Business sector disappointed over decision to suspended incentives to airlines

Hoteliers and businesses are disappointed by the government decision to suspend financial incentives to airlines to use Larnaca and Paphos airports, they said on Thursday.

The director-general of the Cyprus Hotel Association (Pasyxe) Philokypros Roussounides said this action by the government failed to benefit anyone.

He added that the hoteliers and others in the tourism sector have worked hard in recent years to increase the connectivity of Cyprus.

“We shouldn’t target sectors that have been beneficial to the economy,” he said.

On Tuesday, in a joint statement the finance and transport ministries said the government would cease talks with the Hermes Airports consortium over expansion works at the two airports and the incentive schemes for 2022-2030 period due to the toxic climate in the country caused by the upcoming presidential elections.

In a statement on Wednesday, the Cyprus Chamber of Commerce and Industry (Keve) expressed its disappointment and severe concern over the government decision.

“As an island, the country is totally dependent on its air connectivity with the outside world for tourism, business, investment and individual purposes and this necessity of citizens and businesses cannot be compromised,” Keve said.

Keve said that the airline incentives were given precisely to solve the problem of insufficient flights to Cyprus to support both tourism and the expanded connectivity of Cyprus with the outside world, an action which yielded tangible results such as an increase in passenger traffic by 65 per cent and the addition of over 110 new routes.

The comments came two days after the auditor-general in parliament flagged the ongoing negotiations.

The ministries were responding to criticism heard a day earlier in parliament regarding ongoing negotiations between the government and Hermes on two issues – extending the airports concession, and planned expansion works at the two airports, which Hermes was supposed to carry out.

The airline incentive scheme has been running since 2012, with the first airline to benefit from it then being Ryanair.

Since then, the airport operator, Hermes, has launched new schemes, which are uploaded on its website.

Hermes says they, “offer an extensive package of incentives designed to support airlines that develop their business in Cyprus.

Incentives are offered to all qualifying airlines in an effort to promote growth in the number of passengers travelling to/from Cyprus, either from new or existing routes and to encourage passengers and tourists on a year-round basis. The amount in incentives is based on minimum load factors where the airline receives money for the number of passengers over and above a certain percentage of seats filled.

According to the statement from the ministries on Tuesday, the government and Hermes were in talks on two issues, expansion works at the airports and extending the company’s concession for running the airports, which have become interrelated. The two parties had earlier taken recourse to an arbitration process, where the state wanted to force Hermes to either carry out the Phase 2 expansion works – as stipulated in the initial contract – or else compensate the Republic.

That arbitration was then suspended, and talks initiated to find a compromise where Hermes would fulfil its obligation regarding the expansions – estimated to cost some €150 million – and in return it would be granted a time extension on its concession over the airports. Hermes would also waive any claims for compensation from the state in relation to lost revenues due to the coronavirus pandemic and the fallout from EU sanctions on Russia.