Eurocypria The Chartered Airline of Cyprus Challenges Eleftherios Ioannou Executive Chairman

Global Tourism has shown robust growth over time, despite a number of negative external shocks Challenges International Tourist Arrivals (millions), Sep 11 SARS, 2 nd Gulf War Financial crisis Source: World Tourism Organisation &

Europe is the largest tourism region in the world with 53% of total arrivals in 2008, but it is growing more slowly than other regions European Tourist Arrivals (millions), Source: World Tourism Organisation &

International Tourist Arrivals to Europe by Sub-regions, (millions), 1990 – 2008 Within Europe, the Southern/Mediterranean region attracts the most tourist arrivals, and also, along with CE Europe, shows the fastest growth Source: World Tourism Organisation &

Total: 103 million Total: 141 million Total: 150 million Source: UNWTO & Croatia and Turkey have grown share Traditionally, the Western Mediterranean has been the main destination of European leisure travel; there are however some signs that other countries are increasing their share

Markets, particularly in Eastern Europe, show significant growth potential The Propensity to Fly, calculated as the number of air passengers per member of population, provides a rough indication of the level of maturity The mature economies of Western Europe tend to have relatively high propensities to fly, although this number does also include inbound travel and may be artificially high for countries with small populations or a significant tourism market Newer EU member states and other countries in Eastern Europe exhibit much lower propensities to fly, suggesting that a period of catch-up is ahead. This will be driven by rising incomes; the link between income and air travel is well documented. Source: ACI, UN Population data, SH&E analysis

The segment mix of leisure travel in Europe is also changing, with independent holidays increasing in popularity Source: International Passenger Survey/Mintel & Example: UK Overseas Holidays Other trends within this picture include growing numbers of activity holidays, skiing, long-haul packages, which are not detailed in the International Passenger Survey

The growth in individual (seat only) travel has had a significant impact on the traditional charter market Source: DGAC Spain & Passengers at Spanish airports ( ) In Spain the charter market peaked in 1994 and has declined by 25% in 12 years In the same period the total market has trebled, with scheduled carriers growing four fold. Much of the scheduled growth since 2002 has been with Low Cost Carriers

There are four main airline types competing for European leisure travellers The boundaries between the models are however increasingly blurred, as traditional charter airlines offer scheduled ‘low-cost’ services (e.g. Monarch), low cost carriers such as Air Berlin also operate in the charter and long-haul markets, and integrated tour operators move into flight-only sales on their charter flights Scheduled network carriers Integrated tour operators Independent charter carriers Low cost carriers Source:

Low Cost carriers have been the most significant development in the competitive environment, increasing capacity, stimulating leisure demand, and driving down prices European LCC Routes, August 2008 European LCC Routes, August Routes 750,000 Weekly Departing seats 2,542 Routes 5,412,000 Weekly Departing seats Source: OAG Schedules, SH&E Analysis

In Eastern/Southern Europe, LCCs are less well established, but competition is increasing These carriers typically serve significant migrant worker and VFR segments, particularly between the home market and the UK. Country of origin LCCsFleet size PolandCentral Wings11 Czech Republic Smart Wings2 SlovakiaSkyEurope15 AustriaInterSky4 HungaryWizzAir16 RomaniaBlue Air6 BulgariaWizzAir Bulgaria1 LCC Operators and Fleet size, August 2008 Bankrupt Closed down Source:

In Cyprus, non-scheduled services still account for 46% of passengers; this is an increase on last year, when the proportion was 42% Passengers at Cyprus airports, 2007 Paphos is the smaller of Cyprus’s two commercial airports and in 2007 served around 1.7 million terminal passengers, of whom around 75% were travelling on non-scheduled services Larnaca is Cyprus’s main airport, with around 5.3 million terminal passengers in Of these, around 35% were carried on non- scheduled services. Source:

The increasing competition on short-haul routes is pushing low cost carriers towards the longer sectors most often served by charter carriers Saturated, competitive markets Increasing network development on longer sectors e.g. UK to Canaries, Bulgaria, Madeira, Cyprus, Finland, Greece easyJet’s average length of haul surpassed 1000km in 2006 Average length of haul, easyJet, Chart below shows Ryanair and easyJet’s capacity by sector length, illustrating a inclusion of longer sector lengths in addition to established short-haul routes Saturated, competitive markets Orange line shows easyJet Blue line is Ryanair Source:

UK - Cyprus passengers ( ) Scheduled Airlines have been hit harder than Chartered Airlines from LCC activities Source:

While Cyprus is currently beyond the reach of most Western European LCCs, some from the UK and from Eastern Europe have already started service Blue Air flies twice a week between Bucharest and Larnaca Flyglobespan operates scheduled services once a week between Aberdeen and Paphos, once a week between Edinburgh and Paphos, and twice a week between Glasgow and Paphos easyJet, having taken over GB airways and its existing routes, operates twice a day between London Gatwick and Paphos, and once a day between Manchester and Paphos Jet2.com flies twice a week between Leeds Bradford and Paphos Before their demise, SkyEurope used to fly five times a week between Vienna and Larnaca Overview of LCC services to Cyprus 1000km 3000km 2000km4000km Recently easyJet and Jet2 have announced scheduled services from the UK Source:

Eurocypria with 6 aircraft flies to 74 destinations and carries passengers covering Flight Hours

In this very competitive air transport world, the challenge for Eurocypria is to: Keep costs low, as low as LCC Find partners, niche routes, products and services that will add value to tourists to Cyprus. Challenge