By Hamza Hendawi
ITS WINGS clipped by spiralling costs and intransigent unions, Cyprus Airways now says it is looking for a future in the black through partnership with foreign carriers.
The loss-making company yesterday revealed that it had started contacts with European carriers, which it did not name. The airline is seeking to join one of the emerging global airline alliances in the hope of returning to profitability by becoming more competitive and gaining wider access to markets.
Addressing a news conference, chairman Takis Kyriakides said the carrier was expected to return a profit for the whole of 1998, ending two years of losses which opened Cyprus Airways to scathing criticism and brought its management under public scrutiny.
He said the company, in line with suggestions made by a strategic plan touted as something of a certain route to commercial success, was also prepared to sell up to 17 per cent of the airline to a foreign carrier.
The hoped-for buyer would be a member of any of the alliances that 51-year- old Cyprus Airways eventually chooses to join.
The government owns 80 per cent of Cyprus Airways, while the remainder is traded on the Cyprus Stock Exchange. Under bourse regulations, the government must reduce its stake in the company to 70 per cent by March. The strategic plan, compiled last year by foreign consultants, however envisages a government ownership of no more than 51 per cent.
The desire to offer a slice of the company to a “strategic investor” has been floated for over a year now, but no foreign airline is publicly known to have come forward as a serious buyer.
But yesterday’s disclosure that Cyprus Airways hoped to join one of the world aviation alliances and sell a slice of its share capital to a fellow alliance member constitutes a new development in the company’s efforts to become an investor’s dream.
Cyprus Airways already has co-operation agreements with Russia’s Aeroflot, KLM of the Netherlands and Alitalia, but seeking to join a global alliance goes much further.
The company, which employs nearly 2,000, would be buying into the belief of major airlines that corporate travellers are increasingly demanding to buy tickets to any destination from a single source.
Carriers seeking to meet this rising demand by combining route networks are often unable to merge because of regulatory restrictions on foreign ownership in force in most countries.
In one of the major emerging airline pacts, Hong Kong-based Cathay Pacific earlier this month joined British Airways and American Airlines in a worldwide alliance that has yet to receive regulatory approval.
It is expected to also include Japan Airlines, Qantas of Australia and Iberia, the Spanish carrier, and will be up against competition from the six-airline Star Alliance headed by United Airlines of the United States and Lufthansa of Germany.
Other alliances which have taken shape recently are between KLM and Northwest Airlines of the United States and between Swissair and Delta, also of the United States.
“We are talking to several companies and want to hope that we will have a clearer picture of the situation in the next few months,” Kyriakides, the Cyprus Airways chairman, said yesterday.
“We would have a global network and offer clients a broader range of scheduled flights. It would also upgrade the services on offer and help reduce the cost of fares,” a senior Cyprus Airways source was quoted as saying yesterday.
Management-union relations in Cyprus Airways are often sour and fraught with distrust.
Reports of ill-advised management decisions further taxing the company’s finances often make headlines in the local media, with extreme examples becoming almost synonymous with bad management.
The strategic plan recommends the free allocation to staff of six per cent of shares and the offer of a further six per cent at discount rates in return for agreement to wage cuts of up to 10 per cent and a three-year pay freeze. The unions have rejected the offer.
In yesterday’s news conference, the carrier announced pre-tax losses of £3.4 million for the first six months of 1998, down from the 9.6 million of the corresponding period last year.
Kyriakides blamed the results in part on higher labour costs from previous commitments to staff under collective working agreements, but added that some operational costs had been cut through the reduction of overseas staff and the cancellation of unprofitable routes.
He said the company was examining with Olympic Airways a reduction in fares on the busy route to Athens and that, generally, Cyprus Airways would not hesitate to “reduce fares where necessary.”
He also reported a 12.2 per cent increase in passenger load by Cyprus Airways and its sister charter company EuroCypria in the first six months of 1998 compared to the corresponding period last year.
