CROATIA's state-owned national passenger operator HZ Passenger has changed significantly since it was founded as the successor to Zagreb Railway Transport Company, a former subsidiary of Yugoslavia Railways, following Croatia's declaration of independence in 1991.

After the conclusion of the Balkans civil war in 1995, and Croatia's gradual development as an independent republic, its railway was separated into four entities in 2007. A further restructuring took place in 2012 when the assets of HZ Traction were divided between HZ Passenger and HZ Cargo, while HZ Holding was merged with HZ Infrastructure.

Throughout its existence HZ Passenger has remained the sole operator of passenger services in Croatia. However, this is set to change in 2019 when the market opens up to competition.

D-RatkovicAs a result CEO Mr Drazen Ratkovic (pictured) says the company is engaging in a comprehensive restructuring with the aim of increasing patronage by modernising its services.

HZ Passenger aims to increase ridership by 22% and revenues by 23% by 2016, while lowering state contributions to less than 45% of revenue. The company also plans to increase its financial productivity by 20% through cutting expenses, rationalising and introducing new rolling stock, and cutting 500 jobs.

"This process started in July 2012, and while we remain the sole provider of passenger services in Croatia up to 2019, we will use this period to adequately prepare HZ Passenger for competition," Ratkovic says.

HZ Passenger reported a loss of Kuna 312m ($US 54.9m) in 2013 following increases in maintenance and energy costs as well as severance payments. The company foresees a further loss of Kuna 17m this year. However, with its strategy gradually taking hold, it expects a positive result in 2015.

It currently operates 701 daily trains on a 2625km network and carried 24.7 million passengers in 2013. The operator also offers 20 daily cross-border trains, including 10 to Slovenia, and trains to Austria, Germany, Switzerland, Bosnia Herzegovina and Serbia. Additional services to Slovenia and direct trains from Split to Budapest, Prague and Moscow operate in the summer.

"Croatia is a tourism-oriented country," Ratkovic says. "More and more tourists are visiting Croatia by train every year and we operate six additional daily trains during the tourist season. In 2013 we carried just under 500,000 international passengers. But by upgrading our fleet and introducing an integrated ticketing and booking system, we are planning to increase the level of service and attract more passengers."

HZ Passenger took the first steps towards revitalising its ageing fleet when it announced a Kuna 1.63bn deal with domestic manufacturer Koncar in January. Koncar will deliver 32 160km/h EMUs and 12 120km/h DMUs between 2015 and 2017, with 16 EMUs for suburban operations in Zagreb, and the remaining 16 EMUs and the DMUs for regional services.

In addition a new integrated ticketing system is set for introduction in mid-2015 after a €5.8m investment.

"The current concept for issuing tickets does not comply with market trends and requirements. Hence it needs modernisation," Ratkovic says. "By introducing several modes of payment which make it possible for customers to buy tickets 24 hours a day we hope to increase revenues. We also plan to offer new tariff models, reduce the time it takes to issue a ticket, and implement an automated process."

New rolling stock and upgraded ticketing must be accompanied by high-quality infrastructure. Ratkovic admits that Croatia's network has suffered from insufficient investment in the past 20 years. The average speed of trains in 2013 was a painfully slow 45km/h with some journeys of around 250km taking up to four hours.

"Many passengers do not have that much time to spend on a journey and seek out faster modes of transport," Ratkovic says. "In order to achieve our objectives, journeys up to 50km should last 50 minutes, up to 100km 1h 30min, 200km 2h 30min, and 400km four hours. With HZ Infrastructure intensifying its focus on projects to improve railway infrastructure we hope this will soon be the case. The infrastructure manager invested e200m in 2013, and is investing a similar amount in 2014."

While rail is currently less competitive on Croatia's long-distance routes, it does present a significant advantage in urban areas, in particular in Zagreb and Split, where rail journeys from the suburbs take around 30 minutes compared with up to 1h 30min by road. Demand for suburban services is such that 170 regional trains are stopping at suburban stations to boost connections, and Ratkovic says HZ Passenger wants to expand this type of service to other cities soon.

Ratkovic says HZ Passenger is aiming to become an integral element of an integrated Croatian transport network as it looks to 2019 and beyond, which will help to enhance its revenue and leave the company in a strong position to compete.

"Improving links between regions in Croatia will contribute to higher mobility of all Croatians as well as tourists and will result in increases in gross domestic product and a better quality of life for all citizens," Ratkovic says.