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CTO: No Cash For Ryanair Demands  
User currently offlineju068 From Serbia, joined Aug 2009, 2579 posts, RR: 6
Posted (1 year 11 months 3 weeks 2 days 11 hours ago) and read 3283 times:

Good afternoon,

It seems that Ryanair's flights to Larnaca might come to an end if an agreement is not reached in time. The airline launched flights to Larnaca in 2010 from four secondary airports in Europe: Bologna, Charleroi, Girona and Weeze.

Ryanair opened its 50th base in Paphos airport but had kept these four destinations in Larnaca.

Here are the most interesting parts of the article:


''CTO chairman Alekos Oroundiotis said the airline was seeking double the originally agreed amounts to promote Cyprus, citing increased fuel prices. Oroundiotis said such a thing was not financially possible for the CTO.''

''“(Larnaca’s) Ryanair routes have been doing and continue to do very well in regards to passenger movement,” said Oroundiotis. “All four routes are usually around 70 per cent full. Ryanair is claiming there is now a financial problem with these routes, due to the increase in fuel prices and that essentially something should change for the airline to cope. And they feel that for this to happen we need to increase the CTO campaign incentives, increase projection, and in not so many words, increase the financial incentive by 100 per cent compared to last year.”''

''“But I think Ryanair’s demands were quite high and they couldn’t be implemented. Because apart from the funding they get for the passengers - around €4 per traveller - there are also agreements for specific financial support from the CTO.”'

''One crucial factor in Ryanair’s decision was the issue of landing charges – passed on to travellers in the form of “airport taxes”. Ryanair committed to bring 500,000 tourists in five years to Cyprus if they got a special deal on the charges – which they did.

And these fees were reduced further recently at Paphos Airports, though despite this, there are reports that Ryanair has requested these are scrapped altogether as well.''

''And in February 2011, France’s Pau Airport announced it would cut the subsidies it paid Ryanair to maintain flights there, because the airline’s demands were “intolerable”.

Pau’s chamber of commerce said the airline wanted subsidies to increase from €1.4 million a year to €1.5 million in order to maintain its flights to Britain, Belgium and Paris – something it described as “financial blackmail”.''

----------------------------------------------------------------------------------------------------------

Personally I think Cyprus should not give in to these demands. Let Ryanair cancel its four routes from Larnaca. If there is such demand for these routes let Cyprus Airways operate them. I am sure they would be more than willing to open up these markets as they tend to have overcapacity during the winter months.

But more importantly, Hermes and the CTO should wonder what will happen when the contract for Paphos expires. Will they have to give in to the unreasonable demands of Ryanair?

Cyprus is currently facing a deep economic crisis and if they really have to provide subsidies to airlines, then better do it for Cyprus Airways which is part of your national economy.

I would like to point out that these four routes are not operated by a plane based in Larnaca. If an agreement is not reached these flights will be cancelled in November.
Commerce minister said that there were some other airlines interested in stepping in, one was from Ukraine while even a Chinese airline had expressed interest in launching flights.

Interesting times ahead for Ryanair and Cyprus.

Link to the article:
http://www.cyprus-mail.com/ryanair/c...o-no-cash-ryanair-demands/20120802

15 replies: All unread, jump to last
 
User currently offlinedcaviation From United States of America, joined Aug 2011, 195 posts, RR: 0
Reply 1, posted (1 year 11 months 3 weeks 2 days 11 hours ago) and read 3242 times:

I hope they don't pay them. Ryanair is 'promoting' a lot of places, but I'm yet to see any of their promotions.

User currently offlinePe@rson From United Kingdom, joined Jan 2001, 19188 posts, RR: 52
Reply 2, posted (1 year 11 months 3 weeks 2 days 11 hours ago) and read 3233 times:

Quoting ju068 (Thread starter):
increase the financial incentive by 100 per cent compared to last year.”''

I like their style.   But it's no different than a marketplace or whatever. I ask for X, you say Y, we negotiate until an equilibrium is achieved or I go elsewhere. Mere negotiation. There is no real obligation, no need to necessarily say yes - especially if FR has such a very small presence as it does at LCA.

Quoting ju068 (Thread starter):
Will they have to give in to the unreasonable demands of Ryanair?

Not sure how it is "unreasonable". They can ask for whatever they want or whatever they feel they can get anyway with. It is up to the other party to agree or disagree, and if they disagree who cares? Nothing ventured, nothing gained. FR can just go elsewhere.

Quoting ju068 (Thread starter):
Commerce minister said that there were some other airlines interested in stepping in, one was from Ukraine while even a Chinese airline had expressed interest in launching flights.

Good luck given they would never have traffic rights.   

Quoting ju068 (Thread starter):
Pau’s chamber of commerce said the airline wanted subsidies to increase from €1.4 million a year to €1.5 million in order to maintain its flights to Britain, Belgium and Paris – something it described as “financial blackmail”.''

How can it be "blackmail"? Pau have the ultimate power: they can say no way, Jose! Granted, they'd lose traffic, but if they deem if insufficient against the money paid...

[Edited 2012-08-03 08:28:21]


"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
User currently offlineju068 From Serbia, joined Aug 2009, 2579 posts, RR: 6
Reply 3, posted (1 year 11 months 3 weeks 2 days 11 hours ago) and read 3233 times:

Quoting dcaviation (Reply 1):

Not to mention the recent scandal when Ryanair advertized hotels in the occupied northern part of the island.


User currently offlineseabosdca From United States of America, joined Sep 2007, 5308 posts, RR: 4
Reply 4, posted (1 year 11 months 3 weeks 2 days 11 hours ago) and read 3184 times:

Some corporations are famous for hardball negotiating tactics. FR is at the top of the list.

Are they effective? Depends on your market power. In the US, Walmart is famous for negotiating like this, and gets away with it, because it utterly dominates retail in many areas of the US. But FR is a tiny slice of Cyprus traffic. I don't think they have the leverage to get the demands here. And when you make extreme demands without the leverage to get them met, you don't get what you asked for, and you just poison relationships for no reason.

Then again, FR has never particularly cared about whether it poisons relationships.   


User currently offlineju068 From Serbia, joined Aug 2009, 2579 posts, RR: 6
Reply 5, posted (1 year 11 months 3 weeks 2 days 11 hours ago) and read 3182 times:

Quoting Pe@rson (Reply 2):
I like their style. But it's no different than a marketplace or whatever. I ask for X, you say Y, we negotiate until an equilibrium is achieved or I go elsewhere. Mere negotiation. There is no real obligation, no need to necessarily say yes - especially if FR has such a very small presence as it does at LCA.

Yes but when negotiating one has to keep in mind the financial state of the buyer. Ryanair knows that Cyprus is in a bad financial situation and because of that they shouldn't ask for more than the island can give.
I think that these routes were performing badly and that Ryanair wants to leave Larnaca. It is easier to blame it on the government and the airport authority than on themselves.

Quoting Pe@rson (Reply 2):
Good luck given they would never have traffic rights.

I am sure he didn't expect the Chinese airline to operate flights from Larnaca to Europe, but from China to Larnaca. As for the Ukrainian airline, that problem can easily be overcome. Similar to what Wizz Air Ukraine/Serbia is to Wizz Air.

What he was trying to point out is that Cyprus is not desperate to have Ryanair and that there are still alternatives out there.


User currently offlinePe@rson From United Kingdom, joined Jan 2001, 19188 posts, RR: 52
Reply 6, posted (1 year 11 months 3 weeks 2 days 10 hours ago) and read 3130 times:

Quoting ju068 (Reply 5):
Yes but when negotiating one has to keep in mind the financial state of the buyer.

Why? Remember, Cyprus could say no. And they should if the case is not there.

Quoting ju068 (Reply 5):
Ryanair knows that Cyprus is in a bad financial situation and because of that they shouldn't ask for more than the island can give.

It is fine to ask for it. I have nothing whatever against that because it is up to Cyprus whether they actually accept it. Remember: they have the ultimate power, especially when FR has such a small presence.

Quoting ju068 (Reply 5):
What he was trying to point out is that Cyprus is not desperate to have Ryanair and that there are still alternatives out there.

If that were the case, they should just say 'this is our best offer; accept it or go'. And if they go, so be it.



"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
User currently offlinebestwestern From Hong Kong, joined Sep 2000, 7081 posts, RR: 57
Reply 7, posted (1 year 11 months 3 weeks 2 days 10 hours ago) and read 3061 times:

Lets look at this from the ryanair sales perspective...

€8 an arriving passenger subsidy....

Lets say 70% of those passengers are inbound, and 50% of those are holiday makers, and 50% of those would not have travelled if not for FR service or fares....

The cost of each 'new' ryanair tourist = €44. So, Is €44 good value to bring a new holiday maker to the island? If the average VAT take is around 20% - Any spend over €228 is 'profit' to the government. Cheap at half the price.

This falls apart when you are in a non major tourism draw area - like say Liverpool, where routes are outbound. Lets say 30% of those passengers are inbound, and 30% of those are holiday makers, and 50% of those would not have travelled if not for FR service or fares.... The average cost per tourist is €177, and using the 20% vat mark - they would have to spend €888 for government to break even... A very Expensive sales tool in this regard,



The world is really getting smaller these days
User currently offlineTW From Germany, joined Jul 2011, 62 posts, RR: 0
Reply 8, posted (1 year 11 months 3 weeks 1 day 23 hours ago) and read 2679 times:

Quoting ju068 (Reply 5):
Yes but when negotiating one has to keep in mind the financial state of the buyer.

By that logic I should get a 99% discount when I buy a brand new Ferrari because that is what my financial state allows me to spend on a car.

A manager from a LCC gave a presentation at my school and said that his company gets subsidies for opening up new destinations, but these subsidies are offered by the government and any airline could apply. For example, if the french government would want airlines to link the cities of Paris and Valenciennes by air so that people can get to the capital for whatever reason, it would have to encourage airlines to start flights because the service is not economically viable. If companies of the likes of Easyjet or Ryanair get these subsidies, it is often because they bid for these routes and AF, BA, LH don't, and not because Ryanair "blackmails" the local governments.

I could go on and on about this. I think that Ryanair is a brilliant company and the fact that they are aggressive in negotiations and make profits is good. Many legacy carriers might be friendlier in negotiations, but they end up losing money, firing people, and being supported by tax payers' money (many who never actually fly the airline that they subsidize)


User currently offlinemariner From New Zealand, joined Nov 2001, 24996 posts, RR: 85
Reply 9, posted (1 year 11 months 3 weeks 1 day 23 hours ago) and read 2634 times:
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Quoting ju068 (Reply 5):
Yes but when negotiating one has to keep in mind the financial state of the buyer.

In negotiating, I've always thought you ask for more than you think you will get, and settle for something that is acceptable to both sides.

If Ryanair wants to settle. I don't which months they mean but a load factor of "usually 70%" might be okay in the winter months, but with high fuel prices I doubt it's good enough for summer.

http://www.marketwatch.com/story/rya...-up-8-load-factor-slips-2012-08-03

"Ryanair July traffic up 8%; load factor slips

-July load factor, the number of passengers as a proportion of the number of seats available for passengers, was 88% compared with 89%, and 82% for the rolling 12 months."


mariner



aeternum nauta
User currently offlineScottB From United States of America, joined Jul 2000, 6707 posts, RR: 32
Reply 10, posted (1 year 11 months 3 weeks 1 day 22 hours ago) and read 2601 times:

Quoting ju068 (Reply 5):
I think that these routes were performing badly and that Ryanair wants to leave Larnaca. It is easier to blame it on the government and the airport authority than on themselves.

Let's assume that your initial premise is true and that the routes are performing badly or at the very least underperforming. I don't see how the article supports your conclusion that Ryanair is trying to blame the government or airport authority when the chairman of the Tourism Organisation is the person claiming that Ryanair's demands are unreasonable. But where exactly is the unfairness if we accept that the service to LCA is doing poorly? FR isn't in the business of losing money, so they're not going to continue the routes if they are unprofitable. They've told the government (up to this point, I presume privately) that they need more subsidy to keep flying the routes in question -- so IMHO it seems they're being very fair in giving the government/airport authority an opportunity to save the routes and preserve the inbound tourist flows before making a unilateral decision to simply cut the flights.

And in any event, what advantage might be gained by FR in blaming the government authorities in Cyprus? Most of their traffic to & from LCA will be inbound tourists -- will any of these people honestly care that FR blames the government or the government blames FR? I doubt it; these customers will simply end up going somewhere else or choosing a different airline for their next visit to Cyprus. Does local opinion of FR in or around LCA matter at all if they're dropping the city?

Quoting ju068 (Thread starter):
Cyprus is currently facing a deep economic crisis and if they really have to provide subsidies to airlines, then better do it for Cyprus Airways which is part of your national economy.

That's simply not necessarily logical. FR's costs are extremely low, and it's very likely that costs per passenger at Cyprus Airways exceed FR's by an amount far larger than the subsidy being demanded by Ryanair. So if the government subsidizes Cyprus Airways to preserve these routes, the aggregate cost of the subsidies ends up being even higher. CY also lacks the public awareness that FR has in the markets they serve to LCA, so CY may not get the passengers who habitually choose FR due to familiarity, brand loyalty, perceived value, etc. Are people choosing a vacation to Cyprus because it's Cyprus or because they can get a good deal on FR -- so they'll just go somewhere else if FR drops the service?

Quoting Pe@rson (Reply 2):
How can it be "blackmail"? Pau have the ultimate power: they can say no way, Jose! Granted, they'd lose traffic, but if they deem if insufficient against the money paid...

   In the end, the community either finds the FR service to be valuable enough to subsidize or they don't! Businesses negotiate all the time! Is it blackmail for a business to buy from a competitor if their current vendor is more expensive? Is it blackmail if you go into a store and ask them to match/beat the competitor's price?


User currently offlineLJ From Netherlands, joined Nov 1999, 4401 posts, RR: 0
Reply 11, posted (1 year 11 months 3 weeks 1 day 18 hours ago) and read 2457 times:

Quoting ScottB (Reply 10):
I don't see how the article supports your conclusion that Ryanair is trying to blame the government or airport authority when the chairman of the Tourism Organisation is the person claiming that Ryanair's demands are unreasonable.

Very easy. In a few weeks time we may see a press release announcing the cancellation for the routes to Cyprus. They'll not cite high fuel costs or whatever economic reason but blame it on the CTO as they'll be portrayed as a government body not helping its citizens.

Quoting ScottB (Reply 10):

And in any event, what advantage might be gained by FR in blaming the government authorities in Cyprus?

Getting the subsidies/incentives they need to be profitable via the media. It, unfortunately, has worked many times.

BTW have you ever seen FR not blaming the government for a failure?


User currently offlineju068 From Serbia, joined Aug 2009, 2579 posts, RR: 6
Reply 12, posted (1 year 11 months 3 weeks 1 day 18 hours ago) and read 2452 times:

Quoting mariner (Reply 9):
In negotiating, I've always thought you ask for more than you think you will get, and settle for something that is acceptable to both sides.

Yes, that is the rule in theory but in practice the things are not so black and white. Ryanair very well knows in what state the Cypriot economy is and these discussions have been ongoing for quite some time now, which only points to the fact that Ryanair keeps on insisting on these demands. And when you take into consideration that they fly to these four destinations from Larnaca (each twice per week) then you realize what small player they are at the airport. Because of such small presence the island should not give in to their demands.

Quoting TW (Reply 8):
By that logic I should get a 99% discount when I buy a brand new Ferrari because that is what my financial state allows me to spend on a car.

It is not the same, you do not need a Ferrari, Cyprus needs air links to sustain a big part of its economy.

Quoting ScottB (Reply 10):
Does local opinion of FR in or around LCA matter at all if they're dropping the city?

Actually only Weeze brings in a considerable amount of tourists, destinations such as Brussels, Bologna (for many alternative to Rome) and Barcelona cater for the O&D market originating in Cyprus.
The reason why I think Ryanair wants to drop these routes is because they already have a base in Paphos and would prefer to redirect these flights there, where I guess they pay considerably less.

Quoting ScottB (Reply 10):
That's simply not necessarily logical. FR's costs are extremely low, and it's very likely that costs per passenger at Cyprus Airways exceed FR's by an amount far larger than the subsidy being demanded by Ryanair. So if the government subsidizes Cyprus Airways to preserve these routes, the aggregate cost of the subsidies ends up being even higher. CY also lacks the public awareness that FR has in the markets they serve to LCA, so CY may not get the passengers who habitually choose FR due to familiarity, brand loyalty, perceived value, etc. Are people choosing a vacation to Cyprus because it's Cyprus or because they can get a good deal on FR -- so they'll just go somewhere else if FR drops the service?

Cyprus Airways had recently undergone serious cost cutting measures which have enabled it to become more competitive in the aviation business; they phased out their A330-200s and reduced the salaries of their employees.
Though these subsidies would not be enough to cope with CY's cost structure they would certainly help the airline in opening up new markets from Larnaca, especially in winter when they face serious issues with overcapacity. Cyprus Airways already has a decent regional network which could be used to further sustain these routes.

Actually, you would be surprised by how many chartered flights there are from Dusseldorf to Larnaca. I guess that this goes to prove that most of the tourists who come to the island do it through various tourist agencies which offer traditional package holidays instead of flying on Ryanair. Paphos is a different story because it is on the other side of the island which is far from Nicosia and the other coastal cities, while at the same time it can also attract passengers from Limassol.
Larnaca is a well established airport and the island would not lose out if Ryanair leaves from there, especially not since they do not operate to the biggest markets: the UK and Greece. Even before Ryanair launched flights the airport handled 5 to 6 million passengers per year.


User currently offlinemariner From New Zealand, joined Nov 2001, 24996 posts, RR: 85
Reply 13, posted (1 year 11 months 3 weeks 1 day 18 hours ago) and read 2378 times:
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Quoting ju068 (Reply 12):
Yes, that is the rule in theory but in practice the things are not so black and white. Ryanair very well knows in what state the Cypriot economy is and these discussions have been ongoing for quite some time now, which only points to the fact that Ryanair keeps on insisting on these demands.

But it is black and white. If Cyprus wants Ryanair, then Ryanair wants certain things. The state of the Cypriot economy is irrelevant to Ryanair's margins - they won't subsidise Cyprus.

I would just say that I would be very surprised if Ryanair is making any kind of money on 70% load factors.

Allegiant, in the US, would consider 80% load factor to be not good enough.

mariner

[Edited 2012-08-04 02:27:15]


aeternum nauta
User currently offlinePe@rson From United Kingdom, joined Jan 2001, 19188 posts, RR: 52
Reply 14, posted (1 year 11 months 3 weeks 1 day 17 hours ago) and read 2371 times:

Quoting mariner (Reply 13):
I would just say that I would be very surprised if Ryanair is making any kind of money on 70% load factors.

At the end of March 2011, FR's breakeven load factor (CASK/yield) was 72.7%. Of course, this was system-wide.



"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
User currently offlinePe@rson From United Kingdom, joined Jan 2001, 19188 posts, RR: 52
Reply 15, posted (1 year 11 months 3 weeks 1 day 15 hours ago) and read 2218 times:

Quoting mariner (Reply 13):
Allegiant, in the US, would consider 80% load factor to be not good enough.

Based on the FY ending 31st Dec 2011, Allegiant's BELF was 82.9%.



"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
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