Greece aviation and tourism - Part 1: potentially major forces in supporting economic re-development
Greece has long been a tourism magnet for sun-hungry northern Europeans, quite aside from its remarkable historic attractions. Now, as the country's tottering economy seeks to recover from its near-Grexit experience - and to help stave off the almost inevitable next round of brinkmanship in a few months - aviation and tourism are core to employment and wider economic prospects.
In 2014, travel and tourism was expected to account for one in every five jobs in Greece, as well as accounting for 20% of the country's GDP. Clearly the health of this industry is a vital ingredient in any recovery. Moreover, around 15% of inward investment is in this sector.
The apparent inability of Greece to repay either its debts - or the debts it took on to service its original debts - makes predictions difficult. One substantial fear is that social unrest might upset the stability necessary for essential investment and the tourist trade.
- Greece's aviation and tourism industry is vital for the country's economic recovery.
- The Greek economic crisis has caused uncertainty and distrust between the government and the institutions responsible for financial bailouts.
- The IMF has called for debt relief for Greece, while others argue that further bailouts will only lead to more debt and impoverishment.
- Social unrest and humanitarian concerns, including the refugee crisis, pose challenges for Greece's stability and economic prospects.
- Greece's aviation industry has shown growth in recent years, with passenger numbers increasing and a strong focus on international travel.
- The domestic market in Greece is becoming more competitive, with the entry of Ryanair and expansion of Aegean Airlines.
The Institutions and Syriza have both played hardball, with residual distrust
The Greek economic crisis has been at the forefront of global news for months as the organisations responsible for two (and now three) financial 'bail outs' grappled with the apparent inability of Greece to repay either its debts or the debts it took on to service its original debts.
The organisations known collectively as 'The Three Institutions' (3I) - the European Union, the European Central Bank and the International Monetary Fund (IMF) - increasingly took a hard line when confronted with tough bargaining by the Syriza party government and the holding of a referendum in which 60% of the population voted against the terms offered by its creditors, the 3I.
Since that 'no' vote in early Jul-2015 the 3I has played even harder ball and forced the government to accept tougher terms still than were on offer before the referendum in return for a third (EUR86 billion) bailout and the supply of emergency funding by which the banks could reopen, enabling businesses to operate again and to cover the costs of a EUR3 billion payment that was due on 20-Jul-2015.
Whether or not the full bailout will actually proceed will depend on further negotiation and, ultimately, rubber stamping by the German Parliament, the Bundestag, as Germany is providing much of the cash. Neither the negotiation nor the Bundestag's approval is certain.
Meanwhile, even European countries that are not part of the Eurozone have been asked to make a financial contribution to aid Greece, causing deeper divisions at a time when the EU is in danger of fragmenting.
The IMF has cautioned a need for Greek debt relief
On the other hand there are those who insist that further bailouts, heaping ever greater debt on to Greece to the extent that it can never repay them and that the country will be impoverished in perpetuity, possibly leading to another civil war, perhaps military dictatorship or even intervention by Russia (which covets a NATO country on the Mediterranean and with which Syriza remains in dialogue) argue for at least some measure of debt relief.
Numbered amongst them is the IMF, which has threatened to withdraw support for Greece's latest bailout unless European leaders agree to substantial debt relief, seemingly a threat that would have the IMF shooting itself in the foot.
Then there are the humanitarian considerations, not only for the hundreds of refugees from across the Middle East and Africa who wash up on Greece's shores every day (especially on the island of Lesbos) but also for the Greeks themselves, many of whom have reached breaking point. The EU has already prepared detailed plans for humanitarian relief (food, water and medical supplies) to be provided on an emergency basis. It might still be needed sooner rather than later.
Contagion less of an issue
Economically speaking, the greatest fear amongst the technocrats who continue to debate Greece's future is, apart from the ultimate long-term break-up of the euro zone, the nearer-term potential for 'contagion' affecting other highly indebted countries that have been 'bailed out,' notably Spain, Portugal and Italy. (Note that some countries swallowed the austerity pill and have since come out of its induced come in a slimmer but fitter condition. A good example is Ireland). The overriding fear is of the further rise of Syriza-like parties in those countries, such as Podemos in Spain, and even Matteo Renzi's centre-left government in Italy has been quietly supportive of Syriza.
However, Portugal and Spain at least have taken steps to overhaul their economies that are starting to bear fruit and should be considered as less vulnerable to contagion than they were even this time last year. Greece is not in the same league as those countries or others in the EU.
Its gross government debt as a percentage of gross domestic product (GDP) is almost 180%, compared with Italy and Portugal (140%), Ireland (100%), the recently calamitous Cyprus (105%), Spain and France (100%), Britain (95%), Germany (60%) and the EU as a whole (90%). (Source: Eurostat).
Moreover, it appears that since Greece's debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer as vulnerable to what happens there.
Little the Greeks can do to help themselves now
Many will wonder what the Greek people can do to help themselves. Threats of public disorder appear to be in abeyance for the time being at least and that is a start. Otherwise, the answer is probably that there is very little to be done.
A significant reason for Greece's plight - though not the only one - has been grandiose buildings whose construction was underwritten by the EU but not the deployment and maintenance thereafter; early retirement on handsome pensions; tax avoidance on an industrial scale by one of the largest populations of 'self-employed' workers in Europe; and other such socio-economic issues. The opportunity has been there to redress these issues but it was not taken to the necessary degree. The result is that even more onerous austerity will now be visited on the population.
Finally there is also the country's 'disenfranchised' 40% of referendum 'yes' voters to consider. They will take the view that Syriza brought about their plight and spun it out unnecessarily by urging and getting a no vote and then capitulating to the 3I less than a week later, which then imposed even greater austerity. This 40% will comprise much of the economic backbone of the country and with such a bleak future now facing them many will leave if they can, and rapidly, while Greece still remains an EU member.
The lingering possibility of a Greek Exit ('Grexit') from the Euro remains. Such an eventuality would lead to considerable air transport - as well as macroeconomic - disruption. Even if Greece manages to remain 'together,' prospects for the air transport industry - airlines and airports - as well as for tourism might appear bleak.
But perhaps there is hope in these sectors. The purpose of this report is to present an overview of the Greek aviation scene as well as the depressing economic one, of where it has been and where it is going in the light of these events. Some of the conclusions are surprising.
Greece was in recession from 2008 to 2013 and again in 1Q2015
Greece's economy has suffered more than the rest of Europe's since the global financial crisis. The country was in recession (negative GDP growth) for six successive years from 2008 to 2013, before turning sluggishly positive in 2014, when GDP grew by just 0.8%.
During these years, the unemployment rate climbed from 7.8% in 20018 to a stunning peak of 27.5% of the workforce in 2013. This fell only slightly to 26.5% in 2014, still around twice the rate for the Eurozone as a whole. The IMF currently forecasts Greece's unemployment rate falling to 24.8% in 2015 and 22.1% in 2016, still very high levels. Meanwhile falling prices have kept inflation in negative territory in 2013, 2014 and the first half of 2015.
Youth unemployment is even more critical, peaking at 58.3% in 2013 before falling to 52.4% in 2014. Only Spain is worse, and in the undeveloped Ipeiros region in northwest Greece the youth employment rate is touching a barely imaginable 70%.
For all these catastrophic figures it is long term unemployment that is most worrying. The six worst regions in Europe for long term unemployment - and seven of the worst 10, are all in Greece, with levels between 70% and 80% of those seeking work.
As Mark Carney, Governor of the Bank of England, said recently, when people are unemployed for too long they lose their skills, the so called 'hysteresis' (itself an ancient Greek word).
And even those actually in work are underemployed. A staggering 72.1% of all part-time Greek workers wanted to work more hours in 2014, compared with 65.9% in Cyprus, 22.4% in the UK, and the EU average of 22.2%.
Little wonder perhaps that some observers have begun to conclude that if you are out of work in Greece there is a good chance you may never find employment there again.
Forecasting macroeconomic indicators for Greece is even more prone to error and uncertainty than it is for other countries at the moment. The IMF has not changed its official forecast since Apr-2015, when it predicted GDP growth of 2.5% in 2015, rising to 3.7% in 2016. In the first quarter of 2015, the Greek economy contracted once more and the IMF's forecasts must surely have risks to the downside.
Greece: annual change in GDP at constant prices (%)
Air passenger numbers returned to growth in 2013 and 2014
There is good news on the aviation front. Data from the Hellenic Civil Aviation Authority show that the Greek air travel market comprised 38.6 million passengers in 2014, an increase of 15% over 2013. This was the second successive year of growth after the years 2008 to 2012 suffered a contraction in four years out of five.
Greece: air passenger numbers (million) and annual change in passenger numbers (%) 2004 to 2014
With the exception of 2011, when passenger numbers increased in spite of falling GDP, the period from 2005 to 2012 displayed a close relationship between Greek GDP growth and the annual change in passenger numbers. Passenger growth in 2011 followed a significant reduction in airport charges, a measure designed by the Greek government to boost tourism.
In the past two years, however, passenger traffic growth has significantly outpaced GDP growth in Greece. In 2013, when GDP fell by 3.9%, passenger numbers grew by 6.0%; and in 2014, when GDP growth was only 0.8%, traffic jumped by 15.2%.
The superior growth of passenger traffic relative to Greek GDP in recent years highlights the importance of inbound leisure passengers, who have responded to falling costs across the country, including the islands which targeted visitors with greater disposable income. Ironically, the one single identifiable benefit of a 'Grexit' from the Euro and the adoption of the 'New Drachma' would be a much weaker currency which could attract an influx of tourists that might - just- be the catalyst required to jump-start the economy and provide the much-needed growth the 'Troika' or 'Three Institutions as it is now known (and especially the IMF) has demanded.
Interested parties ranging from Irish LCC Ryanair (which is currently offering free tickets on three Greek domestic services) to IATA Director General Tony Tyler have been quick to make this point.
Greece: annual change in passenger numbers and in GDP at constant prices (%) 2005 to 2014
Greece's international market is the main driver of traffic
The main driver of total passenger numbers is the international market. This consisted of 32.6 million passengers in 2014, up by 14.4% on 2013 and more than six million more than in 2012.
sHowever, the strong growth in total passenger numbers in 2014 was also due to the domestic market, which added more than one million passengers to reach 6.1 million in 2014 (growth of 22% over 2013).
Greece: domestic and international air passenger numbers (million) 2004 to 2014
Athens international market finally bounced back in 2014
The international market can be further sub-divided into the international market to/from Athens and that to/from the rest of Greece. The Athens market fell every year from 2008 to 2013, reflecting the economic environment.
The market from the Greek provinces also fell at the start of this period, but bounced back strongly in 2011, when the government slashed airport charges for all airports other than Athens. In addition, the greater leisure focus of the provincial airports also helped this market to perform better than Athens, since in-bound leisure travellers are not reliant on the Greek economy.
Growth in the Athens market under-performed versus the rest of Greece in the period 2010 to 2013, but bounced back strongly in 2014 to reach 9.9 million passengers, up 20.7% year on year. International passenger numbers in other Greek airports also grew strongly in 2014, up 11.8% to 22.8 million.
Greece: international air passenger numbers, Athens and rest of Greece (million) 2004 to 2014
Traffic growth in 2014 driven by Ryanair and Aegean
The strong growth of total passenger traffic in Greece in 2014 reflects both Ryanair's opening of new bases at Athens and Thessaloniki and Aegean Airlines' integration of Olympic Air, acquired the previous year.
Aegean itself only had one year of contraction, in 2010, but Olympic shrank from 6 million passengers in 2007 to less than 2 million in 2013. The combined traffic of the two fell every year from 2009 to 2013, but rebounded by 15% in 2014. These factors also helped to turn around the Athens market and to maintain the growth of the international market to/from the rest of Greece.
Greece's LCC share of seats continues to grow, to 40%
Although growth in the combined passenger numbers of Aegean and Olympic turned positive again in 2014, their combined market share only stabilised, 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).
Passenger numbers for Aegean Airlines/Olympic* and LCC share of seats to/from Greece 2004 to 2014
Further growth is expected in 2015, particularly in the summer as seasonality increases
The indications are that 2015 will be another year of double digit passenger traffic growth in Greece. Leading carrier Aegean Airlines has not yet reported 1H results, but in 1Q2015, its growth in passenger numbers was 13%, driven by a 22% increase in international passengers (domestic numbers grew by 7%). Aegean's Athens base continued to be the main driver of international expansion, with 26% growth and ten new destinations in the quarter.
Capacity data from OAG indicate that the early Aug-2015 peak summer week for capacity between Greece and Western Europe will have 24% more seats in this market than in the same week of 2014. This is a highly seasonal market, with the peak summer week in 2014 having almost five times the seat capacity of the lowest winter week in Jan-2015. OAG data currently suggest growth of around 9% year on year in the first week of Dec-2015, but the difference between peak summer and the winter low looks like increasing to more than six times.
The domestic market is also growing in 2015, according to OAG capacity data.
Routes within Greece will show seat growth of 15% year on year in the peak summer week, driven in particular by Ryanair's 47% growth. The first week of Dec-2015 currently indicates domestic seat growth of 4%, with Ryanair up 29%.
Aegean Airlines is the biggest airline in Greece, followed by Ryanair and easyJet
Foreign airlines deploy almost three quarters (73.5%) of all seats in the Greek market (week of 13-Jul-2015, source: OAG). The home grown Aegean Airlines is the leading operator, with a seat share of 23% (25% including its subsidiary Olympic Air, which only operates in the domestic market).
Ryanair is second, with a 9% share of seats, followed by easyJet with just less than 8%. The other leading airlines operating in Greece are all leisure-focused airlines from other European countries.
The leading global alliance in Greece is the Star Alliance, with a seat share of 30% (mainly reflecting Aegean's capacity), while non-aligned airlines have a 60% share (largely the result of the strength of LCCs in the country).
Leading airlines in Greece by total seat capacity 13-Jul-2015 to 19-Jul-2015
Aegean Airlines still dominates the domestic market, but Ryanair is growing rapidly
The domestic market, which accounts for less than 16% of total seats, has become more competitive following Ryanair's entry in 2013 and its rapid expansion since Mar-2014. The Aegean Group's share of domestic seats has fallen from over 90% Mar-2014 to 78% in Jul-2015, while Ryanair now has just under 15% of domestic seats (source: OAG).
Ryanair's onslaught on the domestic market is continuing. According to OAG data, Ryanair's domestic Greek seat capacity in the peak summer period will be around 45% higher in 2015 than in 2014, compared with growth of only around 3% for Aegean/Olympic.
Short/medium haul focus from Greece; long haul via other hubs
The international market from Greece is strongly short/medium haul focused. Europe accounts for 94% of international seats to/from Greece and the Middle East 3% (week of 13-Jul-2015, source: OAG).
North America takes less than 2% of international seats and North Africa and South East Asia well under 1% each. Even by ASKs, long haul markets account for less than 7% of capacity (primarily North America).
Greece: international seat capacity by region 13-Jul-2015 to 19-Jul-2015
Greek passengers must rely on other European hubs for long haul connections, particularly to North America. Long haul connections to the Americas and Africa are also facilitated by codeshare agreements between Aegean Airlines and its Star Alliance partners Lufthansa, Brussels Airlines, TAP Portugal, SAS and Ethiopian Airlines.
Looking east, Greece's connectivity with Asia is almost entirely indirect. Aegean carries the SQ code of Star's Singapore Airlines on services to Frankfurt, Heathrow, Milan Malpensa, Munich and Rome. This helps to feed SQ's Athens-Singapore service, which, in return, carries Aegean's A3 code.
Aegean code shares with Star Alliance partner Turkish Airlines on both airlines' services between Athens and Istanbul, from where Turkish offers connections to Asia and Africa.
Beyond the Star Alliance, the three Gulf-based super-connectors Qatar Airways, Emirates and Etihad all serve Athens from their own hubs in the Middle East, from where their networks can reach a wide range of Asia Pacific destinations. Aegean also has a code share agreement with Etihad, covering domestic destinations served by Aegean from Athens (in addition to Athens-Bucharest) and Etihad's Athens-Abu Dhabi service.
Athens is Greece's most important airport
Athens is Greece's most important airport for international arriving flights, combining both leisure and business traffic. Aegean is the leading airline at Athens, with 50% of seats (including Olympic), while Ryanair is second with 11%. Athens has almost three times as many international seats as number two ranked Heraklion, the principal city on the island of Crete. Aegean has 24% of seats at Heraklion, ahead of easyJet and TUIfly on 8% each (data source: OAG, week of 13-Jul-2015).
Although third ranked airport, and Greece's second largest city, Thessaloniki, is a major industrial centre, with a commercial port, most of Greece's largest airports outside Athens rely principally on tourism. Aegean has 35% of seats at Thessaloniki, where Ryanair has 25%.
At Rhodes, Aegean's share of seats is only 19%, while a range of leisure airlines have small shares each. EasyJet is the leader by seats at Corfu, with an 18% share, while Thomson Airways pushes Aegean into third and Ryanair into fourth. Ryanair is the largest airline at seventh ranked airport Chania, with 30% of seats to Aegean's 13%.
Greece: top ten airports for international arriving flights by seats 13-Jul-2015 to 19-Jul-2015
Domestic market accounts for Greece's two biggest routes
The two biggest air routes in Greece are domestic: Athens to Greece's second city Thessaloniki (37,000 weekly seats) and Athens to Thira on the island of Santorini (36,000 seats).
There are also four other domestic routes from Athens with more than 15,000 weekly seats, all to island destinations: Heraklion, Chania, Ioannis, Rhodes and Mykonos (week of 13-Jul-2015, source: OAG).
Greece: top ten domestic routes by seats 13-Jul-2015 to 19-Jul-2015
|
Rank |
Origin |
Destination |
Total Seats |
|---|---|---|---|
|
1 |
37,484 |
||
|
2 |
26,284 |
||
|
3 |
18,540 |
||
|
4 |
17,238 |
||
|
5 |
16,006 |
||
|
6 |
15,200 |
||
|
7 |
6,748 |
||
|
8 |
6,024 |
||
|
9 |
5,376 |
||
|
10 |
5,048 |
Europe's major hubs feature strongly in the top ten international routes from Greece
Not surprisingly, given Greece's lack of long haul connections, the list of top ten international routes from the country is dominated by services between Athens and major European hubs. Star Alliance hubs at Istanbul, Munich, Frankfurt and Zurich are all in the list, as are Europe's two biggest airports, London Heathrow and Paris CDG.
These major European airports are based in the largest European countries, as is Rome Fiumicino, and these countries are also important sources for inbound leisure travellers to Greece.
Ethnic and cultural links between Greece and Cyprus explain the presence of Larnaca in the top ten international destinations, while Greece's importance as a tourist destination (particularly to northern European countries) is illustrated by the appearance of two services from London Gatwick (to Heraklion and Corfu).
Greece: top ten international routes by seats 13-Jul-2015 to 19-Jul-2015
|
Rank |
Origin |
Destination |
Total Seats |
|
|---|---|---|---|---|
|
1 |
22,378 |
|
||
|
2 |
19,993 |
|
||
|
3 |
17,766 |
|
||
|
4 |
17,108 |
|
||
|
5 |
16,338 |
|
||
|
6 |
12,704 |
|
||
|
7 |
11,530 |
|
||
|
8 |
10,640 |
|
||
|
9 |
10,502 |
|
||
|
10 |
8,762 |
|
||
Airport traffic growth is strong across different airport types
The strength of passenger traffic growth is reflected in individual airport traffic figures bridging a four year period, 2011-2014.
As mentioned previously, the greater leisure focus of the provincial airports helped their markets to perform better than Athens, since in-bound leisure travellers are not reliant on the Greek economy. But what we find is that particularly in the period 2013-2014 a cross-section of airports demonstrated solid passenger growth. In the case of Athens it was +21.2% (having fallen by 3.2% in the previous year).
Despite this promising outlook at Athens and the individual airline free ticket offer made by Ryanair that was referred to earlier, the airport has, since early Jul-2015, been offering as many tickets as possible at "very low fares" of EUR0 to EUR10 "in view of the extremely difficult conditions experienced currently in our country." It took what it described as "a special Corporate Responsibility action."
From 13-Jul-2015 to 26-Jul-2015 and for each one-way ticket below EUR10, the airport stated it would reimburse airlines with EUR25.
The airport said: "This initiative is expected to be strongly supported by the carriers flying to domestic destinations out of Athens in order to offer to the domestic market approximately 15,000 one-way tickets at prices ranging from EUR0 to EUR10".
It was only a short-term offer, but a creative and welcome one. Each eligible ticket had to be sold and flown between 13-Jul and 26-Jul-015.
In the industrial Thessaloniki growth was +27.9% (from stable in 2012-13); and at Heraklion on the major island of Crete traffic rose by 6.1% although in Heraklion's case that was less than half the amount achieved the year before.
Looking at two leisure-oriented airports on the western and eastern extremities of the country respectively, Corfu's 2013-14 traffic growth was 12.9%, up 2.9 percentage points on the previous years, while at Rhodes traffic grew to 4.6 million, +8.4% and slightly down on the previous year's increase.
Upmarket Santorini records the highest passenger gain - and has plenty of heat left in it
Finally, the case of Santorini Airport is perhaps the most interesting of all. Santorini is one of the world's most upmarket small vacation islands, with a tourism offer that is aimed unashamedly at a wealthy clientele. Passenger growth there was an amazing 31.3% in 2013-14, almost double that of an already impressive 2012-13 figure.
In the CAPA report https://centreforaviation.com/analysis/reports/greece-to-try-to-lease-21-regional-airports-as-debt-pressures-force-new-strategies-101355 (Mar-2013) Santorini was highlighted as one of the islands desperate to hang on to a dwindling tourist clientele in 2012 but even then the decline was nothing like as sharp as on many of the more mainstream tourist islands.
A reasonable conclusion would be that affluent tourists have not been influenced by the economic crisis to desert these islands and the pattern of growth observed generally now will escalate - at least according to this sample - if and when some sort of normality returns to the nation.
After all, there is (so far) no terrorism in Greece, compared to some of the alternative vacation spots that Europeans have chosen latterly, such as Egypt, Turkey and Tunisia.
Traffic charts for each of these airports are published below.
Athens International Airport annual passenger numbers, 2011-2014
Thessaloniki Makedonia Airport annual passenger numbers, 2011-2014
Heraklion Nikos Kazantzakis Airport annual passenger numbers, 2011-2014
Corfu International Airport annual passenger numbers, 2011-2014
Rhodes Diagoras Airport annual passenger numbers, 2011-2014
Thira Santorini Airport annual passenger numbers, 2011-2014
A bright aviation foreground, despite the dark background
With this sort of growth in Greece's aviation market there is cause for hope that the tourism industry can play a larger part in supporting a Greek recovery. There are undoubtedly serious underlying concerns, notably very high levels of unemployment and the resultant potential for social disruption. And it is hard to imagine that any of Greece's fundamental problems have been solved - or indeed that they are soluble.
Tourism alone cannot save Greece, but it is some comfort that the sector is likely to continue growing in its recent robust way.
This is Part 1 of a two part report on Greece.
See also: Greece aviation and tourism - Part 2: Airport privatisation prospects improve as the market grows