fuel) suppliers

In 2023, Croatia Airlines purchased fossil fuel, as part of its preparations for the first flight using Sustainable Aviation Fuel (SAF) in 2024, and for the changes that Refuel EU, ETS changes and ESG will bring in terms of fuel procurement, monitoring and reporting, and the operation of each flight. Fuel was successfully supplied by both local and foreign suppliers at all airports Croatia Airlines flies to, with no significant delays and in compliance with the prescribed quality assurance system, including

Ainternal fuelling supervision. The Company established bilateral relationships with potential suppliers of sustainable fuels, whose number is currently limited, in order to secure sufficient quantities in the coming years, in line with the expected requirements for aircraft operators and with the aim of reducing both consumption and emissions.

Ground service providers

Ground services include aircraft handling services (passengers, luggage, goods and mail), air traffic control services, and passenger accommodation services.

They ensure the safe and regular transport of passengers and cargo through airports, using airport infrastructure, handling agent services and passenger hotel accommodation services in the event of traffic disruptions. A specificity of flight operations in the winter period is the de-icing and anti-icing service within the DAQCP (DE-ICING/ANTI-ICING QUALITY CONTROL POOL).

All handling agents of ground service providers are verified and approved by civil aviation authorities and licensing bodies responsible for issuing service licences.

All ground service providers at Croatia Airlines’ regular destinations are subject to company quality control. Those that are members of IATA, an umbrella association of airline companies, have been accredited with the IATA Safety Audit for Ground Operations (ISAGO) certification, which guarantees compliance with safety standards. In 2023, these services were provided by 40 domestic and more than 200 foreign suppliers at regular destination airports, and more than 120 suppliers with the status of an occasional provider of services related to seasonal and charter transport.

Aircraft catering service suppliers

Catering service suppliers include catering companies at airports, suppliers of beverages, newspapers, expendable material and dishes for aircraft.

All of them are obliged to act in accordance with the provisions of the Food Act of the Republic of Croatia and have the HACCP standard implemented, which is subject to control within the Company’s quality assurance system.

The business class service encompasses a wide selection of beverages and pre-packaged meals, while economy-class passengers are offered bottled water and a small, pre-packaged snack. In 2023, we cooperated with 40 local and 12 foreign goods and service suppliers.

Aircraft parts and maintenance service suppliers

Since Croatia Airlines maintains both its own aircraft and that of other carriers, by adhering to the same international and manufacturer standards, the supply chain includes the procurement of aircraft parts, materials, tools and equipment, and the procurement of maintenance services for parts, tools and equipment, with the aim of ensuring the continuing airworthiness of its aircraft and the material basis for the maintenance of other companies’ aircraft. Procurement takes place in the free market, and is facilitated by qualified aviation suppliers approved by the buyer through quality assurance mechanisms (at Croatia Airlines this is a list of approved suppliers that is an integral part of the CAME/MOE manuals).

Due to the specific nature of procurement of aircraft parts and materials governed by international trade conventions and other regulations, including aviation regulations, this procedure is exempt from the provisions of the Procurement Ordinance.

Cargo and customs clearance agents

Freight forwarders and cargo agents provide the transportation and customs clearance services and usually include 39 domestic and 35 international agents for all cargo and mail transported by Croatia Airlines.

4.14. Membership in professional associations and organisations

Croatia Airlines is a member of professional associations, financial organisations, and economic and business organisations in the activities of which it participates upon paying regular membership fees. Croatia Airlines’ membership and participation in the work of the industry’s umbrella associations, among which IATA and Star Alliance should be singled out, are of utmost importance for the Company’s operations. IATA (International Air Transport Association) is a global association of airlines whose business standards are a basis for the operations of all carriers offering scheduled flights in international air transport of passengers and cargo. Croatia Airlines’ membership in Star Alliance is exceptionally important from the commercial and strategic point of view. Owing to its membership in the world’s largest airline association, Croatia Airlines maintains a strong competitive position in the market and is the leading air traffic service provider not only in the Croatian market, but also in the entire region. Since 2017, Croatia Airlines has been a member of the European Regions Airline Association (ERA), a non-profit association whose main objective is to improve the conditions of business operations in the European airline sector, covering through membership the entire aviation industry with 50 airlines and 140 air service providers, including aircraft and engine manufacturers, airports, service providers and suppliers from all over Europe. Membership in this association additionally boosts Croatia Airlines’ international image and offers it excellent opportunities to better respond to modern business challenges. Jasmin Bajić, President and CEO of Croatia Airlines, was elected member to the governing body of this international association in 2018.

AIRLINE ASSOCIATIONS

IATA (INTERNATIONAL AIR TRANSPORT ASSOCIATION)

Star Alliance

ERA (EUROPEAN REGIONS AIRLINE ASSOCIATION)

European Aviation Maintenance

PASRA (PASSENGER AIRLINE SALES REPRESENTATIVES ASSOCIATION)

OTHER ASSOCIATIONS

Croatian Chamber of Economy

Croatian Employers’ Association

Croatian Association of Corporate Treasurers

Croatian Public Relations Association

Croatian IT Association

K.Mudri

Zagal becomes Croatia Airlines d.d.

1st flight in international traffic (Zagreb-Frankfurt)

Croatia Airlines joins the International Air Transport Association (IATA)

Acquisition of 3 Boeing 737

Opening of the first foreign branch office in Frankfurt

Croatia Airlines is awarded JAR 145 certificate in line with the highest European standards

Regional membership in the global association Star Alliance

- Among top 100 Croatian websites and top 10 websites in the Tourism and Travels category (Vidi magazine)

- 19th most successful airline in the world (Airline Business magazine)

Croatia Airlines is awarded IOSA certificate

The founding of Zagreb Airlines - Zagal

1st flight in domestic traffic (Zagreb-Split)

1993 -1995 Fleet expansion (3 ATR-42 and 2 Boeing 737)

Croatia Airlines is awarded JAR OPS 1 AOC and ISO 9001:2000 certificates

1st award for the tourism film in the Tour Region Film category (Tourfilm Festival)

Fleet modernisation and expansion (replacement of Boeing aircraft with Airbus aircraft)

22

- New hangar

- Replacement of the ATR42 fleet with Dash8-Q400 aircraft in the period from 2008 to 2010

2006 The highest rated regional member of Star Alliance/The best airline in South-East Europe in 2006 (Finance Central Europe)

2007 Amadeus e-Travel Airline Conference 2007 Award/Superbrands award

2008 Web 100 award in the E-innovation category (Vidi magazine)/Superbrands award

- Fully-fledged membership in Star Alliance

- Telephone ticket sales

- Renewal of IOSA certificate

A- Rebrand 100TM Award for aircraft redesign (Rebrand 100TM, Providence, USA)

- Zlatna spirala (Golden Spire)GRAND PRIX for the best company calendar (Slobodna Dalmacija)

Opening of the 3rd hangar at Zagreb International Airport

White Flag for contribution to the protection and preservation of water cleanliness and for environmental awareness (GUWWA)

2020

The worst crisis in the history of civil aviation, caused by the coronavirus pandemic (significantly reduced block time)

2022 - 2023

Beginning of the process of renewing the fleet with more energy efficient aircraft, based on the contract for the procurement of 15 new A220 aircraft

- Company’s 30th anniversary

2010 - Superbrands award

- Tesla Silver Egg Award

- Award in the web Top100 category for the best mobile web (Vidi magazine)

- IATA certificate

2011

- Best Buy Award certificate according to a GfK research

- Thank-you note for contribution in organising the visits of Pope Benedict XVI to Croatia

2012

- The 4th best airline in Eastern Europe (Skytrax)/Superbrands award

2014 Among the world’s safest airlines (AirlineRatings.com)

Expansion of the destinations network (12 new routes)

- The best airline in the world by the criteria of helping passengers realise their rights; overall ranking: 8th (Air Help)

- The World Airline Awards, the Oscars of the aviation industry: the 4th best airline in Eastern Europe.

- 40.2 million passengers and over 614,000 flights

5. SUSTAINABLE BUSINESS MODEL

In the period from 2020 to 2022, airlines operated during the worst crisis in the history of civil aviation, resulting from the global COVID-19 pandemic, which severely affected all aspects of economic and social activity on a global scale. The crisis had a particularly devastating effect on tourism and travels, with airlines and air transport in general being among the most affected sectors. A gradual recovery of the aviation industry began in 2022 and continued in 2023, but the traffic levels of 2019 have not been reached yet. IATA expects a return to the pre-pandemic levels in 2024.

Croatia Airlines plays an important role in the transport infrastructure of the Republic of Croatia and is the leader in the domestic air transport market with an annual market share of approximately 18%, which rises to approximately 43% in the winter season. The role of Croatia Airlines in ensuring the country’s traffic connectivity became even more pronounced during the Covid-19 pandemic crisis in 2020 and 2021, especially in the winter season, when the majority of foreign airlines withdrew from the market or significantly reduced the number of flights.

Since 2022, Croatia Airlines has been implementing the strategic initiatives defined in its Post-COVID Strategy, which was adopted in August 2021 with a view to ensuring sustainable operations in the future. In addition to increasing its efficiency and competitiveness by transforming current operating models and methods, the Company is focusing on key operational and structural challenges, including fleet renewal and optimisation of its flights network. The fleet renewal as of 2024 represents a new development cycle for the Company, as it aims to operate only one type of aircraft, the Airbus A220. Taking into account the trends in the highly competitive Croatian aviation market, fuel and CO2 emission prices, as well as the EU’s green policy objectives, there is no alternative to the defined strategic initiatives, and their implementation will enable the Company to seize all the opportunities that will present themselves in the next two years, when air traffic is expected to recover.

The key strategic goals for the coming period are profitability, responsibility to shareholders, capital increase, fleet renewal and optimisation, and enforcement of the Public Service Obligation (PSO) contract for the 2022-2026 period. In order to achieve the above stated strategic goals, the Company will implement, or has already implemented, the following measures outlined in its Post-COVID Strategy:

- Fleet structure optimisation – after a detailed analysis of the airline market and aircraft offer, Croatia Airlines opted for the A220 type aircraft, with a capacity of 149 (A220-300) and 127 seats (A220-100), and in early October 2022 reached a decision to start the fleet renewal process. In 2023, the Company intensified its activities related to the procurement and introduction of the first new A220 aircraft into its fleet from 2024. With the conclusion of relevant lease contracts in 2023, it finalised the activities related to the procurement of 15 aircraft, and by 2027 its fleet should consist of 15 A220 aircraft, as envisaged by Croatia Airlines’ Post-COVID Strategy;

- Optimisation and expansion of its destinations network (in 2022, the Company introduced five new international routes from Split Airport: to Amsterdam, Bucharest, Dublin, Milan and Stockholm, and increased the scope of traffic operations in the winter period (new routes OSI-MUC, SPU-ZRH, PUY-ZRH). In 2023, it introduced the following routes: SPU-OSL, SPU-SKP, DBV-PRG, ZAG-OMO, ZAD-MUC and BWK-MUC, and plans new ones from Zagreb and Split in 2024;

- Increase in passenger revenues based on the envisaged increase in the number of passengers carried, while expanding the offer of services (products) and diversifying their prices, and increasing efficiency through further digitalisation of all commercial activities in order to realise revenue potential;

- Increase in non-flight revenues, mainly those from aircraft maintenance services provided to third parties;

- PSO contract for domestic routes for the 2022-2026 period;

- Various cost-cutting initiatives across a range of cost categories.

The implementation of the defined Post-COVID Strategy, and the continuation of the privatisation process once the prerequisites are met, should reduce the risks related to the Company’s ability to continue operating under the going concern principle in the upcoming period.

In line with its mission and vision, the Company applies the business model of a network operator within the Star Alliance airline association, which emphasises the necessity to maintain a high level of traffic safety, reliability, quality and punctuality in all its key business documents.

303-5 305-1

305-2

305-4

306-1

The Star Alliance membership has enabled Croatia Airlines to be available in the markets where it does not have a physical presence and to increase capacities on existing routes. Its business model is based on the concept of a strong network carrier that provides scheduled air traffic services. The network traffic strategy focuses on clearly defining primary, secondary and tertiary routes, i.e. domestic and regional routes, while at the same time defining their specific importance and optimising flight frequency.

Domestic scheduled air traffic, which is of special interest to the Republic of Croatia, has been operated according to the European PSO (Public Service Obligation) model since 2007. Following a public tender, and pursuant to the relevant decision of the Government of the Republic of Croatia, in 2022 the Ministry of the Sea, Transport and Infrastructure and Croatia Airlines concluded a contract for the provision of domestic scheduled air transport services for the period from 4 July 2022 to 28 March 2026.

MISSION

Our mission is to generate profits by providing air services. Our priority is to provide our customers with optimum connections between Croatia and the world via our own flights and flights of our partners, and contribute to the development of tourism in the Republic of Croatia.

VISION

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

Scheduled traffic

- Domestic traffic - under PSO* rules

- International traffic - network carrier’s profitable growth strategy

*Public Service Obligation

Productivity growth

- Aircraft, labour and fuel

Social responsibility and environmental protection

- Attitude to passengers, employees and environment

komercijalne suradnje

- With Star Alliance and non-Star Alliance members

Fleet modernisation

Safety and quality

5.1. Operational risks and opportunities

Optimisation of complementary development strategies

- Operating, financial and human resource strategies

Digitalisation of business processes and commercial activities

Given the trends in the aviation industry, it is clear that the systematic and integrated management of the risks faced by airlines is a key aspect of corporate governance. Taking into account the industry’s specific requirements, Croatia Airlines uses, as a rule, the COSO ERM (Committee of Sponsoring Organizations of the Treadway Commission – Enterprise Risk Management) framework and the ISO 31000 risk management standard as a basis for defining its risk management policy. Risk management across all levels of corporate governance requires application of the same methods and processes, and transformation into a formal and structured risk management. Croatia Airlines’ risk management model includes risk identification, management, and monitoring, and is used to ensure efficient and timely decision-making, business planning and corporate governance.

Croatia Airlines’ business model

Most risks are managed within regular corporate governance processes. All processes and related activities are subject to regular internal and external quality audits. These processes are checked for compliance with the applicable regulations and standards under which Croatia Airlines is certified, as well as with its internal regulations and procedures.

The findings and the status of the remediation of potential non-compliance are reported to the Management Board once a year as part of a management review. In accordance with the strategic and annual internal audit plans, certain processes and organisational units are subject to internal audits. The findings are reported directly to Croatia Airlines’ Management Board, together with recommendations for improvements. Compliance with such recommendations is monitored throughout the year and reported to both the Management Board and the Audit Committee.

When developing business plans, additional sensitivity analyses are carried out concerning possible changes in some of the high-risk categories of the Company’s business operations, in order to prepare alternative scenarios. All of the above makes part of the defined goals and guidelines that the organisational units are required to implement and harmonise through their risk management procedures, with monitoring being facilitated through internal control systems, the Company’s quality assurance system and internal audit. In this way, risk assessment is carried out within the process of defining strategic and operational goals in order to provide a comprehensive overview of risks and opportunities.

The responsibility for risk management and monitoring the effectiveness of the risk management system lies with Croatia Airlines’ Management Board. Its members and sector managers analyse reports and key performance indicators and take concrete steps according to the level of non-compliance with the set goals. The Risk Management Policy of Croatia Airlines d.d. is a key document supporting the risk management process. A register of strategic risks has also been set up, listing all major strategic risks of the Company and enabling their continuous monitoring. It is updated as necessary, but at least once a year. Initial risk assessment, risk response and evaluation, as well as existing controls/additional measures, are outlined at workshops in cooperation with the responsible risk managers. In late 2023, the Company started to develop the Risk Management Methodology, outlining the risk management goals, benefits and responsibilities, and an overview of the established framework for Croatia Airlines to successfully manage risks. Croatia Airlines’ main risks are grouped into two categories – external and internal risks.

Major risks to which Croatia Airlines is exposed

External risks

Economic surroundings

Legal and regulatory environment

Safety and security

Transportation charges and flight permits

Competition

Alliances and partnerships

Partners and suppliers

Market risks

AInternal risks

Company strategy

Human resources

Capacity management

Traffic disruptions

Sales

Liquidity

The business operations of air carriers in 2023 were exposed to a number of major risks, and keeping the balance between various factors and responses to individual risks became more complicated. Fuel and emission allowance prices, and inflation, were the main risks affecting Croatia Airlines’ operations in 2023, while a strong increase in sales revenue and a stable cash balance level reduced the liquidity risk. In addition to these long-term risks, a shortage of labour in all air traffic segments was a significant shortterm risk for the European airline industry. Big problems at major European airports caused by the shortage of staff, especially air traffic controllers, posed a risk to the Company and led to traffic disruptions and related costs, especially during the summer season. One of the risks was the escalation of conflicts in Israel and the Middle East, as it affected Croatia Airlines’ charter flights between Croatia and Israel. All major risks faced by the Company in its operations in 2023 are detailed in the Business Report of Croatia Airlines d.d. and Croatia Airlines Group for 2023, which is available on the Company’s website. The consistent application of an integrated approach to risk management enables the Company to understand the true nature of individual risks and increases its ability to take relevant measures in a timely manner. The systematic management of all these risks increases its organisational efficiency and thus its competitiveness. Every risk is also an opportunity – the Company identifies areas where its capabilities and potential can be strengthened, and where changes can be made to business operations to make room for improvements and contribute to their sustainability. Further raising awareness and embedding a risk culture at all levels of the organisation is one of the key factors for the sustainability of future business operations.

5.2. Stakeholders

Good cooperation with our stakeholders is a key to successful and safe business operations. We are guided by the principles of responsibility, ethical conduct, transparency and best business practices in relations with all of our stakeholders. Given the nature of its activity, Croatia Airlines cooperates with a large number of stakeholders, with whom it engages in an open dialogue and exchanges information through well-established communication channels. As a result, we have been able to identify the key topics and interests (material aspects of the Company’s business operations) that make part of the Company’s analyses and ultimately of this Non-financial Statement. Croatia Airlines has identified and classified its stakeholders into the following three categories according to their importance and impact on its business operations: key stakeholders, stakeholders with significant influence, and other stakeholders. Croatia Airlines cooperates with all of its business partners (domestic and foreign) in accordance with the principles of due care and diligence, and taking into account the interests of the owners, i.e. shareholders. The Company strives to maintain business cooperation with all of its partners in good faith and to mutual satisfaction. It pays particular attention to compliance with specific international aviation regulations and recommendations, as well as with national legal and professional regulations in all its operations.

Croatia Airlines communicates with its stakeholders with the aim of achieving the desired market position, and 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 distinctive and positive image of Croatia Airlines in the wider public.

Key stakeholders

- Passengers

- Cargo, aircraft maintenance and training service buyers

- Employees Croatia Airlines management

Stakeholders with significant influence

- 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

Communication with stakeholders

Identification and prioritisation of main topics

- Ensuring sustainable business operations

- Customer satisfaction, product responsibility, marketing

- System safety and quality

- Economic impact and contribution to tourism development

- Labour relations, decent work, freedom of association and collective bargaining

- Environmental protection, emissions and energy, waste management

- Local community development

Passengers

Service buyers (cargo, technical, training)

Employees

Shareholders and investors

- Official website

- Call centre

- Fairs and congresses

- Miles&More loyalty programme

- Social networks

- Marketing campaigns

- Promotional material

- Inflight magazine CROATIA

- Inflight entertainment

- Service quality questionnaires

- Business correspondence

- Telephone calls

- Face-to-face meetings

- Business reports

- External user training

- Events

- Intranet

- e-mail

- Internet platforms such as Teams, Zoom, etc.

- e-news

- Internal meeting

- Works Council

- Workers’ meetings

- Business reports

- Education and training

- Management Board’s memos

- Regular and ad-hoc meetings

- Written communication (mail, e-mail)

- Business reports

- Face-to-face meetings

- Official website

- Official website of Stock Exchange and Croatian Financial Services Supervisory Agency (HANFA)

- Reports on carried out supervision (controls, audits)

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Environmental protection, emissions and energy, waste management

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Environmental protection, emissions and energy, waste management

- Local community development

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Labour relations, decent work, freedom of association and collective bargaining

- Environmental protection, emissions and energy, waste management

- Local community development

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Labour relations, decent work, freedom of association and collective bargaining

- Environmental protection, emissions and energy, waste management

- Local community development

Suppliers

- Business correspondence (mail, e-mail, telephone, Internet platforms such as Teams, Zoom, etc.)

- Face-to-face meetings

- Business reports

- Fairs

- Website

Labour unions

- Face-to-face meetings

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

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Environmental protection, emissions and energy, waste management

- Local community development

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Labour relations, decent work, freedom of association and collective bargaining

- Environmental protection, emissions and energy, waste management

Government bodies

- Written communication (mail, e-mail)

- Internet platforms such as Teams, Zoom, etc.

- Business reports

- Official website

- Official website of Stock Exchange and Croatian Financial Services Supervisory Agency (HANFA)

- Reports on supervision (controls, audits)

- Memberships

Local community

- Donations and sponsorships

- Official website

- Direct contact, telephone, e-mail, mail

- Training and internships

- Organised hangar and aircraft tours

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Labour relations, decent work, freedom of association and collective bargaining

- Environmental protection, emissions and energy, waste management

- Local community development

- System safety and quality

- Economic impact and contribution to tourism development

- Environmental protection, emissions and energy, waste management

- Local community development

Other associations/institutions

(financial institutions, airline associations, media/public, academic/business/ professional community, certification bodies and companies)

- Business reports

- Media releases

- Official website

- Official website of Stock Exchange and Croatian Financial Services Supervisory Agency (HANFA) Memberships

- Business correspondence (mail, e-mail, telephone, Internet platforms such as Teams, Zoom, etc.)

- Conferences, business meetings

- Promotional campaigns, reports, interviews

- Social networks

- Incentive travels

- Scientific and technical papers

- Memberships

- Face-to-face meetings

- Audits

- Ensuring sustainable business operations

- System safety and quality

- Economic impact and contribution to tourism development

- Customer satisfaction, product responsibility, marketing

- Labour relations, decent work, freedom of association and collective bargaining

- Environmental protection, emissions and energy, waste management

- Local community development

CROATIA inflight magazine

One of the ways we communicate with our stakeholders is through our inflight magazine CROATIA, which we have been publishing four times a year for many years, with the aim of promoting Croatia’s culture, heritage and natural attractions, and supporting tourism in the country. CROATIA successfully reflects the national symbols, thus contributing to the authentic image of Croatia in the world. Since 2020, it has been published in a digital form as well.

Croatia Airlines’ social media

We regularly communicate with our service users through social media, where we publish various information such as crew announcements related to flights, announcements about aircraft maintenance, releases in cooperation with the Croatian Tourist Board and Star Alliance, releases related to the Obzor putovanja travel agency, flight schedule, promotional offers, inflight magazine, information about the transport of Croatian athletes, travels during the coronavirus crisis, and much more. On 31 December 2023, we had a total of 161,825 Facebook fans. Shown below is the number of our followers in other social media: :

Twitter – 5,545 followers

Instagram – 28,753 followers

LinkedIn – 20,801 followers

YouTube – 1,170 pretplatnika

TikTok - 392 followers

Lugarov

A visit from the pupils of August Šenoa Primary School

On 4 December 2023, pupils from classes 4c and 4e of the August Šenoa Primary School in Zagreb spent a day in our organisation in a somewhat different, but certainly educational atmosphere. As part of the school project “Fasten your seatbelts, we are about to take off”, which the August Šenoa Primary School is carrying out in cooperation with the Pongračevo Regional School in memory of the first Croatian test flight of an aircraft, the pupils visited Zagreb International Airport and the Technical Centre of Croatia Airlines, thus connecting the past, the present and the future.

At the beginning of the 20th century, the area where the Pongračevo Regional School is now located was the workplace of the Croatian engineer and inventor Slavoljub Penkala, who left an indelible mark on the history of civil aviation. In 1908, he began to design an aircraft that would be so easy to control and fly that no special preparation or training would be required. He patented his innovations in 1909 and obtained permission to use the military training area between Selska cesta and the Črnomerec stream in Zagreb for his experiments, which was declared the first airfield in Croatia later that year. A hangar was built there in 1910 to accommodate aircraft, thus establishing the first airport in Croatia. Penkala completed his aircraft the same year, and on 25 April 1910 his mechanic Dragutin Novak, performed the first test flight, and became the first Croatian pilot.

This true story from the past inspired the implementation of project-based learning activities, allowing the pupils to learn about the progress made over the years and the modern aircraft that can now easily take them anywhere in the world.

Guided by our representatives, the pupils first visited Zagreb Airport, where they had the opportunity to see how planes take off today and the entire process behind it, and then the hangar of Croatia Airlines, where all the preparations are made to ensure that every flight is safe and comfortable. This is made possible by the top professionals in our Technical Sector, who maintain high standards and attract many international companies that send their experts to Croatia for the necessary training on a regular basis. This is how the past shapes the future, making all generations of Croatian citizens proud of people like Penkala.

Lugarov

5.3. Material aspects of the Company’s business activities and their effect on sustainable development

In the process of identifying important material aspects, we followed the GRI guidelines and stakeholder requirements and identified material issues, established and verified their importance, and then presented them through a materiality matrix. We have established that material aspects of our business encompass all the segments that might have significant economic, environmental and social impacts, and are to a great extent aligned with our business direction and objectives. The working group responsible for activities related to corporate social responsibility (comprising key figures from each sector to which areas and topics addressed in non-financial statements pertain), reanalysed the aspects that reflect the Company’s significant economic, environmental and social impacts and outlined the topics potentially influencing stakeholders’ assessments and decisions. The importance of material topics and their impact on dealings with stakeholders is communicated through meetings, consultations and opinion polls. The material aspects and the boundaries of certain topics remained unchanged compared to the previous reporting period. We used the existing materiality matrix, but we plan to review it afresh for the next reporting period.

Material aspects

Croatia Airlines’ importance in connecting Croatia with other countries and maintaining year-round connectivity of the regions within the country via scheduled domestic flights is beyond question. Following a public tender, and pursuant to the relevant decision of the Government of the Republic of Croatia, in 2022 the Ministry of the Sea, Transport and Infrastructure and Croatia Airlines entered into a contract on the provision of scheduled domestic air transport services in the period from 4 July 2022 to 28 March 2026. Our Company’s contribution to the country’s economic development is unquestionable – it is reflected in a direct contribution to the development of both its economy and tourism, not to mention the fact that the Company is a major exporter.

We are aware that one’s business success is not measured by financial results alone; activities in the segment of social responsibility and contribution to sustainable development are of equal importance. Independently of the services we provide, we are aware that our business success, as well as our worthy representation of the country, directly depend on the trust and satisfaction of our service users; responsibility to our passengers is, therefore, one of the crucial aspects of our business operations. It is our duty to understand their needs and do our best to meet their expectations. We are, therefore, continuously developing new products and services that will make it even easier for our passengers to organise their travels. Great attention is also devoted to employee satisfaction, since highly motivated and satisfied employees are a key factor for the realisation of our goals. This is why mutual respect, cooperation and teamwork are nurtured. The latest resource management trends are being evaluated and applied. The Company has been actively involved in providing career guidance and training and also in improving efficiency of its employees. We are doing our best to retain our employees by offering them competitive, high-quality working conditions.

Today, major work-related risks occur as a result of the labour market dynamics and its open nature and also because of a lack and outflow of skilled workers. In order to address the said risks, we are constantly making efforts to create a stimulating working environment and cooperate with educational institutions in scientific, educational and technical activities. Such institutions include the Faculty of Transport and Traffic Sciences, Polytechnic of Velika Gorica and the Secondary Aviation School. Our close cooperation with the Faculty of Transport and Traffic Sciences in Zagreb has given us the opportunity to monitor the progress of future Croatian pilots attending the Faculty.

The collective bargaining agreement in place has ensured long-term social peace as an important prerequisite for the Company’s regular and stable business operations in the next several years, and for us to face future challenges more efficiently. 103-3

CROATIA AIRLINE’S SIGNIFICANCE FOR THE REPUBLIC OF CROATIA

Croatia Airlines contributes to the development of Croatia’s tourism and economy on an ongoing basis through sponsorships and donations, and by promoting its destinations, culture, gastronomy, science, and sports.

TRAFFIC CONNECTION

b In 2023, the Company directly connected Croatia to 19 countries and 32 destinations.

b Croatia Airlines enables local airports to be open throughout the year and provides all passengers excellent connection via air all year round.

bThe Company contributes to the development of tourism in general, but also of MICE tourism as one of the fastest growing segments over the past few years (Croatian ranks 33rd in the world and 20th in Europe by congresses held, with Zagreb, Split, Opatija and Dubrovnik being its most important congress destinations).

COVID-19 PANDEMIC AND REPATRIATION FLIGHTS

bCroatia Airlines continued operating even in the extraordinary circumstances of the COVID-19 pandemic. The national flag carrier thus confirmed its strategic role in Croatia’s infrastructure by contributing to the maintenance of traffic connectivity vital for both the country’s economy and citizens, which was particularly prominent in 2020.

bSince the beginning of the crisis, Croatia Airlines has put itself at disposal of the Government of the Republic of Croatia for the transport of humanitarian aid and the return of Croatian soldiers from Afghanistan, and operated several repatriation flights from various parts of Europe.

bCroatia Airlines has always been and always will be at the disposal of the Government of the Republic of Croatia for transport services in the event of global and regional crises.

HELPING THE COMMUNITY

bCroatia Airlines strives to support institutions that need humanitarian aid or organise humanitarian projects.

bIt provides help and direct humanitarian aid by granting transport for patients, children or people in need, and participating in charity actions by donating transport services.

CONTRIBUTION TO CROATIA’S ECONOMY

PROMOTING CROATIA’S GASTRONOMY, CULTURE, ATTRACTIONS AND DESTINATIONS

bThe Company has been presenting Croatia’ cuisine by offering its passengers meals made from local groceries and based on local recipes.

bThe Company’s inflight magazine has a great role in its visual corporate identity and greatly promotes Croatia as a brand, placing emphasis on its stunning nature, historical values and cultural events.

bFilms promoting various Croatian destinations are shown on Airbus flights.

bBy purchasing goods and services from local suppliers, Croatia Airlines indirectly supports about 3,000 jobs bIt contributes to the functioning of numerous activities that are important for everyday life of Croatian citizens through regular settlement of taxes, contributions and other levies in line with applicable regulations.

bCroatia Airlines supports sports in Croatia and is the official carrier of the Croatian Olympic Committee, thus promoting the country and contributing to its visibility.

bCroatia Airlines is among the top Croatian exporters

We have been nurturing successful business cooperation with our business partners in good faith and to the satisfaction of all parties. Croatia Airlines is helping the community in which it does business through numerous sponsorships and donations.

In the segment of social responsibility, Croatia Airlines has recognised safety as one of the key aspects in all segments of its business operations. In order to secure a high level of safety, it has been heavily investing into the training of its staff to ensure they have top competencies. It also guarantees first-rate aircraft maintenance in line with the highest global aviation standards.

The affirmation of ethical norms, business practices and conduct are amongst the most important corporate goals of Croatia Airlines. The Company’s Anti-corruption Programme is of particular importance for carrying out its business activities in an ethical manner.

Croatia Airlines also pays close attention to the impact of its activities on the environment. It strives to operate as a socially responsible company, taking account of the by-products of its operations and their impact on the environment and community. By applying modern technologies and optimising its operations, it has been reducing the negative impact of aircraft operations on the environment, thus contributing to its preservation and sustainable development, and fulfilling its obligations to future generations. We strive to identify the impacts of our business in a timely manner so that we can manage them adequately and thus contribute to the development of Croatian economy and society, and the protection of natural resources. We believe that responsible corporate governance is fundamental for long-term successful business.

MATERIAL ASPECTS

Social Safety and security

System quality

User satisfaction

Product responsibility

Training and education

Labour relations and decent work

Marketing communication

Local community development

Sustainable development goals

Freedom of association and collective bargaining

Environmental

Legal framework for environmental protection

Emissions and energy

Waste management

Economic

Ensuring sustainable business operations

Economic impact

Contribution to tourism development

Procurement procedure and practice

Local community development

Ensuring sustainable business operations

Economic impact

Supply process and supply chain sustainability

Safety and security

System quality

User satisfaction

Product responsibility Training and education

Labour relations and decent work

Legal framework for environmental protection

Contribution to tourism development

Marketing communication

Waste management

Freedom of association and collective bargaining Emissions and energy

MATERIAL ASPECTS

Ensuring sustainable business operations

Economic impacts and procurement

Contribution to tourism development

Procurement procedure and practice

Safety and security

System quality

User satisfaction

Product responsibility

Training and education

Labour relations and decent work

Marketing communication

Local community development

Economic category

Social category

Freedom of association and collective bargaining

Environmental category

Emissions and energy

Legal frameworks for environmental protection

Waste management

The Company’s goal is to develop its business operations by making the right and timely decisions, with the ultimate goal of ensuring its sustainable development.

As a for-profit organisation, Croatia Airlines recognises all economic aspects as material, particularly emphasising its contribution to the development of Croatia’s tourism and economy as a whole, and the well-being of an individual. In the light of the market conditions in which the Company operates, we produce a significant impact that is reflected in the economic situation at the local, regional, and national levels. As we operate flights throughout the year, we contribute to the development and traffic connectivity of Croatian regions, especially the ones in the south. Croatia Airlines’ strategic role became even more pronounced during the crisis caused by the COVID-19 pandemic, as it was among the rare companies that continued with its operations in the first couple of months following the outbreak, when the vast majority of other airlines either withdrew from the market or significantly reduced the number of flights. We also put ourselves at disposal of the Government of the Republic of Croatia and thus enabled thousands of Croatian citizens to return home, ensured the transport of humanitarian aid and operated several repatriation flights.

We contribute to the functioning of a number of activities that are important for everyday life of Croatian citizens through regular calculations and payment of taxes, contributions and other levies in line with applicable regulations. Our business activities significantly contribute to Croatian economy, and we were among top Croatian exporters for several years preceding the pandemic. In this way we positively affect employment not only in our industry but in others as well.

A detailed overview of the Company’s financial results was prepared in accordance with the IFRS, the Accounting Act and other applicable legal regulations, as well as the industry rules. It is set out in the Audit Report and the Management’s Business Report for 2023, where the key business changes in the reporting period are also elaborated on.

The Company has been managing its economic impact through annual and medium-term planning, as well as by monitoring the achievement of the anticipated results on a monthly basis and undertaking relevant measures in a timely manner in case some major negative deviations from the plan should take place. The entire Company participates in the annual planning process, as each sector/service delivers their framework plans for the year to come. These are consolidated by the Controlling and Internal Audit Sector, which delivers the final plan to the Management Board and the Supervisory Board for approval.

CROATIA AIRLINES’ ECONOMIC CONTRIBUTION IN 2023

A5Procurement 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 that 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 the law and incorporated in the Flight and Ground Operations Procurement Procedures, the Aircraft Maintenance Procurement Procedures and the Procurement Regulations. All internal procurement procedures incorporate the public procurement principles and recommendations to the highest extent possible.

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. The Company’s procurement procedures are decentralised, which means that its organisational units initiate and conduct them on their own with the approval of the Management Board. They take on a number of different forms, 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 conclusion and 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 market circumstances, 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, each procurement of goods and services is subject to assessment of environmental impact (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, it calls upon all of its suppliers to contribute to environmental protection and energy efficiency through their own active and preventive measures, and 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 its webpage: http://www.croatiaairlines.com/hr/O-nama/Korporativne-vrijednosti/odrzivi-razvoj

The prescribed procurement procedure and its key requirements are integrated into all other procurement sub-procedures at Croatia Airlines.

5.4. EU taxonomy

With the adoption of the European Green Deal in 2019, the European Union (EU) set green investment targets. In order to achieve an energy-neutral economy, it is necessary to encourage private investments into sustainable, i.e. green projects and economic activities. The EU Taxonomy Regulation (EU) 2020/852 was adopted in order to achieve the European climate goals and those of the European Green Deal.

Article 8 of the Regulation (EU) 2020/852 requires Croatia Airlines d.d. as a public-interest undertaking with non-financial reporting obligations under the Non-financial Reporting Directive to report from 1 January 2022 on its environmentally sustainable activities. For the year of 2021, it was necessary to disclose only the proportion of Taxonomy-non-eligible and Taxonomy-eligible economic activities in the total turnover, capital expenditure and operating expenses of the Company. As of 2022, undertakings are also required to report the share of Taxonomy-aligned activities. An economic activity is considered Taxonomy-eligible if it is included in the delegated acts of the Taxonomy Regulation, i.e. if applicable technical screening criteria have been established. It is considered Taxonomy-aligned if it meets the abovementioned criteria.

As a non-financial reporting entity, Croatia Airlines d.d. is publishing for the second year in a row information on key performance indicators (turnover, capital expenditure – CapEx, and operating expenses – OpEx) for its Taxonomy-eligible, Taxonomy-aligned and Taxonomy-non-eligible economic activities to help mitigate and adapt to climate change, as prescribed by the EU Taxonomy Regulation and Delegated Regulation (EU) 2021/2178 on disclosure requirements.

In order to determine eligibility of an economic activity, the Working Group on Non-Financial Reporting carried out a two-level analysis to establish:

- If an economic activity is carried out at the level of Croatia Airlines d.d., and

- If an economic activity is listed in the annexes to the delegated regulations of the EU Taxonomy Regulation.

In the reporting year 2023, the economic activities of the airline industry were not yet included in the officially adopted delegated acts of the Taxonomy Regulation. Therefore, the core activity of Croatia Airlines d.d., air transport of passengers and cargo, is considered a Taxonomy-non-eligible activity.

Since the currently available aviation technology is not adapted for zero or low greenhouse gas emission aircraft and will not be for at least another ten years, its inclusion on the list of Taxonomy-eligible activities is extremely important for attracting investments in ’greener’ business operations and a faster transition towards carbon neutrality.

It is expected that activities related to the aviation industry will make part of the next delegated act, which would lead to an increase in the share of Taxonomy-eligible and aligned activities of Croatia Airlines d.d. in the next several years.

Accounting policies and key performance indicators

Key performance indicators for identified economic activities were calculated and published in accordance with the Delegated Regulation on Disclosures (EU) 2021/2178. Since the airline industry is not yet covered by the delegated acts adopted in accordance with Article 10 paragraph 3 of the Regulation (EU) 2020/852, in the financial year 2023 the share of Taxonomy-eligible economic activities in the total turnover, capital expenditures and operating expenses of the Company was 0%.

Table 1 Proportion of revenues from products or services associated with Taxonomy-aligned economic activities – 2023

B. Taxonomynon-eligible economic activities

Revenue from economic activities that are not eligible

A• Total turnover is defined as revenue from the sale of products and the provision of services in line with the International Accounting Standard (IAS) 1, paragraph 82 (a), as adopted by Commission Regulation (EC) 1126/2008, and is presented in Notes 4, 5 and 6 of the Consolidated and separate financial statements for the year that ended on 31 December 2023, together with the independent auditor report, which make an integral part of the Annual Business Report of Croatia Airlines d.d. and Croatia Airlines Group for 2023.

• In 2023, Croatia Airlines d.d did not generate income from products or services (including intangible assets) related to Taxonomy-aligned economic activities, which is why the key performance indicator for Taxonomy-eligible activities is 0.

• The accounting policies related to the calculation of income are listed in the annual financial statement, on page 74.

A. Taxonomyeligible economic activities

A.1 Capital expenditures from Taxonomy-aligned economic activities

A.2 Capital expenditures from non-aligned eligible economic activities

Total (A.1. + A.2.)

B. Taxonomynon-eligible economic activities

0% / / / / / / / / / / / /

0%

Capital expenditures from economic activities that are not eligible 3,745,379 100%

• Capital investments include increases in tangible and intangible assets during the reporting period (including assets acquired through business combinations), before the revaluation procedure (including revaluations and impairments), depreciation costs and excluding changes in fair value, applying IAS 16, paragraph 73 e) , items (i) and (iii), IAS 38, paragraph 118 (e) item (i), IAS 40, paragraphs 76 a) and b) (for fair value), IAS 40, paragraph 79 d) items (i) and (ii) (cost model), IAS 41, paragraph 50 items b) and e) and IFRS 16, paragraph 53 h), as stated in Annex I of the Commission Delegated Regulation (EU) 2021/2178 on disclosures, in the amount of EUR 3,745,379. Total capital investment CapEx, as described in the Taxonomy Regulation, is presented in Note 12 Intangible assets and Note 13 Property, plant and equipment.

• As there were no Taxonomy-eligible economic activities in 2023, there was consequently no Taxonomy-aligned capital expenditure. This is why the key performance indicator is 0.

• Leases that do not lead to the recognition of right-of-use assets are not accounted for as capital expenditure.

• Accounting policies related to the calculation of capital expenditure are listed in the annual financial statement, on pages 78-80.

40

B.

A• According to the Taxonomy Regulation, total operating expenses are considered to be the costs of maintaining fixed assets as well as direct research and development costs and short-term lease contracts.

For Croatia Airlines d.d., they include engine and parts maintenance costs and costs of consumables in the amount of EUR 31,053,433, published in Note 7 Expenses by nature.

• The activities of Croatia Airlines d.d. were not Taxonomy-eligible in 2023, which is why the key performance indicator is 0 (i.e. operating expenses cannot be associated with Taxonomy-aligned activities).

• Accounting policies related to the calculation of operating expenses are listed in the annual financial statement.

The Company applies International Financial Reporting Standards (IFRS). When calculating key performance indicators for reporting purposes under the Taxonomy Regulation, a detailed analysis of elements that needed to be included in the numerator and denominator was performed in order to avoid errors possibly resulting from different classifications in applicable regulations and accounting standards.

Da/Ne Da/Ne Da/Ne Da/Ne Da/Ne Da/Ne

Š. Lugarov

5.5. 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. In order to achieve a high safety level, the Company invests largely in training the flight, cabin, ground and technical personnel and ensures relevant level of expertise of all other employees. Moreover, it ensures a high level of aircraft maintenance that complies with the highest standards of the global airline industry, adheres to all applicable regulations and standards and continually invests technical resources to ensure that safety criteria are given priority in all business segments.

Quality Management system

Croatia Airlines has introduced an integrated quality management system that meets the requirements of the following EU, international and industry regulations and standards: Air Operations Regulation, EASA Part 145, EASA Part 147, EASA Part CAMO, 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 MANAGEMENT SYSTEM

QUALITY MANAGEMENT FOR NON-OPERATING ACTIVITIES

- Finance and accounting

- Legal affairs, human resource and asset management

- Information Technology management

- Commercial Division

- Network and revenue management

- Controlling and internal audit

FLIGHT OPERATIONS QUALITY MANAGEMENT

Air Operations Regulation

ORA.GEN 200 Management System

- Flight operations

- Cabin operations

- Ground operations

- Operations Training Centre

Air Crew Regulation ORA.GEN 200 Management System

AISO 9001, 14001, 50001

TECHNICAL QUALITY MANAGEMENT

Part M.A.712 & Part 145.A.65

- Aircraft maintenance

- Engineering and technical support

- Technical Training Centre

Part 147.A.130(b)

1. Air Operation Regulation CR (EU) 965/2012

Aircraft operators performing commercial air transport operations are certified and supervised in line with the provisions of Commission Regulation (EU) No 965/2012 laying down technical requirements and administrative procedures related to air operations.The Company was for the first time awarded the Air Operator Certificate (AOC) by the Air Transport Directorate of the Ministry of the Sea, Tourism, Transport and Development (today Croatian Civil Aviation Agency) on 29 April 2003. The Air Operator Certificate (AOC) certifies that the operator has the professional ability and organisation to ensure the safety of operations.

2. Aircrew Regulation CR (EU) 1178/2011

Commission Regulation (EU) No 1178/2011 lays down technical requirements and administrative procedures related to civil aviation aircrew. The Company obtained the approved training organisation certificate HR.ATO.001 for:

• A320/DHC8 Type Rating

• A320/DHC8 Type Rating Refresher

• TRI (A) - A320/DHC8 Type Rating instructor course

• TRI (A) - A320/DHC8 Type Rating Refresher instructor course

• A320/DHC8 Synthetic Flight Instructor Training

• A320/DHC8 Synthetic Flight Instructor Refresher

• A320/DHC8 flight training – Base Training.

3. Continuing Airworthiness Management Organization - Part CAMO

In late 2007, Croatia Airlines fulfilled all requirements and was issued with a 9A Part M certificate with the scope of authorisation specified in Subpart G, allowing it to carry out independent controls of its fleet airworthiness. Starting from January 2009, the scope of authorisation was further extended to Subpart I, allowing the Company a fully independent review of airworthiness and verification of the aircraft airworthiness certificates They can be obtained on the basis of the Continuing Airworthiness Management Organisation Manual, which is fully compliant with EU laws. Upon Croatia’s admission to the EU, the Croatian approval HR.MG.001 became recognised and valid within the European Union.

Based on the last amendments to the applicable EU regulations in early 2022, Croatia Airlines’ Part M Subpart G approval changed into a new Part CAMO approval - HR.CAMO.0001.

- Part 145

In 2001, Croatia Airlines obtained an approval of the aircraft maintenance organisation in accordance with JAR 145, the regulations in force at the time of approval; in 2004 it was replaced by EASA Part 145, an approval issued in line with requirements of the European Aviation Safety Agency (EASA). On behalf of EASA, the LBA (Luftfahrt Bundesamt) experts monitored the compliance with EASA Part 145 requirements through annual audits.

At the same time, Croatia Airlines insisted on holding the equivalent Part 145 certificate, which was issued by the Air Transport Directorate of the Ministry of the Sea, Tourism, Transport and Development. This certificate is today renewed by the Croatian Civil Aviation Agency (CCAA). Upon Croatia’s accession to the EU, the EASA Part 145 approval for non-EU members ceased to be valid and the Croatian approval HR.145.001 became recognised and valid within the European Union.

- Part 147

In 2005, Croatia Airlines obtained an approval of the aircraft maintenance training organisation in accordance with JAR 147, the regulations in force at the time of approval; in 2007 it was replaced by HR Part 147, an approval issued in line with the then valid regulations 9A-Part-147 for all aircraft types within its fleet.

Lugarov

A5As of 2012, Croatia Airlines holds an approval for basic training and several aircraft types from the aircraft maintenance training organisation. Upon Croatia’s admission to the EU, the Croatian approval HR.147.001 became recognised and valid within the European Union.

4. IOSA Operator

The International Air Transport Association (IATA) set up a standardised, globally-recognised program for assessing the safety of flight operations of all members of the Association. In December 2003, the first 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.

5. ISO 9001

Our approach to quality management is defined by our core document, the Quality Policy. Croatia Airlines established and in November 2003 certified the quality management system in line with the requirements of ISO 9001, the world’s most widely recognised quality management standard.

6. ISO 14001, ISO 50001

By adopting the Environmental Protection and Energy Efficiency Policy, Croatia Airlines has opted to manage the objectives and risks of its business operations by taking account of environmental protection and improving energy efficiency, thus fulfilling its obligations to future generations. To this end, in 2016 an environmental management system according to ISO 14001 and an energy management system according to ISO 50001 were implemented.

Croatia Airlines is highly dedicated to raising employee awareness about the level of responsibility, the job importance and the way in which the successful performance of job-related tasks contributes to achieving quality-related goals.

Fatigue risk management

The International Civil Aviation Organization (ICAO) defines fatigue as a physiological state of reduced mental or physical performance capability resulting from sleep loss or extended wakefulness, circadian phase and/or workload that can impair a crew member’s ability to safely operate an aircraft or perform safety-related operational duties. As the risk of fatigue is analysed and identified as a potential hazard for the safety of air operations, appropriate risk mitigation measures are adopted and implemented.

Specific working conditions of aircraft crew members include shift work, characterised by early duty start times, night work and late duty end times; frequent changes in work schedule, time zone transitions, standby duties, long duty hours, and often a combination of all of the above. Cramped cockpit space and sitting position with minimal and repetitive movements result in reduced physical activity, which affects the quantity and quality of sleep. Fatigue impacts our cognitive abilities, such as alertness, memory, learning, problem-solving and decision-making.

A group named the Fatigue Safety Action Group (FSAG) has been formed to help manage all fatigue-related risks. The FSAG members gather and analyse data and draw up risk assessment reports related to the level of fatigue of flight crew members, outline recommendations and measures for reducing the fatigue risk, cooperate with the Safety Department on devising safety assurance processes, provide training guidelines and material to crew members.

A total of 112 reports were processed and analysed in 2023, which is a 33% increase compared to 2022, when there were 84 reports. However, it should be taken into account that in 2023 there were 11% more flights than in 2022, as the traffic resumed after the COVID-19 pandemic. An electronic fatigue report form has been in use within the Q-Pulse quality management system since 2020. As it can be filled out through a mobile application, intranet (Crew portal) or the Internet (web browser), paper-based fatigue reports are no longer used.

ISO 27001 certification project

In 2023, Croatia Airlines carried out preparations for ISO 27001 certification. The project’s aim is to bring the safety of the IT system (organisational and technological measures) in compliance with the requirements of ISO 27001 and verify the compliance through the certification process. An information security management

system compliant with ISO/IEC 27001 helps organisations manage the security of their resources, such as financial information, intellectual property, employee data or third party information. The very certification in accordance with the standard will take place in 2024.

Project AMOS

The AMOS Airline/MRO Edition project refers to the implementation of a new, comprehensive software solution designed to optimise and streamline the maintenance and engineering operations of airlines. Relying on the advanced features and functionalities of the AMOS software, Croatia Airlines aims to improve its maintenance procedures and overall operational efficiency. AMOS is a globally recognised leading solution in aircraft maintenance, and by implementing it Croatia Airlines would adapt to the best global practices and get to offer the world-class know-how when it comes to aircraft maintenance. Top-notch functionalities will boost the management efficiency of maintenance, engineering and logistics activities of Croatia Airlines’ fleet to increase aircraft availability. The AMOS software package will provide Croatia Airlines with full-scale functionality and support the strategic renewal of the fleet into a completely new A220 fleet by offering advanced options for aircraft phase-in and phase-out. The project, which was initiated in June 2023, will have several stages and is expected to last two years.

Prolonging the season of maintenance works on third-party aircraft to the summer months

Just like in the preceding year, in 2023 the Technical Sector extended the works season to the summer months, and carried out one A check, 12 C checks, five 6-year and one 12-year checks. Maintenance works are carried out in three hangars.

A-CDM (Airport Collaborative Decision Making) implementation project

On 25 September 2023, Zagreb Airport, Havas Ground Handling Services, Croatia Control and the flag carrier Croatia Airlines signed a partnership agreement on the project of setting up A-CDM (Airport Collaborative Decision Making) at Zagreb Airport. A–CDM is a global concept of cooperation of airport stakeholders/partners that involves timely exchange of information and application of adapted procedures and tools. Its application will optimise the use of available resources, ensure better planning and improve the overall operational efficiency of Franjo Tuđman Airport, for the benefit of all stakeholders.

Data Protection

The IT sector has continued implementing the introduced data protection measures within the infrastructural segments of our Company’s IT system, with the aim of strengthening the security measures affecting personal data protection and the overall protection of the IT system:

• Measures for advancing data security are being implemented in line with the provisions of Directive (EU) 2016/1148 (NIS Directive), Act on Cybersecurity of Operators of Essential Services and Digital Service Providers, and Regulation on Cybersecurity of Operators of Essential Services and Digital Service Providers, so as to advance the information security level.

• The Company implements or has implemented:

- Regular annual information security risk assessment, and supervision of the information security risks recorded in the IT system risk register

- Regular perimeter security checks

- Security testing of the intranet

- Review of vulnerability of the IT infrastructure

- Review of key system access control measures

- Regular scanning of the Company website

- Cloud infrastructure access control

- Regular maintenance of compliance with the PCI-DSS

- EOL and EOS status control for all software components.

• All CSIRT notifications about system vulnerabilities were regularly followed, as well as the information from Star Alliance, which was disseminated to all employees.

• The training programme aimed at familiarising employees with the threats of social engineering was intensified, in line with the Cybersecurity Training Plan.

ERCM - Emergency Response and Crisis Management

Regardless of the fact that safety is one of the Company’s most important tasks and that it has in place all the required safety and protection measures, the possibility of adverse events should also be taken into account. In order to ensure a continuous level of preparedness, Croatia Airlines has for many years been managing an emergency response and crisis management system.

The Office for Emergency Response and Crisis Management (ERCM) is responsible for planning, devising and testing plans and procedures, and training a variety of teams that are crucial for crisis response. Its primary task is to take care of passengers, their families, crew members and other employees in case of an aircraft accident, incident or any other crisis situation.

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 and safe 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 key for ensuring quality, so motivation and professional interests are important factors when hiring and developing the staff.

The differences between employees with regard to education, skills, personal traits, interests and work motivation indicate that achieving sustainable development goals is an exceptionally complex and challenging of human resource management process.

By aligning individual interests of a large number of people with common interests of the Company, we strive to organise the work in a way that each individual is satisfied and contributes his/her best as a member of the organisation. The goal of human resource management activities is to ensure that all employees make use of their knowledge, skills and experience to create added value for the Company, by being assigned an optimal workplace according to their competencies.

Croatia Airlines pays special attention to employee health, which is why we organised on-site flu vaccinations and dermatological examinations. In 2023, the Company also organised a number of activities for its employees and their children. In January and February, employees were trained in the advanced use of the Microsoft Teams application, to facilitate and speed up the exchange of information via digital channels and to simplify daily tasks. In December, the employees’ children got to enjoy a Christmas get-together at the MiniPolis playroom. The Company also granted its employees a day off on their children’s first day of school – the First-graders’ Day.

Employment policy and employee care

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 its employees to apply for job vacancies within the Company by way of internal hiring procedures and, in addition to regular education programmes necessary for an uninterrupted flow of the business process, it organises training courses to improve employee skills and knowledge. The total employee turnover in 2023 was 9% (turnover rate = employees who left the Company/average number of employees). In 2023, the Company started preparations for the introduction of the new type of aircraft, A220, into the fleet. In order to match its needs and goals with the current workforce and the timely introduction of new aircraft into the fleet, it recruited additional employees to its operations and technical sectors, adjusted its internal Training Rules and made training arrangements for the type of aircraft, A220. It is forming new organisational units and positions to be filled amidst these changes, and investing a lot of effort into adapting its internal rules and processes to the new aircraft type.

As a pillar for further developing human resources, the Company continued employing younger people, and in 2023 the share of employees up to 30 years of age rose by 1% compared to 2022. The Company also participated in the Career Days of the Velika Gorica Polytechnic, the Faculty of Organisation and Informatics, the Faculty of Mechanical Engineering and Shipbuilding, as well as in the international conference of the Faculty of Transport and Traffic Sciences “The Science and Development of Transport”. Participation in such events promotes Croatia Airlines as a potential employer and attracts the younger generation to the aviation industry and a career in aviation. Furthermore, it increases the visibility of Croatia Airlines on the market (employer branding) and expands the base of potential future employees, all with the aim of matching corporate needs and goals with the labour market. Administrative employees still have the flexibility regarding their workday start and end times: between 7 am and 9 am, and between 3 pm and 5 pm.

A5Sales representatives and managers, whose activities comprise Internet and telephone sales, customer service employees and ticketing service employees are allowed to work remotely for the most part of their work hours. Furthermore, all employees working on the same schedule in other positions enabling remote work can opt for it two days a week so as to balance their private life and business activities in an adequate manner. In this way, the Company is attracting and hiring younger generations.

In order to mitigate the negative impact of inflation on employees’ real income in 2023, the Company paid them out one-off support (on two occasions) at the beginning of the year, and increased salaries by 10% as of 1 April. The lowest salaries were increased above the minimum wages prescribed by the Government of the Republic of Croatia.

In addition to regular income, the Company offers its employees various benefits, such as reimbursement for commuting expenses, severance pay upon retirement, support in the event of a close family member’s death, support for continual sick leave longer than 90 days, right to paid leave in the event of child birth, moving home, entering into marriage, schooling, etc. In the event of longer sick leaves, severe illnesses or a difficult financial situation, the Company strives to help its employees and their families by co-financing the purchase of medicines and medical treatment costs. It also regularly helps the children of deceased employees through monthly supports during their regular schooling.

Furthermore, the Company continues its laudable tradition of recognising the loyalty of its employees by paying jubilee bonuses to those who have completed 25 years of service. A total of 34 employees received this reward in 2023.

Occupational health and safety of employees

Croatia Airlines has undertaken to protect the health and safety of its employees at their workplaces and implement all prescribed occupational safety measures.

In order to protect the health and safety of its employees, Croatia Airlines adopted the Occupational Safety Guidelines as early as 1991 (they have been amended multiple times since, in line with legal regulations). Based on the Workplace Risk Assessment and in line with the relevant activity, technology, jobs performed in special working conditions, equipment, hazardous substances, and the number of workers, they 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. Most jobs in the Technical Sector are high-risk jobs (such as working at heights, with hazardous chemicals, different machines and dangerous devices). Employee training related to working in a safe manner and basic training in fire protection are regularly organised and implemented for all new employees and those that could benefit from a refreshment course.

The Company also organises and conducts training for employer and employee authorised representatives. Specialist training for the safe handling of machines and devices posing a greater hazard (hydraulic platform lifts, metal and non-metal processing machines, fork-lifts, etc.) are organised in line with the needs of the Technical Sector. All employees at workplaces with special conditions regularly undergo medical examinations.

All work equipment (machines, devices, tools, plants and installations) within the operating process, as well as those serving for the fire signalling and extinction, undergo regular check-ups and periodic testing. All hazardous waste resulting from the work process is regularly and duly disposed of, with prescribed records (registers) being kept on it, and reports submitted for the Environmental Pollution Register with the Ministry of Environmental Protection.

Altogether 13 injuries at work were reported in 2023 (nine women and four men). Of those, 11 were acknowledged by the Croatian Health Insurance Institute, and two are still pending. Nine injuries were sustained at work, and four while commuting. There were neither cases of death related to injuries at work, nor professional illnesses.

In 2023, no inspection control was carried out in the sphere of occupational safety, fire protection and environmental protection.

SMANJENJE NEJEDNAKOSTI

Employee training and education

Through continuous investment in education, Croatia Airlines develops and strengthens human resources, having recognised since day one that its business activity is both capital and labour intensive. Due to exceptionally sophisticated technology and demanding business processes, each year it invests considerable funds in employee training, especially in specialist training and maintaining the level of education of the flight and cabin staff, as well as of all other employees whose contribution to the Company’s core business processes is invaluable. The training process for the employees of Croatia Airlines relies primarily on internal resources, implying the use of its own authorised instructors. In addition to financial savings realised in this way, the nourishment of its own know-how results in reduced dependence on external resources and promotes the Company’s culture and business strategy.

The training of Croatia Airlines’ employees is simultaneously provided on three levels: training of operative sector employees, technical sector employees and non-operative sector employees. In 2023, a total of 6,209 hours of in-house training was provided for all of its employees.

In 2023, Croatia Airlines’ Technical Training Centre continued its active cooperation with the Croatian Civil Aviation Agency concerning the issuance and extension of PART-66 licences.

In terms of PART-147 training, courses were defined and organised for the Technical Sector staff throughout 2023 to prepare for the introduction of the new A220 aircraft into the fleet.

The Company held all of the training courses prescribed by the PART-145 regulations and needed for the unobstructed work of the Technical Sector, i.e. its engineers, mechanics and other staff, as well as for extending internal authorisations of Croatia Airlines’ PART-145 engineers, mechanics and subcontractors. As for the training prescribed by the PART-145 regulations, with the start of the maintenance works season the Company initiated commercial On-the-Job Training in order to enter the first aircraft type in the AML PART-66 licence, implemented in a PART-145 organisation during the maintenance works season, so the attendees participate in required man-hour aircraft maintenance. The Technical Training Centre’s OP-STP-029 Airside Operations Training Manual that defines training in line with the PART ADR regulations came into effect. It was adopted by Zagreb International Airport together with related certificates. By carrying out all the necessary activities in a timely manner, the Technical Training Centre ensured smooth continuation of work and access to workplaces for all employees of Croatia Airlines when the new requirements for unaccompanied persons on the airside were announced. Approximately 1,500 different certificates were issued in 2023, which enabled the employees of the Technical Sector and other company departments to work smoothly and meet the requirements of all binding rules and regulations.

Croatia Airlines’ Operations 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.

With the epidemiological measures having been lifted in late 2022, the Operations Training Centre carried out all of the planned initial training courses, mandatory refreshers, as well as aircraft, simulator and ground check-ups in 2023, enabling the Company to extend all authorisations and licences necessary for its employees to perform their activities. The Operations Training Centre held the envisaged training courses and refreshers throughout 2023, all in a timely manner, with minor adjustments for operative reasons, namely long-term sick leaves and simulator defects. Given a large number of initial training courses, there were slightly fewer commercial training courses in 2023 than in the preceding years.

The Croatian Civil Aviation Agency carried out several audits and inspections for the purpose of implementing on-going supervision of activities performed by the Operations Training Centre at Croatia Airlines’ premises, on both the simulators and scheduled flights of Croatia Airlines’ aircraft. The results showed an enviable level of compliance with the prescribed standards. A number of inspections of simulators and instructors’ work were carried out in accordance with the provisions of the OM-D & Quality Inspection Orders for the purpose of monitoring and raising the quality of their work.

For most categories of specialist employee training courses, the Company uses the services of IATA (International Air Transport Association) Training Centre and other international specialised training courses, and, if necessary, the services of external experts who run in-house courses. The year of 2023 was

A5marked by complete normalisation of business activities, which included going back to conventional training models, and participating in various themed conferences, symposia and work, groups organised by external professional institutions, with the aim of becoming more familiar with the industry’s operational and commercial innovations.

In 2023, the internal training courses for non-operative staff comprised the usual training related to auditor refreshers, dangerous goods handling procedures, initial training courses and refreshers related to passenger reservations, tariffs and ticketing, but also those for specific employee categories, so that they could be empowered with specific knowledge related to fraud and counterfeit prevention, and become competent in basic ALTEA DCS functionalities. The Company also held a series of training courses for employees of Pula, Dubrovnik and Zadar airports, pertaining to international airline ticketing procedures. As the national flag carrier, Croatia Airlines organises within its Training Centre various training courses needed by travel and commodity agencies for the IATA licence acquisition, training courses for airports employees, freight forwarders, and airline companies. In 2023, the Company held courses related to reservations, tariffs and ticketing for external associates, employees of IATA travel agencies and young people looking to better position themselves in the labour market.

Works Council

Through the Works Council, in a way and under the conditions prescribed by the Labour Act, the Company’s employees participate in making decisions related to their economic and social rights and interests. Also, the Works Council receives employment notifications on a quarterly basis and provides counselling in line with the obligations prescribed by the Labour Act. Representatives of the Human Resources department also attend Works Council meetings from time to time, to contribute their reports and advice. When needed, the Chairman of the Board and other sector managers are summoned to participate in such meetings.

Freedom of association and collective bargaining

There are six labour unions within the Company – Croatian Union of Air Traffic Pilots, Union of Engineers and Technicians in Aviation, Independent Professional Union of Croatian Aeromechanics, Air Cabin Staff Union, the Independent Croatian Union of Airline Employees, and ORCA – Croatia Airlines’ Employees Organisation, whose members are pilots, cabin crew staff and aeromechanics, and workers represented by the New Union, which represents them in collective bargaining matter, alongside the Independent Croatian Union of Airline Employees. The majority of employees are union members, but provisions of the collective bargaining agreement apply to all of them (100%). The level of rights contained in the collective bargaining agreement regulates many additional benefits of employees in order to improve their economic and social status, such as the number of days of annual leave, paid leave, salary bonuses, severance payments, etc., which are above the legal minimum. In case of more serious health problems, deaths, childbirths, long-term illnesses or similar situations requiring an 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.

Non-discrimination and employee dignity

In order to protect the dignity of its employees, the Company prescribed the Complaint Receipt and Settlement Procedure and appointed two persons (one male and one female) to receive and handle complaints related to this issue. There was one such complaint in 2023, which was resolved. The Company also regularly adopts a gender equality plan. We promote gender equality: there are 53% male and 47% female employees, with 53% female and 47% male executives, who are paid equally for their work. Non-discrimination and the promotion of diversity are also reflected in a growing number of employees of different nationalities.

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.). They are also offered the possibility of using air transport services for private travels on more favourable conditions.

5.7. Business ethics

Croatia Airlines and its Management Board deem that raising anti-corruption and ethical awareness of all employees and adopting zero tolerance to corruption are crucial for an efficient prevention of corruption. The Company strives to promote ethical behaviour in all spheres of its business activities: among employees, 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.

Ethics Committee

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 Ethics in the Company’s work, proposing to the Management Board methods of settling problems related to any reported breach of provisions as an independent body. Based on the relevant report, the Management Board decides on sanctions that may be applied in the case of non-adherence or breach of ethical principles. Its main goal is to advocate moral standards, ethical behaviour and business ethics. By rectifying irregularities occurring as a result of non-adherence to the provisions of the Ethics Code, it aims to promote ethical behaviour to make work and professional activities at the Company as pleasant 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. The Committee meets when necessary, i.e. when it has found out or has been informed by a Company employee 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 the principle of integrity. The Company pays particular attention to the choice of its business partners and refuses to do business with those who have committed a serious breach of contractual obligations and the rules of business ethics. Two breaches of the Ethics Code were reported in 2023, and both were resolved. The Ethics Code of Croatia Airlines d.d. has also been published on the Company’s website and must be adhered to by all employees.

5.8. Anti-corruption programme

In early 2010, Croatia Airlines started implementing its Anti-corruption Programme 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. The Programme undergoes revisions, if needed, which was last done in 2019, in line with the Decision of the Government of the Republic of Croatia on Adopting an Anti-corruption Programme for the Companies majority-owned by the State for the period 2019-2020. Any breach or non-adherence to the Anti-corruption Programme is considered a breach of ethical principles and standards.

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

- Goal 1 Strengthening work integrity, responsibility and transparency

- Goal 2 Strengthening anti-corruption mechanisms.

The Anti-corruption Action Plan is also published on the Company’s website and must be adhered to by all employees. Its Ethics Code is published on its intranet site, which all employees can access. It gives them an insight into the Company’s dedication to affirming zero tolerance to corruption. In 2023, no cases related to any form of corruption were reported.

A55.9. Responsibility to passengers

Our goal is to ensure good connectivity, reliability and safety by providing our passengers high-quality service during the flight. We want their journey to be stress-free and in line with their expectations. Therefore, we take surveys on a regular basis and communicate with our passengers to offer a service that meets their expectations.

By carrying out customer satisfaction surveys throughout the year, on a daily basis, we get an insight into customers’ overall satisfaction with our service, Net Promoter Score (NPS) and the likelihood of reusing our service. We also keep track of their satisfaction with individual service components, such as flight punctuality, cordiality of cabin staff, and food and beverage offer. Passengers are surveyed online, via the QR code available on our aircraft during the flight. We manage products and make decisions on improving our products and services or introducing new ones on the basis of the survey results.

The Company’s Customer Service monitors, adopts and applies all Star Alliance rules regarding communication between alliance members and with passenger, as well as the new case law and legislation relating to passenger rights in air transport. Any passenger concerns will be addressed within the legally prescribed 15 or 30 days.

Passengers can contact our Customer Service in writing using the web form on our website www.croatiaairlines.com or by mail (address: Bani 75b, Buzin, 10 010 Zagreb).

Complaint management is handled in line with the Regulation (EC) No 261/2004, provisions of the Act on Civil and Proprietary Relations in Air Traffic (OG 132/98 and 63/08) in the Event of Denied Boarding, Flight Cancellations or Long Flight Delays, and the Montreal Convention of 28 May 1999, which in the Republic of Croatia is implemented on the basis of the Act Ratifying the Convention for the Unification of Certain Rules for International Carriage by Air and provisions of the Act on Civil and Proprietary Relations in Air Traffic.

Tailored service

The web project continued in 2023, and its 4th and 5th phases included implementation of a B2B portal and a user profile for the payment of orders via a stored token and tokenization. The project was completed in September 2023. Furthermore, a new payment method, via the Keks Pay application, was introduced on 1 June 2023. The Company is actively engaged in developing and implementing additional services. The Company is actively engaged in developing and implementing additional services, and the Time to Think service is in its final implementation phase. It has been implemented offline, and will soon be available online. This functionality will allow our online customers to pay a fee and keep the ticket they have booked for a certain period to get some time to plan their trip. The Company’s seat charging offer has been expanded through the implementation of the Chargeable Seat service with the Global Distribution System – Sabre. In order to offer an even better and more complete service, Croatia Airlines is introducing seat selection at a fee on its partners’ flights as well. In April, it implemented iEMD, interline seat charging, with LH Group. It activated several Interline Electronic Ticketing agreements with its partners: Air Dolomiti (in early June), EW Discover (in early September), and Deutsche Bahn (in late September), thus expanding its service to rail travels to certain destinations in Germany, as well as to Brussels, Amsterdam and Zurich. In December, it finalised the testing of the new IET with partner Flydubai, and should activate it in early February. It is currently testing this service with APG. Moreover, the Company is testing the STAR Cross Sell of Seats with its partner United Airlines, which will enable it to sell seats within the interline scenario as well. As part of its partner cooperation with Europcar, Croatia Airlines has been offering its passengers a car rental booking service via a link on its website, thus unifying both services in one place. In cooperation with Amadeus, the same service was implemented on the Confirmations page and My bookings page.

Meals for passengers

Our most important task is to ensure customer satisfaction with the service provided. As the national flag carrier and a company that continuously works on improving its services, our goal is to make flights even more pleasant and introduce the riches of Croatian cuisine to our passengers. All meals and beverages on our flights are free of charge and the service depends on the flight duration and the time of day. Business class passengers can enjoy special meals, in line with their health and religious requirements, and there are also special meals for children, etc.

Health and safety of passengers

Health and safety of passengers, crews, and employees are of high priority to Croatia Airlines, and are ensured through an integrated quality and safety assurance system encompassing all of its business processes and organisational units.

A more detailed description of Croatia Airlines’ quality management system can be found on page 43 of this Statement. The system is recertified and advanced through regular internal supervision and the supervision by relevant domestic and international organisations. It encompasses regular audits and inspections carried out by the Croatian civil aviation authorities, i.e. the 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 service users, all food and beverages served on the flight must meet certain health standards.

N.Osvald

Croatia Airlines regularly checks and supervises the work of all entities participating in the processes of procurement, storing, preparation and delivery of inflight meals, as regulated by the Croatian laws and related ordinances. The basic acts are: Food Act, Act on General Use Items, Veterinary Act, Act on the Protection of the Population from Infectious Diseases, and Act on the Provision of Food Information to Consumers. Sanitary inspectors are responsible for ensuring the implementation of relevant laws and ordinances.

The cabin crew must adhere to the provisions of the Act on the Protection of the Population from Infectious Diseases. They are obligated to obtain sanitary certificates, which have to be renewed every year, and attend training courses on minimum hygiene standards every five years. Cabin crew members who come into direct contact with passengers and ground personnel wear appropriate protective equipment, aircraft are disinfected daily, advanced hygiene measures are taken during the regular cleaning of the passenger cabin, and various disinfectants are made available to staff.

Product information

Croatia Airlines has in place a Miles&More frequent flyer programme, the most extensive one in Europe. Information about offers, travel planning and booking, the Miles&More programme and all other travel-related information can be found on our website www.croatiaairlines.com

Customers are informed about Croatia Airlines’ transport services also through promotional activities, media releases, participation in domestic and international fairs, distribution of promotional material, sponsorships, and direct communication with our sales personnel.

Croatia Airlines’ General Conditions of Carriage are available to customers at all sales locations, branch offices, and representative offices of Croatia Airlines, and have also been posted on the following webpage: http://www.croatiaairlines.com/hr/pravne-obavijesti/opci-uvjeti-prijevoza/

5.10. Helping the community - inclusion and development programmes

Croatia Airlines regularly makes donations and sponsors various cultural scientific, sports and other events. It actively supports institutions in need of humanitarian aid and those organising charity projects. It provides help and direct aid by granting cost-free transport for severely ill patients, children and people in need, and participates in charity actions by donating transport services.

In 2023, the Company sponsored Dubrovnik Summer Festival, Zagreb Philharmonic Orchestra, WRC Croatia Rally, Croatian Football Federation, and the Croatian Paralympic Committee.

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 any other form of discrimination: http://www.croatiaairlines.com/hr/O-nama/Korporativne-vrijednosti/Sponzorstva-i-donacije

Z.Jelača

5.11. Environmental impact of business activities

The year of 2023 can be described as the year of significant regulatory changes that will shape aviation until 2050. We are talking about the revision of the EU ETS (and consequently certain changes in the CH ETS, the UK ETS and the CORSIA system). The adoption of the REFUEL EU Regulation is expected to be followed by the adoption of the ETD (Energy Taxation Directive). This is all part of the “Fit for 55” package, aimed at decarbonising air traffic by 2050 through changes to the systems for measuring, reporting and verifying emissions data, the introduction of new measurement elements (e.g. NOx, PM10, etc.), the introduction of mandatory procurement of Sustainable Aviation Fuel (SAF) and the preparation of infrastructure for the future use of electrical energy and hydrogen in aviation.

Croatia Airlines’ experts participated in the activities of both domestic and EU working groups to develop concepts for the future use of hybrid electric aircraft (electrical energy and/or hydrogen-powered aircraft) and consider the possibilities of using sustainable aviation fuel (SAF). Although the industry’s performance indicators improved, they still did not reach the 2019 level. According to projections, the airline industry was set to emerge from the shadow of the pandemic in 2023, which was seen as the first year of its recovery. The Company focused on mitigating the negative performance indicators (particularly CO2 emissions per passenger kilometre) through traffic optimisation achieved by utilising aircraft of suitable capacity and consumption on any possible occasion. Croatia Airlines is dedicated to managing its business goals and risks with the strongest focus on environmental protection and energy consumption. 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 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 beginning 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.

CARBON FOOTPRINT

Croatia Airlines endorses the global aviation strategy of environmental protection by investing in technology, optimising air traffic and improving aviation structure, and boosting operational performance. We are sure that sustainable development will be among top business trends in the years to follow. With the procurement of Airbus A220 aircraft to standardise our fleet we are certainly moving in the right direction. From a global perspective, the European Union leads the way when it comes to creating and implementing environmental protection objectives, and so does the Republic of Croatia as an EU member state and Croatia Airlines as a company operating in this area. As a member of the largest airline association, Star Alliance, Croatia Airlines also engages in achieving common goals in terms of waste, use of sustainable fuels, emission reductions (Net zero by 2050) and the impact on the supply chain.

As mentioned earlier, Croatia Airlines has been participating in the EU ETS process since 2010. In 2018, it joined the Swiss emissions trading scheme, and as of 1 January 2019, it joined the CORSIA process after developing new procedures and monitoring plans in 2019. The adoption of the CORSIA system required Croatia Airlines to make adjustments of the existing EU ETS (Emissions Trading System) in order to cover a greater number of flights. Through the application of these regulations, all Croatia Airlines’ flights are within a certain scheme of measuring and trading CO2 emissions allowances (EU ETS, CORSIA, Swiss ETS); thus, the Company has joined numerous companies and countries investing significant efforts and implementing initiatives to reduce greenhouse gas emissions on a global level. Following Brexit and the United Kingdom leaving the EU, as of 1 January 2021 the Company was required to monitor emissions in the UK territory. Our experts complied with this by drawing up an additional emissions monitoring plan, which was approved in 2021 by competent UK’s authorities.

As of 2019, the Company’s new emissions monitoring, reporting and trading system was named EOS (Emissions Offsetting System). It was upgraded in 2020 through a new and more efficient way of recording and successfully implemented in 2021, which is expected to continue in the years to come. Its successful application is expected to continue in the years to come. Activities related to the reduction of greenhouse gas emissions directly affect the Company’s economic balance. A reduction of fuel consumption in tonnes through technical and operational activities reduces the cost of fuel. Consequently, the level of emissions has been dropping, which implies lower costs related to 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 related to every flight destination of Croatia Airlines, thus directly affecting its financial operations.

Besides limiting greenhouse gas emissions through the EOS system, it is also important to consider the relationship between passenger growth and emissions. An increase in the number of passengers at every flight positively affects emission indicators per passenger seat at a certain distance since the volume of emissions does not increase proportionally to the number of passengers. For example, by comparing the average aircraft and car load, in terms of emissions air travel is often more environmentally friendly.

The physical properties of aircraft/vehicles and the fact that usually only one passenger travels by car (the driver) should also be taken into account. As we witness a growing number of technical and technological initiatives in the automotive industry, the airline industry is trying to keep pace and be competitive in environmental terms as well. Through the airline associations Star Alliance and IATA, Croatia Airlines has also committed to net-zero carbon emissions by 2050.

Croatia Airlines is actively meeting all regulatory requirements and improving its business processes in line with available capacities in order to reduce, to the extent possible, their impact on the environment. Furthermore, it strives to improve its attitude to the environment by adopting proposals of other stakeholders. The growth of Croatia Airlines is guided by the 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. Environmental impacts are monitored through the environmental protection and energy management system certified under ISO 14001 and ISO 50001 international standards, which were renewed in 2023 through a recertification audit. The system encompasses all activities that are carried out in a number of the Company’s business sectors with regard to the environmental protection and conservation of energy.

2 Carbon Offsetting and Reduction Scheme for International Aviation

A5he Company strives to boost energy efficiency with each upgrade of technical resources (primarily aircraft). With this in mind, expert teams assessed the use of sustainable fuels in the operation of Croatia Airlines’ aircraft already in 2019. The assessment showed readiness for such an initiative, but the next steps will depend on the supplier’s infrastructure and economic aspects of the market, considering a higher price of such fuels and an accelerated introduction of infrastructure for the production and distribution of sustainable fuels. In 2023, the Company retained a strong focus on increasing the use of ‘green technologies’ in the post-pandemic period. In addition to the already mentioned sustainable fuels (the socalled Sustainable Aviation Fuel, SAF), the industry is developing hydrogen technologies and techniques, expected to be deployed by 2030.

There were no instances of non-compliance or penalties in 2023 in relation to environmental protection; however, there was one case of minimum fuel spillage (half a litre) on the apron by an aircraft refueller, which was fined. In 2023, part of our employees were approved to work from home, in accordance with business needs and relevant regulations, so resource consumption was somewhat lower.

Environmental protection management systems have been set up to ensure more efficient monitoring of environmental protection and better coordination at company level. The introduction of the system has enabled the Company to check and monitor relevant indicators and facilitated the identification of related goals. This has allowed it to introduce positive business practices in its processes.

Croatia Airlines implements several policies within its management system. The first and most important one is the Safety Policy, followed by the Quality Assurance Policy, Aircraft Maintenance Quality Policy, Protection Policy and the Environmental Protection and Energy Efficiency Policy.

By introducing ISO 50001 (Energy Management System) and ISO 14001 (Environmental Management System) systems in late 2016, Croatia Airlines joined a small circle of global airline companies with an implemented range of ISO management systems (ISO 9001/14001/50001). Their introduction and subsequent monitoring have resulted in certain savings, as shown by indicators for which 2021 is taken as a baseline year. Measurements and comparisons with previous years have been set up, as well as the planned/realised ratio, pointing to a more dynamic approach to data gathering. In 2023, data for all indicators were collected on a quarterly basis so as to enable more precise monitoring of recovery potentials, with an ongoing ‘energy audit’ being conducted at the same time.

The Company adheres to all applicable legal regulations on environmental protection and energy preservation at national and global level, including waste management regulations. It also strives to implement new technologies and measures for a permanent improvement of energy performance, as well as to monitor and reduce greenhouse gas emissions, and raise awareness about efficient environmental protection and the strengthening of energy efficiency standards through employee education. Material aspects have also been harmonised with business partners using the same infrastructure, for example, with Zagreb International Airport, with which Croatia Airlines shares water drainage infrastructure. The application of all principles of sustainable development is limited by certain restrictions arising from the particular nature of air transport. This primarily applies to the Safety Policy, regarded as the most important policy on whose principles the Quality Assurance Policy and the Environmental Protection and Energy Efficiency Policy are based. Due to the particular nature of the Company’s business operations, the consumption of energy and resources within Croatia Airlines is analysed in three separate segments: flight operations, Technical Sector, and administrative segment. Flight operations consume the most energy at Croatia Airlines, with relevant regulations and procedures for safe air traffic having the absolute priority. Due to congested airspace, the EU carriers have been forced to act in coordination with numerous factors of air traffic, which sometimes makes it hard to apply an environmentally friendly approach to business. In 2022, Croatia Airlines announced its decision to unify its fleet, i.e. introduce a single-type fleet and purchase new Airbus A220 aircraft, which will lead to a significantly improved energy balance. A standard EU ETS MRV method was used to collect CO2 emissions data through the use of the 3.15 emission factor, meaning that one tonne of aviation fuel produces 3.15 tonnes of CO2.

The consumption of aircraft fuel in tonnes is considered a business secret and as such is not stated herein. All measurement systems (Swiss ETS, UK ETS, CORSIA) are compliant with the above method.

CARBON FOOTPRINT - Our flights can be accessed by public transport, by which we are reducing flight carbon footprint left by the passengers.

WATER MANAGEMENTThe carrying of as little as 50% of lavatory water is prescribed for Airbus flights, by which we are reducing emissions by 40 t of CO2/year/aircraft

COOPERATION -

We cooperate with regulatory bodies and interested parties such as educational institutions and individuals to share information and experience in the field of environmental protection and energy

Croatia Airlines strives to operate as a asocially responsible company, taking into account the by-products of its operations and their impact on both the environment and the community.

WEIGHT MANAGEMENTBy using an EFB (Electronic Flight Bag) device we have reduced the need for carrying 35 kg of paper documents per aircraft

COOPERATION -

We cooperate with regulatory bodies and interested parties such as educational institutions and individuals to share information and experience in the field of environmental protection and energy

WEIGHT MANAGEMENTBy redesigning the cabin on the Airbus fleet we have increased the number of available seats from 132 to 144, and from 162 to 174, and also decreased the aircraft weight by some 200 kg, reduced the amount of CO2 emissions per passenger, and increased comfort

FUEL MANAGEMENTBy using advanced flight planning systems (LIDO), we are optimising our flights in view of fuel consumption

These are the pre-pandemic results that we are trying to achieve during the pandemic as well, and improve them by optimising the fleet utilisation.

CO2 MANAGEMENT - The Company compensates CO2 through the EU ETS and related systems (CH ETS) and will be doing so in future through CORSIA and UK ETS; data is collected for each flight, then verified and delivered to relevant bodies

ANOISE MANAGEMENTall of our aircraft comply with the Chapter IV standards for aircraft noise; changes made on Airbus aircraft in 2019 enabled us to exceed these standards

Energy consumption data was retrieved using US Energy Information Administration-https://www.eia.gov

Energy and water consumption

The Technical Sector consumed 1,400,532 kWh of electricity during various aircraft maintenance activities, or almost 1% less compared to the previous year, pointing to almost the same level of maintenance works in 2023 as in 2022. It should be noted here that aircraft maintenance activities are focused primarily on the quality of work and safety, with energy efficiency following suit. With 24,041 m3 of gas consumed in 2023, the Technical Sector recorded a slight decline compared to 2022. Its water consumption of 1,922 m3 was 6% greater than in 2022. Along with maintaining Croatia Airlines’ fleet, the Technical Sector also performs maintenance works for other companies.

As the demand for third party maintenance works is growing, it is expected that the use of resources will increase, and so will the amount of hazardous and non-hazardous waste. The segment of base aircraft maintenance (major check-ups) shows the biggest growth.

In 2023, the Company’s administrative segment consumed 347,990 kWh of electricity, or 3% less compared to 2022, but 3% more than in the baseline year of 2021 (taking into consideration work from home, ongoing renewal of IT equipment, and the average consumption per computer of about 65 W).

The consumption of gas, used for heating, recorded a significant fall of 45% compared to 2022, and of about 50% compared to the baseline year of 2021, mainly due to milder winters, but also as a result of the temperature adjustments. As the heating system was renewed in late 2023, we can expect even more favourable indicators. According to the Croatian Meteorological and Hydrological Service, the deviation of the mean air temperature in 2023 compared to the 1991-2020 period ranged from 0.7 °C (Makarska) to 2.0 °C (Bilogora). Air temperature was higher than the multi-annual average in all stations. The climate conditions in Croatia in 2023 according to percentile distribution were classified as follows: very warm (part of central Croatia, Parg and Zavižan area, most parts of central and southern Dalmatia) and extremely warm (eastern Croatia and parts of central Croatia, mountain region, northern part of Hrvatsko primorje (Croatian littoral), northern Dalmatia, islands of Vis, Korčula and Lastovo).

62

AA320/A319 zrakoplovi

Q400 zrakoplovi Amount

Regarding the water consumption in Buzin, it amounted to 983 m³ in 2023, which is about 5% less than in 2022, and 7% more than in the baseline year of 2021. The water system was renewed in 2023, so more favourable indicators are expected. As there is no water recovery system, it is considered that all the water used was released to appropriate drainage systems according to earlier data on both key locations. The electricity used by Croatia Airlines is HEP ZelEn certified, which means that it is produced from renewable sources and has zero greenhouse emissions.

The average age of the vehicle fleet in late 2023 was about 9.5 years, which contributes to the decrease of consumption indicators. The fact that the vehicles of the Technical Sector are used for a specific purpose requires adherence to additional safety rules related to vehicle movement on airport surfaces.

Even though Croatia Airlines occasionally flew other carriers’ aircraft in 2023, indicators are drawn up only for its own fleet; however, those aircraft are included in the total CO2 performance shown in the tables. When observing CO2 emissions per revenue passenger kilometre (RPK) as an indicator of energy consumption and emissions, there is an evident decrease in the values compared to 2022, but they are still somewhat above the 2019 values, as a result of the further recovery of air traffic.

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 the IPCC 2006 Guidelines for National Greenhouse Gas Inventories.

The Company’s total emissions in 2023, in terms of energy products consumed, amounted to 179,638,039 kg CO2, i.e. about 13% more than in 2022, pointing to the air traffic recovery (also more favourable indicators compared to the baseline year of 2021). If aircraft were excluded, emissions in 2023 amounted to 132,775 kg CO2, 7.2% less than in 2022. The above tables show that aircraft emissions account for more than 99% of the Company’s total emissions.

As mentioned earlier, since the Company uses the HEP ZelEn certified electricity, there are no greenhouse gas emissions for this segment (Scope 2), which can be emphasised as an exceptional 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.

The application of the waste management system using a responsible approach ensures that none of the elements that might jeopardise the environment come into contact with it. Upon delivery of waste to an authorised collector and entering relevant data (for example for hazardous waste) into the Hazardous Waste Register, the so-called waste flow is monitored from its emergence to the final disposal by authorised companies. Croatia Airlines has in place a waste disposal system and pays equal attention to managing both hazardous and non-hazardous waste.

At the general organisational level, the Company has successfully engaged in rationalising the consumption of stationery and office supplies. Where applicable, the print default on single-model printers has been set on both pages. In addition, the employees have been familiarised with the need for conscious printing, by which the Company makes savings on both the input (paper, toner, electricity) and output (waste management and archiving as by-products) resources.

Along with municipal waste, separate waste collection can be carried out within the Technical Sector, the biggest waste producer, and appropriate disposal thereof eliminates the impact on the environment and ensures a sustainable development of the Company’s technical activities. In 2023, increased capacities for waste management were still in effect and precise waste separation was further enabled (part of the waste containers were renewed). According to the waste documentation, in 2023 the Technical Sector located in Zagreb produced 12,235 kg of hazardous waste as a result of complex works on the Company’s fleet and those performed on third party aircraft, and 12,697 kg of non-hazardous waste (including the non-hazardous waste from other locations, to encompass as much data as possible). The hazardous waste generated includes 6,930 kg of waste kerosene (which can vary significantly due to the specific nature of aircraft maintenance and has, therefore, been reported separately in the tables). With the aim of reducing the amount of waste kerosene, and taking into account the way in which it is disposed of (incineration), Croatia Airlines pleaded with its maintenance partners to make better plans with regard to the remaining fuel on aircraft brought in for maintenance. The collection of municipal waste in the administrative segments is carried out in accordance with the applicable regulations at state and local level, with separate waste collection depending on the capacity of the local community. In this segment, paper is the most significant type of waste: 4,620 kg of paper was collected in 2023 at the following locations: Zagreb Airport, Buzin, and Zrinjevac branch office. The Company supports all activities aimed at improving waste management and will do its best to increase the percentage of waste separation across all premises, in line with the capacities of the local community, and thus reduce the impact of its operations on the environment.

Spaljivanje opasnog otpada

Recikliranje (papir i čista plastika)