Aegean set to redefine regional role

 - September 27, 2007, 7:38 AM

Aegean Airlines, host carrier at this month’s European Regions Airline Association (ERA) general assembly in Athens, has an eye on opportunities in Eastern European and Middle East markets, according to Aegean COO Antonis Simigdalas, who is also president of ERA. He told AIN that the airline is “geared for such developments, through its fleet plans, traffic-rights applications and economic stability and planning.”

Accordingly, and in line with its strategy of “selective and focused international expansion on high-traffic routes in Europe and growing regional markets,” Aegean last month exercised options on replacement Airbus A320s and continued acquisition talks with Romanian low-cost carrier Blue Air. Aegean, which describes itself as “the most dynamically developing” Greek airline after its merger with Cronus Airlines and acquisition of Crete-based Air Greece, has grown also through partnerships with German flag carrier Lufthansa, Portuguese flag carrier TAP Air Portugal and Italy’s Air One and Alpi Eagles.

Athens-based Aegean began service in May 1999 with two British Aerospace Avro RJ100s operating 22 daily flights to five domestic destinations. By the end of that year it had acquired Air Greece and that carrier’s two Fokker 100s and three ATR 72s and, with two additional RJ100s, was flying 75 times a day to 10 domestic points.
Two more RJ100s arrived in 2000 as five more routes joined the network.

In 2000 Aegean and Cronus Airlines, a fellow private Greek operator flying Boeing 737s, agreed on a code share-based strategic alliance. Aegean controlled more than a third of the domestic market and together the two operated 15 aircraft flying 140 daily services to 18 points in Greece. Aegean also explored global alliance opportunities and planned international services from March 2001, while agreeing to merge with Cronus. The deal created Greece’s largest private carrier, with Cronus initially focusing on international and charter services.

The merged operation adopted Aegean’s code and name to serve 25 domestic and overseas destinations with the enlarged fleet. When demand declined in response to worldwide economic recession (aggravated by market reaction to the 9/11 terrorist
attacks), Aegean sought cooperation with other Greek operators, primarily flag carrier Olympic Airways. Believing salvation lay in frequency “rationalization,” it reduced frequencies by up to 25 percent that winter, while adding new services to Dusseldorf and Stuttgart, Germany.

Aegean hoped privatization of the state-owned Olympic Group (including Olympic Airways, regional airline Olympic Aviation, charter carrier Macedonian Airlines and other subsidiaries) would go ahead through the group’s acquisition by scheduled and charter operator Axon, a deal ultimately stymied by concerns over job cuts.
Privatization of Olympic, the thinking went, would provide new opportunities for any prospective buyer through the release of routes.

The flag carrier’s monopoly over many destinations, as the nominated airline in bilateral agreements, frustrated Simigdalas. In 2001 he told AIN that while deregulation had opened the European market, “Olympic [remains] the designated Greek carrier to all destinations that are regulated.” But the frustration served to steer his attention to other markets, stimulating the policy to expand into Eastern Europe, the Middle East and North Africa. At one point, Simigdalas had envisioned Aegean as a potential partner with Olympic, and even went so far as to formally propose participation in a possible sale.

But in September 2005, Aegean confirmed it would not purchase “any [Olympic] asset or flying activities,” and underlined its frustration at the lack of progress: “[Greece] has, for six years now, been illegally subsidizing the state-owned Greek carrier, with hundreds of millions of euros.” Citing 2005 European Court and European Commission rulings, it said, “It is unfair for Aegean Airlines to pay airport taxes, as well as income tax and social-security contributions [when Olympic] does not pay any of these, [but is] continuously debiting millions of euros [from] Greek taxpayers.”

Today, little has changed. Two years on, Olympic remains in state ownership, although Simigdalas suggests a government decision on privatization could follow last month’s Greek national elections. Meanwhile, “in spite of ‘Open Skies’ statements from many sides, [Aegean is] still denied access to non-European Union (EU) routes to neighbouring non-EU countries, such as Turkey, Russia [and] Israel.” Some consolation lay in Aegean’s authorization to serve Egyptian capital Cairo, but with only three flights a week compared with the 14 sought.

Aegean received the ERA’s silver award last year for its “constant growth in turnover, pre-interest and tax earnings, and profit, and strong and active promotional, environmental and security strategies and participation in European aviation activities.” But the Greek regional was no stranger to such recognition, being named ERA “airline of the year” two years previously and having received the bronze award in 2000, 18 months after start-up.

In July this year, Aegean became the first airline floated on the Athens Stock Exchange when it released a quarter of its shares in an initial public offering (IPO) that netted about E125 million ($172 million) toward its E1 billion ($1.38 billion) fleet-renewal costs. The airline believes this year’s improved financial performance will further support its growth plans.

Perhaps in anticipation of the IPO, Aegean earlier this year had started the talks with Blue Air, which began operations in late 2004 and flies four of a planned six Boeing 737s. After reportedly “losing momentum,” discussions continued last month and the sides expected to settle on terms by the time ERA members meet in Athens. Blue Air had been looking for some E30 million ($41.4 million) and early last month claimed to have entered talks with a number of potential overseas buyers and investment houses. It also considered a possible stock flotation.

The Blue Air negotiations came as Aegean embarked on re-equipment with Airbus A320s in place of its mixed fleet of six Boeing 737-300s, nine 737-400s and six RJ100s. Last month’s conversion of options held on six A320s brings Aegean’s commitment to 25 (including two A321s), with options held on a further two. Deliveries of A320s, which will increase the fleet by two or three aircraft a year, began early this year with an initial three examples. Plans call for a further 10 to arrive next year, six more in 2009 and the latest six in 2010. It plans to lease at least three of the A320s from ILFC.

Aegean carried 4.45 million passengers last year (up 11 percent over 2005) and recorded pre-tax earnings of E34.4 million ($47.5 million) on revenues of E401 million ($553 million). It looks forward to better financial performance next year as it replaces increasing numbers of older aircraft. It predicts that full benefits from the new equipment will manifest themselves from the middle of next year, by which time the A320s will account for almost 50 percent of its total capacity.

This year, Aegean saw first-half revenues increase 22 percent, to E209 million ($152 million), as net profits rose from E1.1 million ($1.52 million) to E6.4 million ($8.83 million). It managed to reduce available seat-kilometer costs by 8.6 percent, while yield per passenger-kilometer fell 3 percent. Average loads rose from 89 to 91 passengers, resulting in a system-wide load factor of 66.6 percent.

Meanwhile, passenger numbers increased to more than 2.3 million, up 19 percent and almost double the 10-percent passenger growth seen among all Athens operators. Domestic traffic grew 12 percent to almost 1.56 million passengers, while the number of passengers flying on Aegean’s international routes rose 35 percent, to 780,000.

The first Greek operator to offer electronic ticketing and check-in, Aegean operates some 150 scheduled daily flights to 15 destinations in Greece and to 10 in Bulgaria, Cyprus, Egypt, Germany, Italy and Romania. During the first half of the year Aegean introduced new A320 direct flights to Frankfurt and Munich (code-shared with Lufthansa), doubled frequencies to Milan and increased frequencies to Sofia and Bucharest.

Aegean introduced code-share services with Lufthansa in late 2005. Since last year flights to Lisbon from Athens and Thessaloniki have operated in partnership with TAP Portugal. The 2003 Air One agreement allows Aegean to offer five Italian destinations via Rome.

As Aegean has continued to develop its route network, enhanced by its partnerships with Air One, Alpi Eagles, Lufthansa and TAP Portugal, it now offers access to more than 180 destinations worldwide as well as its own 25 points in Europe. This year also has seen new services from Thessaloniki to Chania and Kos in Greece and Bucharest, and Aegean’s first scheduled operations from Heraklion, Crete, to Cyprus, Germany and Italy. Next year it plans to add five routes, all within a three-hour flight radius from Greece.