The Cypriot government owns 100% of Eurocypria and 70% of Cyprus Airways and has decided to merge the two airlines four years after the carrier split and went their own ways. Eurocypria was established as a charter division of Cyprus Airways.
WHY ARE THE CARRIERS SET TO MERGE
The merger is still subject to approval by the European commission. With tough economic conditions and the Cypriot market being relatively small,(according to IATA BSP data, just over 6 million passengers flew to and from Cyprus from June 2009 till June 2010), it is clear that a combined carrier will be more effective and better placed to compete with the growing influx of low-cost traffic and charters into Cyprus.
DESTINATION COMPETITION
A rationalisation of capacity of its two flag carriers is necessary, particularly as Eurocypria still largely operates a charter operation. With destinations such as Greece and Turkey offering a cheaper product than Cyprus, which is largely considered a higher end product, consumers, now more conscious of their disposable income, have been attracted to other cheaper markets rather than Cyprus.
LOW-COST PRESSURES
With a growing low-cost focus on Cyprus, and a perception that Cyprus Airways and Eurocypria are weak airlines with a high cost base, the merger will come at an important time.
The UK market is of key importance to Cyprus Airways with 15% of its total scheduled weekly network from Cyprus to the UK, with 18 weekly flights to London Heathrow, five-weekly to Manchester and a twice-weekly service to Birmingham. Low-cost airline easyJet has put significant pressure on the two carriers with its services from the UK.
easyJet is now the third largest scheduled carrier in terms of O+D passengers in Cyprus,with a 7% of all traffic. It operates a daily service from London Gatwick to Larnaca, whilst also serving Paphos from Bristol (four-times weekly), London Gatwick (14 times weekly), London Luton (three-times weekly) and Manchester (six-times weekly). These routes have targeted the UK to Cyprus market, which is of particular importance to Eurocypria, and encouraged passengers to organise their own holidays to Cyprus rather than through the traditional package holiday for which Eurocypria provided the lift.
The merger will no doubt have been hurried along by the recent news that Ryanair has announced its first scheduled services to Cyprus with a Larnaca to Brussels Charleroi link. With the Cyprus Tourism Organisation offering heavy marketing incentives to new carriers to encourage passengers throughput, the presence of Ryanair, whose first route competes with Cyprus Airways twice weekly A319 service to Brussels (BRU) will be of major concern to the Cypriot carriers. It is unlikely that Ryanair will not be looking to expand quickly into Cyprus linking with other bases.
With the Cyprus Tourism Organisation keen to encourage more airlift and having done a deal with Ryanair, there is no doubt that the low-cost sector in Cyprus is set to grow,even following the news that Romanian Blue Air is to discontinue its Larnaca base, where it has stationed a single B737-800.
The question for Cyprus Airways and Eurocypria is can they rationalise quickly enough to cope with this threat.
The Cypriot government it would seem is employing a dual strategy of incentivising new carriers to Cyprus, whilst recognising the need to have its national carrier in as best shape as possible to compete.
Watch out for an interesting battle ground, and as a response to a growing market it will be interesting to see if the product changes in Cyprus to match the LCC demand, with less packaged accommodation and more sub 4 to 5 star accommodations.
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