ANALYSIS: Aegean’s turnaround

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Amid riots on the streets of Athens, a painful economic bailout package and a political crisis in 2012, Greece’s Aegean Airlines experienced what its chief executive admits was the worst six months of its 15-year existence.

Chief executive Dimitrios Gerogiannis says 2012 “was a very bad year for Greece: tourism was very negative, there were a lot of demonstrations and the image of Greece was tarnished abroad, so during the elections we had, there was a lot of fear about the chaotic bankruptcy of the country and exit from the eurozone.

“We had the worst-ever six-month period at Aegean in terms of results. So we were extremely careful and developed various scenarios in case there was be a uncontrolled bankruptcy of the country and things developed really badly economically.”

But despite these conditions, Aegean managed to make a €70.9 million ($97.7 million) profit in 2013, reversing a €12.6 million loss in 2012. How did it manage such a turnaround?

Gerogiannis says the airline began shifting its strategy as early as 2010, tapping new leisure traffic opportunities and pursuing a “conservative” growth programme to avoid having to withdraw completely from its lucrative international markets.

In 2012 Aegean's financial health was already improving as it reduced its loss from €27.2 million in 2011.

As business traffic into Greece collapsed and the attractiveness of Athens as a destination diminished in 2012, Aegean began moving capacity out of the capital to new regional bases in Thessaloniki, Kalamata and Kos, and significantly expanding its operations out of Heraklion.

That process continues and in 2014 Aegean is adding Chania as its eighth bases outside Athens, with Thessaloniki and Heraklion the largest with five aircraft each, followed by Rhodes with four and the rest with one aircraft each.

“As the crisis developed in Greece and the attractiveness of Athens dropped, especially in 2008, with all the demonstrations, we started deploying in the summer more and more outside Athens and going into the leisure market. Therefore, in the past four years, we developed our presence gradually in seven bases outside Athens,” says Gerogiannis.

In line with the shift away from Athens, Aegean focused on the international leisure market into the islands and new direct international services were added. Routes from Heraklion were added steadily in 2012 and 2013 to such destinations as Frankfurt, Moscow and St Petersburg.

In 2014 the carrier will operate 27 routes from Rhodes, 15 from Thessaloniki and 40 routes from Heraklion – just five fewer than from Athens. Also significant is the choice of destinations, with Aegean targeting secondary cities such as Birmingham, Hannover and Nantes this year.

Gerogiannis admits that a limited recovery in Greece’s tourism numbers and economic picture since 2012 also contributed to the improved result, allowing Aegean to deploy 30 aircraft rather than 25 in 2012.

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Having finally been granted permission by Europe to merge with Olympic Air in 2013, Aegean can now expand once more, but at least initially the merger had a negative impact on the carrier.

Olympic made a €12.7 million loss in 2013, dragging down Aegean’s own result on a pro-forma basis, and it is expected to “remain loss-making”. But the benefits of the tie-up are still expected to outweigh the negatives.

Gerogiannis says Aegean is actively trying to streamline its international and domestic connections and that “the acquisition of Olympic is assisting us in that”.

There will also be synergies such as the two airlines jointly relocating from four premises to two and all the associated benefits of merging their IT, marketing and technical support.

Aegean’s positive result in 2013 was all the more impressive given the relentless competitive pressure it faces from European low-cost carriers which smell blood in the Greek market.

Ryanair will base three aircraft at Athens and Thessaloniki in April and operate nine new routes including several to domestic destinations. It predicts it will handle 2.8 million passengers across the two airports in 2015. EasyJet also has a significant presence in the country.

While Gerogiannis admits that competition is a concern, he adds that Aegean is no stranger to competition.

“Because we grew into a very competitive environment abroad, we grew to become very cost conscious and productivity- and efficiency improvement-driven [but] the same quality of service is our top priority.

“So these are the two elements: focus on quality of service, and further improve our cost competitiveness, which we are doing relentlessly. Those are the two elements that will help us deal with competitive pressures,” the Aegean chief says.

So can Aegean repeat the success of 2013? Gerogiannis is keeping cautious: “In any business, just because you had a good year you cannot just predict that the next year will be as good or even better than previously. If we could do such a prognosis, we would not running a company; we would be sitting there making money out of the prognosis.”