TRAVEL WEEKLY BUSINESS
Beleaguered carrier ceases flying after EC rules state aid was illegal. IAN TAYLOR reports CYPRUS AIRWAYS FORCED INTO ADMINISTRATION
Cyprus Airways ceased operations on Friday after the European Commission ordered the carrier to repay more than €100 million in state aid. The airline does not have the money and will be placed in the hands of an administrator. The Cyprus government said it would pay for
replacement flights for passengers. In a statement it said: “The Republic [of Cyprus] will fully undertake the cost of the alternative flights.” The government also announced plans to establish
a new carrier under the same name in partnership with private investors. Communications and works minister Marios Demetriades told the Cyprus Mail: “We want to initiate the procedure to create a new company in cooperation with the private sector. “We have already acquired the company logo and
brand name and we instructed the commissioner for privatisations to appoint an adviser.” The government retained a 94% stake in Cyprus
Airways. Demetriades said the new airline would be “a strictly private company”, adding that the government aims to have the new airline operating as soon as possible. The Cyprus Mail reported that initial interest from
investors did not extend beyond the carrier’s assets. However, Ryanair was among up to 20 companies to register interest in a takeover of Cyprus Airways when the government sought bids last summer. The Irish carrier offered one-way “rescue fares” to
stranded passengers last Friday from €49.99. The EC ruled a government restructuring package of €102 million had breached EU competition
The Cypriot government
subsidised Cyprus Airways in 2007 and again in 2013
l The battle to save Cyprus Airways goes back beyond the 2007-08 financial crisis.
l The EC authorised a €95m aid package in September 2007.
l In December 2012, Cyprus notified the EC of its wish to hand €73m in aid to the airline.
l It paid out €34.5m without EC agreement and injected a further €31m in capital.
“The airline was unable to become viable without continued state aid”
rules. It said: “Cyprus Airways needs to pay back all incompatible aid.”
EU competition commissioner Margrethe Vestager
said: “Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support.” Cyprus Airways’ unions accused the government
of failing to explain to the EC the “exceptional circumstances” that prompted it to give aid. Pilots’ union leader Petros Souppouris said: “The
government should do its utmost to keep the company operational or launch a fresh start with an investor.” The carrier had a fleet of six aircraft and employed
560 staff. CITY INSIDER: DAVID STEVENSON CONSIDERS THE IMPACT OF A FALLING OIL PRICE
The oil price pushed below $50 a barrel last week and this dramatic decline is having a knock-on effect throughout the commodity markets.
The consensus in the City is that it will bottom out soon. I don’t believe it – my guess is oil prices could bottom out around $20 a barrel. Paul Jackson, a respected City commentator who works for Source ETFs, looked at the historical record and discovered that recent price declines only brought oil back to the top-end of a range in which real prices have been for 80% of
the time since 1870. According to Jackson, “measured in today’s prices, the post-1870 average is $43, with a median of $36”. After every spike, the real price came back not to the average or the median but to the lower end of the range.
Crucially, Jackson
observes that big swings in price usually come from some “combination of demand/supply shocks and attempts
to control the market. Even when powerful institutions try to intervene, the oil price eventually gravitates back towards the long-run norm.” An important cautionary
note is that oil prices could snap back quickly, especially as production costs have been steadily increasing. It also doesn’t take much in terms of supply constraints to change the direction of the market. Jackson
observes that a cut of four million barrels a day in 1973 (7% of free world production) led prices to quadruple. The most direct beneficiaries, of course, will be the airlines and cruise giants. A 50% decline from an original oil price estimate for 2015 of $105 a barrel will push up margins by as much as 10 points. The key question then is airline capacity. My guess is we’ll see a steady but noticeable increase in capacity in Europe. That could prompt Ryanair to
start a price war, pushing some of its competitors over the abyss.
15 January 2015 —
travelweekly.co.uk • 103
l In 2013 the EC began an investigation.
l In October 2013, Cyprus notified the EC of a €102.9m aid package to restructure the carrier, which included the capital injection.
l The EC moved to a formal investigation last February.
l EC rules allow state payments to restructure a company once in 10 years. The payments also breached other rules, including the duration of restructuring and level of contribution required by the company.
TURBULENT TIMES: CYPRUS AIRWAYS’ FINANCIAL TRAVAILS
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112