Never trust Greeks bringing gifts, so the saying goes. It is to be hoped that doesn't apply to Greeks receiving gifts.
Where is Hercules when he's needed? Unless he or the ancient gods intervene and provide a timely miracle, Greek flag carrier Olympic will require another sizeable gift from the European Commission and the Greek government to pull through.
Olympic is being held up as a test case in the government's efforts to accelerate structural reforms so that Greece can qualify for membership of the European single currency by 2001.
But the struggling state carrier's survival depends on how quickly Greece's transport ministry can revive a stalled agreement with the Commission. The agreement would provide GDr35 billion (US$115 million) in state aid - a capital increase of GDr23 billion in 1998 and GDr12 billion in 1999, as well as government guarantees for new aircraft. The funds, outstanding from an original GDr532 billion state aid package approved in August 1994, have been frozen for two years due to concerns at the Commision over government intervention in the airline's affairs. The Commission needs to approve Olympic's rescue plan before it can hand over the vital case.
And approval had better come quick. Even Theodoros Tsakiridis, brought back as chairman and chief executive on 15 January 1998 (he served as director general from 1993-5), admits that 'Yes, we're going through a difficult time and time is running out fast.'
Many speculate that Olympic may be the first state European airline to disappear. The airline is increasingly unprofitable, with losses of GDr6.5 billion in 1997, and estimates the deficit will widen to GDr60 billion over the next five years without drastic cost cutting measures. Falling passenger numbers following a summer of industrial turmoil led to daily flight cancellations which have brought the airline to the point of bankruptcy. Olympic's chairmen have led a merry Greek dance, with constant management changes - in 1998 the airline had gone through two new chairmen before the end of January. Other problems include a mish-mash of different aircraft types; a network which is in dire need of restructuring and the fact that Olympic stands alone in its plight, without alliance partners, facing the onslaught of domestic competitors like Cronos and Air Greece and the entry of low-cost overseas operators such as EasyJet.
But help seems to be at hand. The Commission has hired consultants Deloitte Touche to review new 'more realistic' restructuring plans drawn up for Olympic by local consultants Kantor. Their job is to determine whether the plan is likely to leave the airline viable. At presstime, a source revealed that the Commission was 'generally happy' with the revival plan which it was 'close to approving'.
A senior Commission source says the new plan focuses on improving yields and rationalising routes and fleet acquisition. 'The aim of the plan is to give the airline some direction for the next three, four or five years and return the airline to profitability so it doesn't require further state aid,' says Deloitte's head of air consultants, Mark Darby.
Privatisation 'doesn't really come into it', says the Commission source. The future privatisation of Olympic remains 'a big issue which at the moment we have not studied', confirms Tsakiridis. But some form of privatisation is inevitable for Olympic, which has become a symbol of the malaise of the Greek public sector. The only solution for Olympic is 'to take it entirely out of the state sector', believes one airline source.
And the Greeks are apparently quite happy for the flag carrier to fall into foreign hands. The Greek government would be delighted if a foreign airline came in and took a stake in the airline, says one analyst. The president of Olympic's main pilots' union, Halpa, John Aehanassoeoulos, declares 'we don't really care who the airline is. The majority owner can be foreign - we just want the airline to keep on flying.'
The unions certainly don't seem to be interested in taking a stake themselves. 'No, no, no, we wouldn't want an employee stake in exchange for concessions,' says Giselle Doulavera of Olympic's main cabin crew union, EISF.
While privatisation is a near certainty, fundamental restructuring is needed first.
One of the most essential targets of reform is labour. Industrial unrest has escalated over the last four months and, at presstime, two to three flights were being cancelled daily, with more flights due to be cancelled with the introduction of the summer schedule on 21 June. Trade unions are furious at the moves to restructure Olympic. 'It's like treating a patient that needs urgent surgery with pills,' says one Greek source.
Olympic pilots are working to rule and sceptical of any future restructuring plans. 'All the restructuring is just about cost-saving - there's no rescheduling of routes or redeploying of aircraft types, it's all just about pay cuts,' says Aehanassoeoulos.
Tsakiridis sees the main problem with the traditionally powerful unions as being that 'they don't understand changes in the market therefore their response to changes is very negative'.
Olympic urgently needs to tackle soaring labour costs, which Tsakiridis sees as the essential flaw in the original plan. 'The first plan failed due to the tremendous increase in salaries and the complete lack of control of labour costs', says Tsakiridis.
In 1997 management granted 30-35 per cent wage increases at a time when other airlines were lowering their wages, on top of an 8 per cent wage increase in 1996, says the airline source.
But Tsakiridis is hopeful that changes in work rules introduced last April will bring annual savings of GDr12 billion. The revised work rules include a 10 per cent cut in salary and the freezing of wages and personnel at 1997 levels up to the year 2000.
More flexible working hours include ground personnel working to demand. A multiple task scheme for ground employees and a split shift timetable has also been introduced. The airline has tried to increase staff productivity to meet international flying standards, raising its flight crews' flying hours by 8 per cent and decreasing rest times. Seasonal staff numbers have been cut by 15 per cent, with another 30 per cent reduction planned by 2000. Insurance, medical expenses and meal allowances are down by 50 per cent and holiday allowances have been reduced from 11 to eight days per month, including weekends.
A reorganisation will shift 1,000 managers from Olympic's offices to the airport, with a total 12 per cent of administration staff retrained and redirected to airport services. The hierarchy is to be reduced from eight levels to four.
Unions, however, feel as if they have had 'a gun held against their head' forcing them to accept changes, says EISF's Doulaveri. 'If you didn't go along with the law, you had to get out of the company,' says Doulaveri.
Unions say employee disgust has left the airline with a problem. The carrier now has too few employees, as many have taken advantage of generous redundancy packages. Of some 7,000 employees, some 300 recently resigned. 'We're so short of pilots, cabin crew and technical staff that we can hardly carry out the flights,' claims Halpa's Aehanassoeoulos.
While it works to calm employee unrest, the airline is also sorting out its management. Olympic is looking to recruit six new general managers from the market. 'We need a new blend of top management for new, fresh ideas,' says Tsakiridis.
One of the management's tasks will be to refocus on Olympic's core business and examine the future of its subsidiaries. The airline plans to privatise 25 per cent of its wholly owned catering, cargo and ground-handling operations this year, followed by 24 per cent next year.
A ground-handling business unit has already been created and this will be turned into an independent affiliate to help appease the negative impact of the end of the ground-handling monopoly in July. A large proportion of net earnings comes from ground handling.
Olympic also means to concentrate on its core business via its two affiliates. Macedonia Airlines, the wholly owned charter operation established in 1992, started operations this year with two DC-9-32s. Two more are expected next year. Olympic also owns a domestic, low cost regional carrier, Olympic Aviation, which operates a fleet of 12 ATRs and six Fairchild Dorniers with 550 personnel.
Olympic's fleet replacement programme is a key part of the airline's restructuring plan. Tsakiridis admits that 'there will have to be a lot of effort on the fleet side'.
Yet Olympic is confident that the Commission will unfreeze the US$378 million in government guarantees allocated for the purchase of new aircraft, covering a significant portion of the financing. Provided this happens, the airline expects to receive four new Airbus 340s between September 1998 and June 1999 with eight new Boeing 737-800s due in spring 2000. One source points out though that 'Olympic's freight business is going to suffer as you can't carry palletised freight on 737s'. Tsakiridis says that Olympic will order seven short to medium-range aircraft for the European network by 2002. Olympic has returned four A300s to IFLC replacing them instead with six leased 737-400s.
As well as diminishing load factors, Olympic's fares are below the European average. 'We have to improve our yield which at the moment is the lowest in Europe and has considerable grounds for improvement,' says Tsakiridis. In June the airline introduced a return fare of $249 to any destination in Europe in a desperate attempt to win back traffic lost due to industrial action.
Olympic is targeting a 2 per cent annual increase in yield from 1998 to 2000, which Tsakiridis is confident can be achieved through more effective sales and its fleet renewal programme. Further opportunities lie in the increase in passengers to be brought by the Olympic Games to be held in Athens in 2004.
Once its fleet is in better shape, Olympic will need to develop a more competitive network. There has been no rationalisation of routes during the last two years and Tsakiridis says that Olympic is set to redesign its route network and increase its presence in Europe. New routes to Manchester, Lisbon, Prague and Warsaw will open in 2001 and services to new Turkish destinations will be added in 2002.
The plethora of Greek islands poses a further problem. Part of the flag carrier's marketing strategy is to maintain a strong presence in Greece, yet many of the routes are unprofitable. Doulavera fears that if the airline were privatised, unprofitable services to small islands would be abandoned, removing lifelines.
Tsakiridis hopes to exploit opportunities brought by the opening in 2001 of the new airport in Athens, which he describes as 'one of the most modern airports in Southern Europe and the Middle East and an excellent gateway for the rest of Europe'.
Although Olympic is set to restructure its route network. the final layout will depend, however, on the alliance that Olympic will try to establish next year. 'Dramatic restructuring could pave the way for an alliance strategy which could position Olympic as a strong component of an alliance group,' predicts Frank Wade of SH&E.
While alliances stand out as an obvious requirement for Olympic, the airline is 'not ready yet' but 'hopes that talks will start after tidying up house, at the beginning of 1999', says Tsakiridis.
The chairman recognises 'the trend to go to the big alliances already formed in Europe' and is also studying alliances with 'specific airlines in specific geographical regions', he adds.
Without a partner, Olympic remains vulnerable to the onslaught of competition, following the opening of the home market and the deregulation of Europe's skies. Olympic lacks a strategy to deal with low-cost competitors like EasyJet which was to launch a daily service from London/Luton to Athens on 10 July, increasing to twice daily after one week. EasyJet is offering a one-way fare of £69 (US$115) inclusive of tax, a third of Olympic's current fares.
'Olympic will have to face competition from new carriers like EasyJet and up to now hasn't done so,' says Tsakiridis.
EasyJet's Greek chairman Stelios Haji-Ioannou quashes speculation that he may be interested in a takeover or a stake in Olympic, declaring 'I would not touch Olympic even if they gave it to me'.
Some wonder who will be interested in a stake in the struggling Greek airline. Others, meanwhile, are more optimistic. Wade says Olympic's primary need is to 'recognise the market opportunity that's present there, face the growing market demand head on and meet it through a product that is perceived to be dependable'.
Wade stresses that if Olympic addresses its weaknesses properly and swiftly and fundamental restructuring measures are implemented, then 'Olympic has the potential of a solid future as a regional component of a global network'.
Olympic has a long list of tasks to deal with. They include establishing the right network, fleet and service levels, building a cash base and putting quality management in place. But with Herculean effort, who knows what the future will bring ?
Source: Airline Business
