Air Transport Demand and Supply in Greece: Present and Future

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23rd Sep 2019 Transportation Reference this

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AIR TRANSPORT DEMAND AND SUPPLY IN GREECE : PRESENT AND FUTURE

INTRODUCTION

Greece is located in the south-eastern Europe with total area of 131,940 square kilometers and a population of approximately 11 million. Athens is the capital with an estimated population of 3.5 million followed by Thessaloniki with almost 1 million inhabitants. (Nations Encyclopedia, 2018) Greece is geographically in an ideal location in the crossroads of Asia, Africa and Europe and at the same time constitutes a “gateway” to Balkans as borders by land Albania, FYROM, Bulgaria and Turkey. The Aegean Sea encompasses the east part of the sea, while the Ionian and the Mediterranean Sea surrounds the west and south part accordingly. Greece is formed by three characteristic geographical regions: a peninsular mainland, the Peloponnese Peninsula and around 6,000 islands, 200 of them are inhabited. The country joined the European Union in 1981 and the Eurozone in 2002. (European Parliament Committees, 2018)

Demand-Supply

International vs Domestic Market

Most of the passengers belong to the international market. According to figure 1, 38.6 million passengers visited Greece in 2014, compared to 33.5 in 2013, approximately 7 million more than 2012. However part of this growth is due to the increase of the domestic passengers, reaching 6.1 million in 2014, growth of 22% over 2013. (CAPA – Centre for Aviation, 2018)

Figure 1. Greece: domestic and international air passenger numbers (million) 2004 to 2014

Source: CAPA – Centre for Aviation, Aegean Airlines, Hellenic Civil Aviation Authority

Regarding the domestic market, despite the growing economy during the years 2003-2007, Greek economy went into recession in 2008 due to global financial crisis, decreasing the levels of GDP. Data from figure 2 prove that GDP is highly associated with passenger traffic growth in Greece. During the first years of the recession passenger traffic decreased due to problematic financial conditions in the country. However, over the years, passenger numbers increased despite the declining GDP. Ironically, in 2013, when GDP fell by 3.9%, demand increased by 6.0% and in 2014, there was a massive rise by 15.2 % even though GDP growth was only 0.8%. (CAPA – Centre for Aviation, 2018) I believe this immense demand is justified by the entrance of Ryanair in the market that year, giving Greek citizens the opportunity to travel even with limited budget. The strong growth of total passenger traffic in Greece in 2014 reflects both Ryanair’s opening of new bases in Athens and Thessaloniki and Aegean Airlines’ integration of Olympic Air, acquired the previous year.

 

 

 

 

 

 

 

 

 

Figure 2. Greece: annual change in passenger numbers and in GDP at constant prices (%) 2005 to 2014

Source: CAPA – Centre for Aviation, Aegean Airlines, Hellenic Civil Aviation Authority, IMF

Concerning the international market, Greece is one of the most popular holiday destinations, with an increasing rate of welcoming visitors from all over the world. As stated by figure 1, in 2014, Greece received almost 33 million international visitors, a huge increase compared to 25 million in 2010. (CAPA – Centre for Aviation, 2018) This is really important for the economy and the nation’s airports, with the number of passengers using Greek airports increasing rapidly in recent years.

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Athens, Greece’s capital city, with its long and meaningful history is also the nation’s busiest airport. Based on figure 3, the top five airports following Athens are: Heraklion (7.48 million passengers in 2017), Thessaloniki (6.25 million), Rhodes (5.30 million) and Chania (3.04 million). Noticeably, 75% of total passenger in 2017 were handled at these five airports, meanwhile the Greek regional airports continue to develop. (anna aero, 2018)

 

Figure 3.

Source: Fraport Greece and Hellenic Civil Aviation Authority

Regarding airlines, the Greek market is considered to be an oligopolistic market now. Although the main Greek airlines are Aegean, Astra Airlines, Ellinair and Sky Express, Aegean is by far the colossal operator in the market. In accordance with data from table 1 for top five routes, other airlines (e.g Ellinair) occupy a very small share.

Table 1.

Athens to

Airline

Market Share %

Thessaloniki

Aegean/Olympic

Ryanair

Ellinair

51.9%

47.5%

0.6%

Rhodes

Aegean/Olympic

Ryanair

77.5%

22.5%

Chania

Aegean/Olympic

Ryanair

51.7%

48.3%

Mykonos

Aegean/Olympic

Ellinair

98.3%

1.7%

Santorini

Aegean/Olympic

Ryanair

Ellinair

78.0%

19.1%

1.5%

Source: Athens International Airport

 Before Aegean acquires Olympic, the Greek airline market was basically a duopoly, each of them owing approximately half of the market and after the merger a monopoly.(Figure 4) Due to monopolistic fears, a formerly suggested merger of the two was not approved by the Commission in 2011, yet in 2013 in view of the upcoming bankruptcy of Olympic if not acquired by Aegean, Commission authorized the merger. (CAPA – Centre for Aviation, 2018) Ever since, together, they owned almost 90% of the domestic market until Ryanair enters and reorganize the market environment. 

Figure 4.

Aegean-Olympic Air (O.A) Market Shares 1998-2007

Source: Greek Ministry of Transport (2008)

In 2014 Ryanair opens its base in Athens and at that moment started growing in Greece threatening Aegean’s market share, launching six new routes from Athens in very low fares, in which Aegean already operates. (CAPA – Centre for Aviation, 2018). Since 2014 Ryanair manages to gain significant market share offering tickets from 9.9€, something outstanding for the Greek society, and within a difficult financial environment. According to survey the first week of Athens-Chania route by Ryanair, the fare by Ryanair was offered at 11.99€ while by Aegean at 49.64€ for the exact same route at the same week.  As a consequence, Aegean had to decrease the fares as well in order to continue being competitive even by 40% in some cases!

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Although growth in the combined passenger numbers of Aegean and Olympic turned positive again in 2014, their share only stabilized, at 26%, having fallen from 34% in 2009. Meanwhile, the share of international seats taken by LCCs grew to 40% in 2014, from 21% in 2009 (it was only 7% in 2004). (CAPA – Centre for Aviation, 2018) I think this reflects the limited disposable income citizens are available to spend on fares and as a result they choose low-cost carriers. Low-cost airlines continue to strengthen their presence not only in Athens Airport but in Greek market in general as they become passengers’ first choice. According to figure 5 there is a tendency for low-cost operators to start gaining share accompanied by Aegean’s decreasing share.

Figure 5.

Passenger numbers for Aegean Airlines/Olympic* and LCC share of seats to/from Greece 2004 to 2014

*Olympic Airways 2004-2009; Olympic Air 2010-2014 
Source: CAPA – Centre for Aviation, OAG, Aegean Airlines, Hellenic Civil Aviation Authority

 

 

 

 

 

Figure 6.

Athens International Airport seat capacity January 2014

 

 

 

 

 

 

 

 

source: CAPA-Centre for Aviation and OAG

 

 

 

 

 

 

Figure 7

Thessaloniki Makedonia Airport seat capacity January 2014

source: CAPA-Centre for Aviation and OAG

 

 

 

Figure 8

Chania Airport seat capacity January 2014

source: CAPA-Centre for Aviation and OAG

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Aegean Airlines still dominates the domestic market, but Ryanair is expanding rapidly, occupying more domestic seats from Aegean. Aegean’s share has fallen from 90% to 78% due to the entrance of Ryanair, owing around 15%. (CAPA – Centre for Aviation, 2018). Aegean and Olympic own 71% of the domestic market, Ryanair 17%, while other airlines 12%.(Aegean Airlines, 2018) However, Ryanair’s growth concerns mostly international routes as Aegean remains the dominant airline in the domestic market.

Even though Ryanair managed to gain significant market shares and convert a monopolistic market into a competitive one, Aegean Airlines, along with its subsidiary Olympic Air, still dominates the domestic market, with the Star Alliance member offering over 8.10 million one-way seats from Greece in summer 2018 based on OAG schedules. (anna aero, 2018) However  Ryanair, reported a 4.2% decrease in capacity this summer, offering just under 2.32 million seats comparing to 2.42 in 2017 due to that certain routes from Corfu and Rhodes no longer operate this summer and also it cutting a number of services from Chania, including domestic links. (anna aero, 2018)  However, the airline has opened a number of new services from Athens in summer 2018 for many Europe destinations.

Furthermore, Wizz Air, by adding Athens to its network and offering nine routes from the capital, managed to increase its Greek seat capacity by 460%.(anna aero, 2018) 28% of seats flown from Greece this year are flown by low-cost airlines. (anna aero, 2018) Regarding growth, Volotea is the leading airline, with its departing capacity increased by 102%, including 16 new routes to its Greek network this summer. (anna aero, 2018).

Figure 9

Substitutes-Coaches/Buses/Trains.

According to the executive manager of the bus company of Thessaloniki, initially due to Ryanair’s entrance there was a 30% drop in demand by passengers using the bus. The train company also faced a 5% decrease. Both companies had to offer discounts or low their fares in certain routes in order to keep being productive.(news24/7,2018)

Regarding international flights, Greece is mostly focused on short/medium haul flights. 94% of international flights to/from Greece are oriented to Europe.

Figure 10. Greece: international seat capacity by region 13-Jul-2015 to 19-Jul-2015

Source: CAPA – Centre for Aviation, OAG

Concerning long haul flights, Greek passenger use other European hubs for this reason. Aegean Airlines uses its Star Alliance partners code share agreements to offer long haul flights to Greek customers. Besides Star Alliance, regarding the Middle East, Qatar Airways, Emirates and Etihad, serve Athens from their hubs in the Middle East. (CAPA – Centre for Aviation, 2018)

Ground handling companies

In Greece there are three companies, Skyserv, Goldair and Swissport. They all serve the five biggest airports in the country( Athens, Thessaloniki, Heraklion, Rhodes, Corfu). However, in order to be awarded the ground handling of a regional airport, a competition must be preceded. The last one was in 2012 and is valid for seven years. Thus, Skyserv undertook ground handling at 32 airports, Goldair at 21 and Swissport at 17 airports. (supply-chain.gr, 2017)

PSO routes

In order to keep operating low passenger traffic routes in Greece competitions take place by the government and the companies undertake the routes for an amount of money. The last one that took place in Greece was in 2016 and Astra Airlines undertook two routes, Sky Express nine and Aegean/Olympic eight. It is remarkable that for ten routes there was no offer due to the reduction in subsidies (9 million in 2016 comparing to 45 million in 2012). (Ministry of Infrastructure and Transport, 2018) (European Commission, 2018)

Air freight

Regarding air freight revenue, according to figure 7, in Greece there was a fluctuation during the years 2010-2014. However there was a drastic rise in 2015, reaching 63.14 million U.S dollars revenue, followed by 65.62 million in  2016. (Statista, 2018)

Figure 11.

Regulation

Ever since Greece joined the European Union in 1981, joined an era of liberalization in the aviation industry as well. As every EU member Greek airlines operators have absolute freedom concerning market entry and exit, fare setting and seat capacity determination within the ECAA.

Possible constraints to future growth

In my point of view, the extremely high taxes at Greek airports is one of the most important issues in the industry that could prevent further development. Given that these taxes are integrated inside the ticket, they automatically increase the fares and as a result decrease the demand. Athens International Airport is charging around 35€ taxes every passenger for any destination. (topontiki.gr,2018) If someone wants to fly from Athens to Thessaloniki only tax charges are going to be 35€, excluding the ticket price( which might be even lower), but from Thessaloniki to Athens the tax charges are around 12€. (topontiki.gr,2018)The same applies for international routes as well. It is reasonable the fact that many airlines interrupt their flight to/from Athens. (topontiki.gr,2018) Thai and Gulf Air no longer have routes to Athens due to the high expenses and they choose to connect with Athens only via connections mostly in Istanbul where the tax charges are around 11€, around 1/3 comparing to Athens Airport. I think that all these surcharges will lead to negative outcomes for the Greek airline market. (Athens International Airport,2018)

Another barrier could be the volatility of fuel prices with the increasing tendency forcing many airlines to raise their fares and not being antagonistic as they become less commercially viable. Further financial obstacles include high exchange rate risk and the adverse economic climate that still exists in Greece generating many financial risks.

Additionally, future expansion could be prevented by the unpredictable episodes in the Eastern Mediterranean. The complex and unstable climate in the Eastern Mediterranean Sea has already and may even further influence the industry. More specifically, the migratory, internal political crisis in Turkey and the war in Syria create a negative climate in the wider area that affects the transport of citizens as well.

 Last yet important, there is trend of changing destinations to Asia, Australia and Singapore  that might affect the arrivals of tourists in Greece, leading to limited opportunities for future growth.

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