Ryanair: Gaining In Greece?

Ryanair will venture into Greece in May for the summer season, flying from Milan Bergamo to Kos, Rhodes and Volos; from Frankfurt Hahn to Kos and Volos; and from Pisa to Rhodes (each twice-weekly). This summer experiment could even evolve into a more long-term strategy in Greece, provided the Greek airports can come to the party with quicker turnaround times and low-cost orientated operations.

Having built up a strong presence in Italy (with recent base launches in Brindisi and Bari), as well as Germany, Ryanair will primarily be looking to stimulate capacity into the Greek market, which has, up until now, been relatively unexplored by the low-fare carriers.

Ryanair hasn’t traditionally focused on summer only markets, instead opting for high frequency routes on a year-round basis. Recently though there has been a shift in strategy towards low frequency, seasonal routes – a category into which Kos and Volos fit. However, until now the Greek airports have not readily embraced the low-cost sector and have not supported low-cost growth by reducing aviation charges.

Destinations such as Rhodes, Kos and Volos have previously been a charter market with tour operators enjoying a monopoly on the Greek sunshine routes. This market has not been a seat alone sales market and Jet2.com (starting operations to Greece this summer) and Air Berlin use affiliated tour operators to drive a high percentage of sales.

Plus, Athens Airport, as a capital city gateway, has high aviation charges that are not suited to low-cost operations. However this is set to change, with the airport announcing last Tuesday (March 2) that it will freeze airport charges throughout 2010, and offer a “non-discriminatory incentive” scheme for the majority of airlines.

So what does this mean for Greece? Stephen McNamara, the carrier’s head of communications told Routes News: “Greece has always been more expensive than Spain or Italy, especially from a European point of view and the charter market has kept the prices high. The average fare will be reduced as a result of Ryanair moving in.”

“There is certainly a need for low-fares in the Greek market and we are dipping our toes in to see how the market will work. The issue is the Greek airports’ commitment to being more efficient in the turnaround of aircraft, which is central to how the low-fare model works. If this happens, we will probably see more Ryanair routes there,” he added.

Currently there are six low-cost carriers that serve Greece on a year round scheduled basis and all of these routes are to either Athens or Thessaloniki. These include Air Berlin, Germanwings, Blue Air, Vueling, easyJet and Air Arabia.

However, there are a number of low-cost carriers that serve the Greek islands on a seasonal basis and these include Norwegian, Jet2.com, Smartwings, Niki, easyJet, Tuifly, Air Berlin, Germanwings and the charter carrier Condor. These flights are mainly into the resort markets, such as Corfu, Kos, Rhodes and Heraklion. The resorts in these destinations predominantly close down in the winter, as the sunshine cannot be guaranteed, they cannot compete with other destinations such as Egypt and Morocco.

The following data, which shows the leading 10 carriers according to weekly scheduled seat capacity, illustrates the dominance of the full service scheduled carriers (and the infancy of the low-cost carriers) in the Greek market:

Source: Flightbase March1-7, 2010.

Tougher Competition

The biggest change in Greece’s aviation market currently underway is the merger of Olympic Air and Aegean Airlines, which is preparing for full Star Alliance membership later this year. Between them, they have a 71% share of Greece’s domestic and international traffic (Source: Flightbase March 1–7). However, the potential merger would result in a monopoly of the Greek domestic market and is currently being scrutinised by the European Competition Commission.

With a combined fleet of over 60 aircraft, of which 27 are A320s, there will be an opportunity for Olympic Air and Aegean to slash costs and explore synergies on certain routes, particularly from Athens, which accounts for 55% of all weekly departures, followed by Thessaloniki with just 12% of all flights.

From Athens, Aegean and Olympic Air compete on 27 routes and it is likely that there will be capacity cuts on these sectors.

Will Ryanair Serve Athens?

As capacity in Athens is reduced, the question is whether Ryanair will enter the market there? On Tuesday, Athens Airport announced it would freeze airport charges throughout 2010, and offer a “non-discriminatory incentive” scheme for the majority of airlines. Could this be the first sign of a willingness to negotiate further on charges?

Ryanair will undoubtedly be watching developments in Athens with interest and will be prepared to move swiftly if a gap presents itself and if the airport operator shows willingness to reduce aviation charges.

Ryanair’s McNamara hinted: “If our new routes prove popular and the yield environment is good, we will see the development of more routes into the Greek market.” However, sector length could be an issue for Ryanair’s fleet of B737-800s, confirms McNamara, who told Routes News that the carrier chose Italy and Germany as these minimised what is already a long sector.

He emphasised: “In order to maintain efficiencies on the ground, there needs to be short sector flights and fast turnarounds. We need to find a balance between short sector flights and fast turnarounds with longer sector times, which provides the ability to get maximum efficiency from aircraft.”