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

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CAGR 1990-20084.2%

International Tourist Arrivals (millions), 1990-2008

Sep 11SARS, 2nd 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

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Europe

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CAGR 1990-20084.3%

CAGR 1990-20083.5%

European Tourist Arrivals (millions), 1990-2008

Source: World Tourism Organisation &

International Tourist Arrivals to Europe by Sub-regions, (millions), 1990 – 2008

32 40 46 46 50 53 55 56 57

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Southern/MediterraneanEurope

Central/ EasternEurope

Western Europe

Northern Europe

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 &

Spain34.6%

Italy30.8%

Greece10.1%

Portugal9.4%

Other1.2%

Croatia1.5%

Malta1.1%

Cyprus2.1%Israel

2.2%Turkey

7.0%

Spain34.0%

Italy29.3%

Greece9.3%

Portugal8.6%

Israel1.7%

Malta0.9%

Slovenia0.8%

Croatia4.1%

Turkey6.8%

Andorra2.1%

Cyprus1.9%

Other0.5%

1990

2000

2005

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

Country2006 Total

Passengers, 000s Population, 000s Propensity to FlyIreland 27,558 4,339 6.35Denmark 22,966 5,476 4.19Switzerland 31,829 7,591 4.19United Kingdom 211,229 60,587 3.49Spain 150,599 45,201 3.33Netherlands 48,583 16,409 2.96Greece 32,762 11,147 2.94Sweden 25,855 9,183 2.82Finland 13,443 5,305 2.53Austria 20,825 8,328 2.50Portugal 22,027 10,623 2.07Germany 154,146 82,210 1.88Belgium 19,155 10,585 1.81France 113,183 64,473 1.76Italy 95,914 59,338 1.62Czech Republic 12,171 10,349 1.18Estonia 1,533 1,341 1.14Latvia 2,488 2,270 1.10Hungary 8,246 10,053 0.82Slovenia 1,327 2,024 0.66Lithuania 1,799 3,366 0.53Slovakia 2,124 5,399 0.39Poland 13,738 38,116 0.36Russia 37,657 142,499 0.26Romania 4,722 21,438 0.22

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

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Package Holidays

Independent Holidays

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

30 33 34 36 39 36 33 34 36 38 37 36 36 36 33 30 29

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Scheduled

Non-scheduled

Source: DGAC Spain &

Passengers at Spanish airports (1990-2006)• 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

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European LCC Routes, August 2008

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European LCC Routes, August 2000

327 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

LCCs Fleet size

Poland Central Wings 11

Czech Republic

Smart Wings 2

Slovakia SkyEurope 15

Austria InterSky 4

Hungary WizzAir 16

Romania Blue Air 6

Bulgaria WizzAir Bulgaria 1

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 2007. 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

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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, 2000-2006

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:

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2005 2006 2007 2008 2009

Charter LCC Traditional

UK - Cyprus passengers (2005-2008)

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

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Overview of LCC services to Cyprus

1000km3000km 2000km4000km

Recently easyJet and Jet2 have announced scheduled services from the UKSource:

Eurocypria with 6 aircraft flies to 74 destinations and carries 850.000 passengers covering 25.040 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