01/03/2006
www.financialmirror.com
New gov’t taxes “a serious blow”
Passengers to foot the bill
Foreign airlines are ready to chop their Cyprus routes that could deal a serious blow to tourism arrivals, following the government’s unilateral decision to hike airport taxes and fees when the new operator takes over in June.
Some airline companies, which have consistently provided Cyprus with the majority of well-spending tourists, are seriously considering whether to reduce their flights to Cyprus, or cut them altogether and divert their traffic to other neighbouring destinations.
The concerns arose after the Ministry of Communications held a two-day briefing with all airlines operating in Cyprus and presented them with a fait accompli of new and higher fees that will be levied as of June 1 and until the island’s new airports start operating by 2010.
"We are very concerned," said one airline representative who had been to the January 19-21 meetings of airport users with the Ministry officials told the Financial Mirror.
"We estimate a 140% increase in our costs from the day the new operator will take over," the representative said, adding that the authorities renewed their rental of facilities and office space at the airport from the end of December, when the previous contracts expired, to June only, beyond which there is no indication of what will happen.
"Which airline can properly plan its future operations this way?" was the question raised by several airline officials, who concluded that there were only three options left for them -- reduce flights to Cyprus, avoid Cyprus altogether or raise ticket costs once again.
The increases are expected to be absorbed into the ticket price of each airline, which will naturally see a dramatic increase.
Major hike
During the briefing between Ministry of Communications and airlines, the government verbally informed airline representatives that airport fees and charges would be gradually hiked.
The increases will not be incorporated into the airport tax, which for political reasons and in an effort not to infuriate the public, will only be hiked from CYP 9 per person to CYP 10.5 per head.
Some of the increases include:
* Ground handling fees rising from CYP 400 to CYP 1200.
* Fire department fees for both incoming and outgoing flights charged at 25 cents per passenger at Larnaca airport and 35 cents per passenger at Paphos airport.
* Security charge per passenger starting at 67c per head from May climbing eventually to CYP 1 per head, charged for both incoming and outgoing flights.
* Excess Fuel charge of 0.005c per litre. Most of this hit is expected to affect Cyprus Airways since foreign airlines use Cyprus airports only to top up fuel tanks.
* Landing fees, based on separate legislation already voted through are set to rise by 18% from November 1, 2006.
A spokesman from Hermes Consortium who won the BOT contract refused to comment on the proposed fee increases and said that until the official handover date, sometime in early April, such issues concern the government and not the consortium.
Protest
The only body that is competent to speak on behalf of the airlines is the Board of Airline Companies in Cyprus (BARIC), which is headed by a senior member of the Cyprus Airways management team.
Ironically, representing the government in the aforementioned talks was Lazaros Savvides, Director General of the Ministry of Communications who also wears another hat, that of Chairman of the troubled national carrier.
This explains the unusual silence of the majority state-owned Cyprus Airways, that seems to be unconcerned with these critical developments and is most exposed to the fee increases, with some analysts putting the additional annual charge at CYP 7 mln.
The survival of the Cyprus operations of most airlines is now in jeopardy.
"Do they (the government) realise the repercussions of their actions? We need to know the service levels we will receive from the new airport operator, something we have not yet been informed about," added another airline spokesperson, who concluded that some colleagues were already contemplating slashing the number of flights to Cyprus this summer.
Tourism threat
The island’s tourism industry may also feel an unwarranted squeeze if the same charges now planned for the scheduled airlines are also applied to the charter flights bringing a large part of the 2.5 mln annual tourists to the island.
A charter flight operator contacted by the Financial Mirror said they had not been invited to the meeting with the Ministry of Communications but acknowledged that he was aware “that charges would be hiked.”
The officer whose company handles many charter flights said either the government, through the Cyprus Tourism Organisation, will subsidise the charter airlines, or risk a flight to cheaper destinations, mostly Turkey.
During the Gulf war, the CTO was subsidising the cost of the insurance surcharge imposed on Cyprus flights to reduce the impact on charter flights, very sensitive to price changes, but following EU accession, such a subsidy would likely be blocked by Brussels as unfair advantage against the scheduled flight operators.
