Cyprus airports most expensive in Med

Cyprus risks seeing its airports at Larnaca and Paphos becoming 100% more expensive than other Mediterranean leisure-based airports if the price increases planned by Hermes Airports go through, according to the International Air Carrier Association (IACA).

 “Cyprus is in danger of pricing itself out of the market and inflicting long-term damage to the country’s tourism industry,” the IACA said. It said it had called on Hermes and the government to reconsider the charges before they come into effect on April 1, saying that a transparent system with justifiable levels of charges was in the best interests of airports, airlines and tourism to Cyprus.
“Airport charges must reflect the quality and level of services provided at airports,” IACA said. “These charges and fees fly in the face of the standards set by the aviation industry on charges and raise some serious questions about the transparency of the government,” added Sylviane Lust, IACA Director General.

 

Hermes responds

During a joint committee session at the House, the Minister of Communications Haris Thrasou said the charges are planned to increase by CYP 7.69 from April until November 2007 adding that there is no need for such a big fuss because CYP 2.50 of that will end up in government pockets.

Thrasou clarified that after the June 2007 charges kick in, further price increases will need to be in line with the rate of inflation. Hermes Airports Chairman Nicos Shacolas who was present at the House committee meetings clarified that price increases were unavoidable.

“The project belongs to the state and we as business people are here to do our job,” said Shacolas stressing that the first who have a keen interest to help improve the prospects of Cyprus tourism is the Hermes Airports Group. “The deal was concluded after serious study from experts from Europe.”

Shacolas also added that because the price increases were not implemented from May 2006 when the agreement was signed, the Hermes Airports Group has incurred a loss of EUR 8.5 mln in revenue, of which EUR 4.2 mln would have been shifted to the state.

Shacolas also brushed aside fears that Cyprus would become the most expensive leisure-airport in the Mediterranean such as Greece, Turkey and Malta.

The new price increases are CYP 4.65 from April 1, CYP 1.12 from June 1 and CYP 1.92 from November 1, 2007, for a total price increase of CYP 7.69 per passenger. The figures are hotly challenged by IACA, which says the price charges at the airports will increase CYP 8.10 or EUR 14 per head until the end of the year.

The IACA said that while it fully supported initiatives to develop airport infrastructure, it was clear that airlines could not be used to pre-finance such projects nor support the unprecedented 33% concession fee that will go directly to the Cypriot government. “IACA and its members would like to know how the government is intending to use the money gained from the concession fee, but so far our requests for an explanation have been ignored,” said Lust.
Last June a new CYP10 “travel service fee” was introduced, which together with all the new charges means in some cases that airport taxes and other charges exceed the air fares advertised to the public, which has raised a barrage of protest from the Cyprus Consumer Association.

According to IACA, representing the interests of 39 charter airlines, the planned price increases will lift the cost per passenger from EUR 20.92 levied now to EUR 34.94 until the end of the year. The comparative rates in other Mediterranean destinations including Spain, Turkey and Greece are substantially lower averaging between EUR 21.00 to EUR 22.3 per passenger.

 

Clashing with all

The government and opposition DISY party meanwhile are also heading for a new clash, this time on the imminent charges that Hermes Airports plans to implement from April 2007 with DISY claiming that the Communications Minister has agreed to the massive hikes that many say will destabilise the country’s fragile tourism industry.

The row concerns plans by Hermes to impose a CYP 6 airport passenger tax on all air travellers from April 1, 2007, which industry sources claim will amount to a 47% increase in rates. The same sources say this is the first of a three-stage increase that will see airport charges in Cyprus rise 70% by November this year. After April 1, the next levy will be introduced in July, and the third in November.
Travel agents say they have also been stung by the new Air Passenger Duty (APD) being imposed by private airport operator Hermes.
They say they were not informed of the actual charges in time for their systems to impose the levy for many passengers travelling after April 1.

Thassos Katsourides, general manager of the Association of Cyprus Travel Agents (ACTA), said the calculation of the charges had only been given to them during the week, and was not entered into their systems until Wednesday or Thursday.
He said this meant anyone travelling after April 1, but who had booked and already paid for their tickets would not be subject to the new charge.
But anyone picking up their tickets this week would have the new charge added when they pay. “There may be some disputes when people go to collect their tickets and they will have to pay a new amount,” he said. He said the extra amount could range from CYP6 to CYP6.50 per ticket, and in some cases the travel agents would have to bear the burden.
“There will be another increase on July 1 and again on November 1,” he added. “The public needs to be notified of these increases.”

Both hoteliers organisations STEK and PASYXE issued a statement saying the move would seriously affect the competitiveness of the Cyprus tourism product. They described it as a calamity and said no increases should be imposed until the new airport is built and operational in 2009, and when services would be improved.
CTO chairman Panos Engelzos called it a “bomb” to the tourist industry and Consumers’ Association president Petros Markou complained that the public had not been warned in advance.
DISY’s Lefteris Christoforou and AKEL’s Yiannos Lamaris both commented on the issue.
Christoforou said the consequences on the tourism industry and the consumer would be “incalculable”. He said the government had signed a one-sided agreement “at the expense of the public and a strategic sector of the economy”.
Lamaris however blamed DISY because the party had got the ball rolling on handing over the operation of the airport to a private investor under the Clerides government. “DISY sewed the suit and now we are called to pay,” he said.
However the deal with Hermes was not signed until 2006, three years after the current government came to power.
Communications and Works Minister Harris Thrassou rubbished all parties’ complaints, saying Hermes had announced that there would be increases last June, not only due to the operation of the new airports but also the existing ones.
He said the government could not intervene and was obliged to respect the agreements and there was no way to persuade Hermes to reduce the charges.

 

J&P vindicated
Ironically it was the losing bidder from the original three short-listed from the 600-million euro Build-Operate-Transfer (BOT) that first forecast unprecedented increases in airport charges three years ago, the Cyprus Mail reported.
In 2004 when the government was negotiating with first-choice Alterra, Cypriot construction firm Joannou & Paraskevaides (J&P), which had a 60% stake in the Cyprus Airports Group (CAG) consortium that came third in the bidding, said the government was so blinded by the high returns on offer that it failed adequately to assess the tenders.
Alterra’s bid included an offer to return to the Cyprus government 48.96% annual gross turnover in royalties under contract, compared to 33% plus an additional 3.5 million euros every year offered by Hermes, and only 20.21% promised by the CAG,
The J&P/CAG bid came first in the technical competition – Alterra came third in that area – but this accounted for only 30% of the tenders’ evaluation while the revenue return offer comprised 65% of the total marks, with another five per cent given to other considerations.
Because of its low 20.21% offer to the government, coupled with a clause in the tenders’ criteria, the J&P-led consortium was specifically excluded from opening any negotiations with the government in the event that talks with the other two bidders fell through.
When negotiations with Alterra did fall through in mid-2004, the government turned to Hermes.
But J&P had questioned whether the airports could be viable with royalties as high as 49 or 33% unless the state had been willing to give its consent to huge increases in levies on passengers and services, with the inevitable impact on tourism, the national carrier and the economy.
The government dismissed claims by J&P that the terms of an agreement the state was negotiating would make them among the five most expensive in Europe.
J&P said that for Hermes to achieve its promise of returning 33% to the government it would be necessary to increase airport charges and levies by 50%, which would seriously affect the competitiveness of the tourist industry.
Among the levies affected would be passenger taxes, fuel taxes for airlines, including the already cash-strapped Cyprus Airways, catering, handling fees, fire services, and rents, which could even double, CAG said.