CYPRUS AIRWAYS losses’ for the first six months of this year reached €25.5 million, sparking new public debate about the future of the airline in these difficult times. The government line, also supported by the political parties, was that the merger with Eurocypria should proceed because this was the only way for survival. However, supporters of this course of action were in no position to say whether the merger would make the resulting company viable.
DISY deputy chief Averof Neophytou, meanwhile, repeated his call for the sale of the airline to private investors, because they would be better able to manage it than the state. He is correct in principle, but are there any investors willing to buy a debt-ridden, loss-making airline with high labour costs and militant unions in these very difficult economic times? It is doubtful, even if the government were willing to give away the company for a nominal amount.
Unfortunately, there are not many options for the airline, other than another round of drastic cuts. Even one of the union representatives speaking on a radio show on Wednesday morning recognised this, saying that after the merger with Eurocypria a voluntary redundancy would have to be introduced to reduce staff numbers. When a union official at a state-owned company starts talking about the need for redundancies, things really must be desperate.
But would redundancies by themselves see the airline out of the woods or would there have to be another round of pay cuts as well? Would staff even discuss such a possibility, considering they are the only workers at a state-owned company who already had their wages cut back in 2005? (There is still a court case pending, with all CY pilots claiming all the money that was docked from their wages since then, because they never agreed to the cuts). But it is difficult to think of another way of keeping the airline afloat especially as more budget airlines will be flying to Cyprus increasing competition in a sector that has already been hard hit by the recession.
Union officials have claimed that the government was offering incentives to the budget airlines to include Cyprus in their destinations and that this constituted unfair competition. A representative of Hermes Airports said there was no secret deal and the incentives were also on offer to Cyprus Airways but had not been taken up. The truth is that the tourism industry needs budget airlines to come to Cyprus, because for too long the island has been an expensive destination. As long as food and drink was cheap, tourists were willing to pay the high air-fares, but once we lost that advantage Cyprus became an expensive destination in all respects.
If the government had not tried to attract budget airlines, Cyprus Airways may have been in a slightly better position financially, but at the expense of the tourist industry. Is it an option to speed up the decline of the tourism industry in order to help the survival of the national carrier, paid for by ordinary people in the form of high air fares? For decades Cypriots were paying extremely high air fares because of the state protection afforded to the airline (the London-Larnaca route duopoly with British Airways is a case in point), but nobody ever gave a second thought to the interests of the consumer.
Now that people are benefiting from cheaper air fares, the future of the national airline is at stake and there is precious little that the government can do. Will it guarantee new loans in order to cover this year’s big losses? And will the European Commission give its approval to such a move considering the shenanigans with Eurocypria a few years ago, when the government bought it from Cyprus Airways at an extortionate price, in what was a subsidy to the latter. Earlier this year, the government had to inject €35 million into the charter airline so it could pay its debts while now it will again merge it with its former owner.
How the European Commission will react to all this remains to be seen. Will it impose a hefty fine on the government and block the merger? But even if the government convinced the Commission that the merger was a necessity, it will have an almost impossible task – making the new company viable after decades of political interference and mismanagement. For how much longer will the taxpayer be obliged to foot the bill so that Cyprus can have a state-owned airline that is always on the brink?
