ICRAT ‘Air transport liberalization and its impact on the aviation and tourism industries: a case study on Cyprus’ By Sotiroula Liasidou - Lecturer at Americanos College Nicosia – Cyprus ICRAT 2004 ZILINA - SLOVAKIA

2ICRAT 2004 PRESENTATION’S STRUCTURE INTRODUCTIONAIMS AIRLINE LIBERALISATION AVIATION & TOURISM INDUSTRIES THE REPUBLIC OF CYPRUS REASERCH FINDINGS & DISCUSSION CONCLUSIONS

3ICRAT 2004 INTRODUCTION Regulation – an industry is ruled by the government. New terminology emerge declaring deregulation/liberalization Liberalization - ‘frees an industry from the state’s control over prices, entry and exit’ Liberalization - ‘frees an industry from the state’s control over prices, entry and exit’ Airline Liberalisation Freedom of entry/exit - Freedom on capacity –Freedom on fares - Freedom of operations - COMPETITION Transformation of the European Airline’s scene. Since the 1 st of May 2004 Cyprus is member of the EU. As a consequence, the aviation industry’s landscape has been harmonised under the EU provisions.

4ICRAT 2004 AIMS of the research Assessment of the possible changes and the impact on the Aviation industry As a consequence of this to reveal the impact on the Tourism Industry In this respect, the views of experts from the private and public sectors in the both aviation and tourism industries of Cyprus are studied through in-depth interviews and questionnaires.

5ICRAT 2004 European Airline Liberalisation ‘The Three Packages’ First Package or December 1987 Declared flexible terms concerning the fares Abandoned the single designation provision As well as had released any capacity restrictions As well as had released any capacity restrictions

6ICRAT 2004 Second Package (June 1990) Released even more the provisions of the first one Allowed multi-designation of airlines on specific routes As well as it allowed operations under the Third and Fourth Freedom of air into inter- continental flights As well as it allowed operations under the Third and Fourth Freedom of air into inter- continental flights

7ICRAT 2004 Third Package (January 1993) Came into effect in 1997 Was the basis for the creation of the ‘open skies’ agreement with full traffic rights everywhere in the community Was the basis for the creation of the ‘open skies’ agreement with full traffic rights everywhere in the community Freedom in entry and exit At any capacity At any route At any rate determined LIBERALISATION

8ICRAT 2004 AVIATION AND TOURISM: A RECIPROCAL RELATION Transitional process between the tourist generating area and the tourist destination country, This process is facilitated through a transportation system The aviation system is an essential part of the tourism industry, which connects even the most remote places on earth in a relatively short time, in comparison with other transport modes.

9ICRAT 2004 ‘The island of Cyprus is situated at the crossroads of three continents, Europe, Asia and Africa in the Mediterranean sea.’ ‘Its history and culture is a living proof of its age- long function as a bridge between civilizations of the Southeast Europe and Middle East’ (PIO,2000) THE REPUBLIC OF CYPRUS

10ICRAT 2004 TOURISM INDUSTRY The unique beauty of the island with a long lasting history in combination with the three main attraction ‘cores’ of sun-sea-sand, generated demand for tourism Approximately 2,6 millions tourists arrive on the island each year Undoubtedly, tourism development has been considered as the ‘magic wand’ for the economic development and viable progress of the country

11ICRAT 2004 AIRLINE INDUSTRY The airline industry of Cyprus has been based on the law, which was inherited by the British Colonial rules Declaring a regulatory status characterized by bilateral agreements between different countries Declaring a regulatory status characterized by bilateral agreements between different countries Regulation Cyprus Airways Flag Carrier (Monopoly - Bilateral Agreements – Protectionism in the markets of Greece and the UK) Flag Carrier (Monopoly - Bilateral Agreements – Protectionism in the markets of Greece and the UK) Plethora of Charter Airlines Vertically Integrated with major European Tour Operators – Seat Only purchase prohibited Helios Airways – 1 st private company - flights to restricted destinations

12ICRAT 2004 METHODOLOGY Methodological triangulation – combination qualitative & quantitative methods A non-probability sample and in particular a purposive sample is used, both in the interviews and the questionnaires Semi-structured interviews Respondents 22 people expertise in the field of tourism and the aviation industries Distribution of questionnaires at the end of each interview (7-point Likert scale format 1 very unlikely –7 very likely)

13ICRAT 2004 RESEARCH FINDINDS & DISCUSSION Impact on the Aviation industry Significant Impact (85%) New airlines will enter the market On charter flights. On seat availability - On fares On frequencies-On seat demand On outbound/inbound traffic On Cyprus Airways Increase interest on the two illiberal routes Larnaca-London Heathrow / Larnaca-Athens Spata Renovation of the two airports Larnaca and Paphos (BOT).Regional Hubs Insignificant Impact (15%) Saturation of the market Small Market Is adequately covered by the existing airlines

14ICRAT 2004 Competition ‘European private airlines will enter the Cypriot market as far as there will not be any governmental restriction and the skies of the country will be open to competition’ On fares – Lower fares On the capacity On slots allocation On in-flight services

15ICRAT 2004 New strategy for Cyprus Airways To enter a strategic alliance Exploitation of it’s present to Greece New strategy on the fares ‘Although for Helios Airways the opportunity is to reschedule its flights to destinations that are considered prosperous for the air traffic for example Larnaca-Athens route’

16ICRAT 2004 ‘A carrier can depart from Stockholm then to arrive in Athens and then to operate to Crete and to have as a final destination Cyprus.’ ‘A carrier can depart from Stockholm then to arrive in Athens and then to operate to Crete and to have as a final destination Cyprus.’ Operation of the 5 th Freedom right

17ICRAT 2004 Impact on the Tourism Industry Significant effect (85%) Accessibility of the market market More flexible airline services Increase of the incoming tourism Decrease of the tourism package price due to lower fares which accounts for 40%-50% in total Great effect on the SMEs, having as s result the vertical distribution of the revenue Insignificant effect (15%) Due to the existence of charter flights

18ICRAT 2004 ‘The impact will attributable to the decrease of air fares because of the competition among the different carriers.’ ‘ As a positive impact, is considered the increase of tourism arrivals which leads in an increase of the country’s revenues.’ ‘There will be a significant increase in the arrivals from Greece manly because Greek and Cypriot carriers will enter the routes of Larnaca-Athens having as a result the introduction of lower fares and an increase in the arrivals.’ ‘There will be a significant increase in the arrivals from Greece manly because Greek and Cypriot carriers will enter the routes of Larnaca-Athens having as a result the introduction of lower fares and an increase in the arrivals.’

19ICRAT 2004 Negative or positive impacts on the tourism industry Positive impacts (75%) Decrease of the tourism package Increase of tourism arrivals Increase of revenue Increase of independent travellers Developments of different forms of tourism Negative impacts (25%) Increase of mass tourism with socio-cultural problems Low spending tourism-Bag packers

20ICRAT 2004 CONCLUSION The findings of the study revealed that there would be a remarkable impact concerning the different aspects of the two industries. A liberalised environment will force in a sense the natural development and performance of the airlines and made them able to compete in every aspect of operation A liberalised environment will force in a sense the natural development and performance of the airlines and made them able to compete in every aspect of operation Flexibility in the airline industry leads to positive impact on the tourism industry since Cyprus is an island

21ICRAT 2004 CONCLUSION The importance of the airline industry on the island and the fact that is the most popular transport mode leads to the conclusion that a liberalised aviation industry will contribute even further on the development of tourism. Airline Liberalization should be the cornerstone and the motivation for the development of sustainable tourism.Therefore the benefits will be more.

22ICRAT 2004 Thank you for your attention! Any Questions?