Cyprus Airways is likely to see its fuel bill rise by a further CYP 5 mln this year following the 65% increase in crude oil prices since last year with more losses forecast for 2005 as the troubled national carrier prepares its “make or break” strategic plan.
Cyprus Airways (CAIR) Chairman Lazaros Savvides who took the helm of the group in March 2005 said foreign consultants are advising the airline on how to best meet the fuel hike challenge.
“It’s not a simple issue of increasing ticket prices to cover the added costs. Don’t forget that we are operating in a very competitive environment and every aspect needs to be carefully examined before we proceed with such an important decision,” said Savvides.
In remarks to the Annual General Meeting of shareholders on the strategic plan now being prepared by Deputy Chairman Frixos Savvides, the Chairman said the plan will be submitted to the European Commission towards the end of October/early November the latest, outlining in detail on how the airline will survive the current difficult situation and later on, how it will become profitable again.
“We intend to start a dialogue with the unions and get their agreement to the plan, before we submit it to the government and then the EC,” Savvides told the Financial Mirror adding that in the event that any of the five CAIR unions does not give its backing, the plan will be submitted.
CAIR needs the approval of the European Commission of its strategic plan before it can seek government-backed loans for another CYP 60 mln to continue its operations.
Last month, the EC approved a EUR 51 mln or CYP 30 mln bridge loan that was provided by Deutsche Bank AG to help ease the liquidity situation.
One third of the loan has already been spent, the second one-third will be spent by end of August while the third lot will be spent by the end of the year.
“It depends to a large degree on whether the Commission is convinced that that each department and service within the group functions in a viable way,” Savvides said. “It is for this reason the board is obliged to examine all the options that exist, and specifically the operation of two separate airlines and the possibility of out sourcing work to third parties that cannot be viably executed by the company.”
MORE LOSSES
CAIR lost CYP 39.4 mln in 2004 on top of CYP 20.9 mln in losses in 2003 and this year is on track to close the year again in the red. Faced with higher fuel costs, lower revenue as a result of reduced tickets and other expenses, the group decided to terminate the operations of its Greek subsidiary Hellas Jet as well as stop the operation of two aircraft, one of which was sold and the second has been rented to the group charter subsidiary, Eurocypria until the end of October.
Last year the group carried 2.275.000 passengers compared to 2.2 mln in 2003 on combined turnover of CYP 205 mln and total expenses of CYP 240.6 mln.
Following the air transport liberalisation since May 2004 when Cyprus became an EU member, CAIR has been forced to slash air fares to remain competitive but since its straddled with high costs, it needs to trim its expenses in order to survive.
Its first strategic plan, the group proceeded with 123 staff redundancies and the exit of 12 managerial positions, costing it CYP 3 mln for 2005. Together with route changes, fleet reduction, cost cutting and more out sourcing, the first plan aims to save the group some CYP 20 mln annually.
But the plan never really got off the ground as months of negotiations with unions and the Labour Ministry resulted in a watered down version that was not drastic enough to save the airline.
“The new plan is in essence “make or break” since if it does not succeed, then nobody knows what will be the fate of the group,” said Chairman Savvides.
