Cyprus Airways

BIG IN CYPRUS
Talk to almost any one of Cyprus Airways 1,300 employees and their pride in the airlines independence is evident. Our company does follow government guidelines into some extent or need its hand-outs just like, whisper it softly, big domestic rival that has already gone bust Eurocypria. In a quirk of fate, however, it is the state that has given Cyprus Airways (CY) the opportunity to surpass also Aegean (A3) and Olympic and become Cypruss and possibly even Greece number-one carrier on the route LCAATHLCA. Eurocypria, teetering on the verge of bankruptcy again in 2010, went begging to the government. It received a bailout, but only after an outcry that turned public opinion to the point where the government forced Eurocypria to shrink its network and cut its fleet to lower costs and attempt to return to profitability without any success at the end. That has allowed CY, an early joint venture with Virgin Atlantic to catch up and continue to be profitable and grow with government help.CY, observers, finally has a realistic chance to hit that number-one spot. Im not sure if A3 is a great competitor to compare ourselves against any more, even if has been on an agreement in codeshare with US Airways. After the troubles, CYs network is almost as big as before by gaining a huge chunk from Russian market. But I must stress this size alone does not do any good. You really have to be an organisation that can make profit. If you are big and you cant make profit, it does not make any sense. We are already one of the big Airways in Middle East compared to our population as country. The support from the government should be given as in the past in a fair, equitable manner to maintain the network that the Cypriot people need. CY will just continue to do it all on its own to be successful. Talking about the past doesnt really help us. Ever since A3 was established, from its initial start, it has been a private-sector company. That is very unlike us. That is a very big difference between us and that difference is a source of pride. On that, we are very proud of ourselves. CYs aim, is to be profitable and return value to shareholders and at the same time to offer an excellent service to its customers. That will the a major challenge.

CYPRUS MARKET
After a promising year 2010, with the global economic crisis resulting in the airline making a loss in 2009, there are plenty of headwinds once again to keep its management team busy. Cyprus is only just recovering from the devastating explosion at Mari that hit the country in July. Outbound travel is strong in August which is the highest season and for most of its markets in tourist arrivals. A rise in fuel prices resulted in a fiscal first-quarter loss. Uncertainty in Europe and the Middle East continues to affect demand from two regions that account for a considerable percentage of CY s traffic.

These variables could derail CYs plans. They do not, however, deter CY from its strategies to create new revenue streams and restructure its operations. The airline, CY, cannot wait for a positive environment. The airline will maintain focus on the value for money to use as the basis of its growth in the international market. The liberalisation of Cypruss airline market will add new destinations in Europe, where the CYs acquisition Airbus A321s can be best utilised. Further liberalization will also enable low-cost carriers to serve a new market segment. CY appears to have a lot on its plate, but there is no choice. However, the environment is not making it see easy. A3 is starting to recover and the increased operations at Larnaca (LCA) to Paris (CDG) and London (LHR) means there is more competition. But we must have better service than our competitors so that passengers will choose to fly with us. We must enhance our brand. Aviation fuel taxes, and high airport, navigational and landing charges have all been obstacles for many years and CY has not enjoyed subsidies in these areas. In fiscal 2009, we made a huge loss. If there was no such increased costs, we wouldnt have been in red ink that year. Political instability continues in the Middle East especially in Syria and Egypt, with both ruling party and opposition unable to get the country out of an ongoing economic malaise. The government should understand the benefits of aviation and its contribution to economic growth and so taxes should be reduced. Therefore there is an environment now emerging to allow the ministry to reduce tax on CY.

LAUNCHING THE A321

One frustration that cannot be attributed to the government is related to the removal of A330, and the replacement with A321s. CY knew Airbus was aiming to unveil a product that would transform the way aircraft are designed and manufactured, and was prepared for some hiccups along the way. CY had to replace A330s to cut back on some forecasted network growth while waiting for A321s to sort out the troubles. It is now scheduled to receive its first A321 in mid 2012, after the aircraft completes service-readiness operational validation tests in Cyprus in January. There was a great deal of frustration as our fleet plan has been forced to change for three years. But there would have been a bigger impact if we did not do anything at all we modified our fleet plan and did not let the delay distort our business. As we say, a more difficult delivery can only make the baby more precious and adorable. We are now going to get the A321 and have more expectation than anything else, we can now do whatever we wanted to do three years ago.

AIRCRAFT SELECTION
Airbus has supplied 100% of the aircraft in CYs fleet, but it should not naturally expect to remain at the forefront in the future. The selection of an aircraft is a very important decision. It depends on the market that we are going to serve and the environment that we are in at the time of the acquisition and of the future. We look at the aircraft very seriously in terms of technology, profitability and everything else. It is not about Airbus or Boeing. We make decisions on the basis of the type of aircraft that we need at the time of purchase and the future and not the supplier. 2

Shortly, CY will start replacement of A330 the backbone of its long-range fleet. CY also aims to grow its international network and make it more profitable. While it will continue operating now only with narrowbodies, we have high expectations for the A321. We looked at similar-sized aircraft made by some other companies, verified the comparison, and decided on A321 in terms of range and performance. The international network will grow in partnership with some other carriers. These would enable the airline to save operational and marketing costs, and benefit from the economies of scale. Although we saw a bit decline in demand post-explosion, the Russian flights are doing rather well and this is probably due to the impact of the good relationships between our government and the Russian.

LOW-COST LAUNCH
Moving away from its comfort zone, CY announced possible formation of a low cost division that will begin low-cost flights out of Larnaca airport next year to serve the Greek market and retain and gain the most of the market share. The Cyprus government is promoting more LCC model to Cyprus, and the environment is getting better. Larnaca airport is building budget terminals, and there are more and more LCCs from other countries flying into Cyprus such as Ryanair, Easyjet, Wizz Air and Blue Air. A Cyprus-based LCC should be able to compete with other LCCs. There is huge demand from travellers who use those services. The biggest obstacle remains Cypruss high cost-structure and Cyprus Airways structure, which a low-cost carrier must overcome and accommodate it if it wants to compete more effectively. According to Mike Halper (Consultant)-hired by CY for building the LCC model - there is enough demand to overcome the barrier, pointing out that Athens itself has a population base of about more than 6 million. CY will retain its focus on the value for money market. It will use the A321 for point-to-point connections on existing routes too, and also leverage on the joint ventures to grow its American network. The focus, increasingly, will also be on East Europe. Here, the joint ventures also come into play. North American and Russian customers can connect to our Middle East destinations such as Tel Aviv which will be the focus of our hub-andspoke network. Larnaca will be used for the time-restricted long-haul slots that are not available from Paphos. CY is also focusing on the softer side of the industry improving service all round, marketing the brand more aggressively in Cyprus and regionally, and making the airline a household name again. The airline, should not only have efficient operations but be able to notch up top marks in customer satisfaction. We would like to make sure our 1,300 employees firmly share these values. Yes, there are obstacles and the environment is quite tough. But once we get over these, we will continue to grow and become the number one airline in Middle East and Greek market.