The report below was written in 2004 as a draft for a potential client interested in the feasibility of establishing an airline operation in the Turkish Republic of Northern Cyprus.

Scope

This report has been assembled and structured to provide two distinct elements; an overview of current airline operations in The Turkish Republic of Northern Cyprus (TRNC) and a number of areas to be considered by a potential new entry to the market.

Where assumptions have been made, these are clearly shown within the body of the report. In addition, a limited knowledge of airline operations and commercial airliners has been assumed. The report has reflected the political situation and political reality as at March 2004. Any potential settlement coinciding with Cypriot accession to the EU on 1st May 2004 has not been anticipated nor assumed except where specifically referred to.

Executive Summary

Such limited operations and limiting factors pose unique challenges to a potential new operator. Under the current political situation a new airline would need to be licensed in the TRNC or Turkey using Turkish registered equipment and using an intermediate point on the Turkish mainland for all services. This said, and in advance of any detailed analysis and business plan, there are clearly currently a limited number of available seats and operators serving the airports of the TRNC. There is also clearly a vibrant expatriate property market which could provide capacity for an additional scheduled operator.

This report has aimed to provide an overview of the subject and some areas have been discussed briefly. There remains much scope for development of ideas and for more detailed research should this be felt appropriate.

Current Infrastructure & Airline Operations

1. The Political Situation

Current advice from the Australian Government Department of Foreign Affairs summarises the status of civil airports in the TRNC. “The Cypriot Government has designated the airports of Larnaca and Paphos and the seaports of Limassol and Paphos as the only legal ports of entry into and exit from Cyprus. Entry or exits via any air or seaport in northern Cyprus, including Ercan Airport and the ports of Kyrenia and Famagusta, are regarded by the Cypriot Government as illegal. While it is possible for visitors to arrive at airports and seaports in the north, they should not expect to cross into the southern part of Cyprus. Doing so risks arrest, imprisonment and a lifetime ban on entering the Republic again.” As Ercan (and Gecitkale) Airport is not recognized as port of entry, anyone who has a TRNC immigration may be refused entry by the ROC or Greece. The ROC permits day trips only into the TRNC across the “Green Line” in Nicosia, but visits from the other direction are not permitted. All passenger air traffic must then enter and exit the TRNC.

2. Airport Infrastructure

There are two airports licensed by the TRNC for commercial airline traffic both offering scheduled services.

Ercan (Code ECN) Also known as Tymbou
Location 10 miles east, slightly south of Nicosia
Runways 2 Asphalt – 9038 x147 ft, 5905 x 98 ft
Elevation 402 ft
Opened 1974
This airport is the principal airport for the TRNC and is the base for Cyprus Turkish Airlines – KTHY. It also receives charter flights operated by Onur Air.

N.B. This airport has been closed for extensive refurbishment and runway repairs since 10th September 2003. It is scheduled to reopen on 30th March 2004. In the interim, all commercial services have been diverted to Gecitkale.

Gecitkale (Code GEC) Also known as Lefkoniko
Location 28 miles north, east of Nicosia, close to Famagusta
Runways 1 Asphalt – 9350 x 147 ft
Elevation 143 ft
Opened 1986
This airfield is the principal military airbase of the TRNC with a small civilian terminal. This airport receives scheduled flights by Turkish Airlines – THY.

Note – Nicosia Airport
Nicosia Airport was partially destroyed in the conflict of 1974 and remains out of use.

3. Airline Operators

Three operators currently offer services to the TRNC, two scheduled (KTHY, THY) and one charter (Onur Air). All are either based in the TRNC or in mainland Turkey and fly aircraft registered under Turkish marks.

Cyprus Turkish Airlines – Kibris Turk Hava Yollari - KTHY (Codes YK/KYV)

Radio Callsign – Air Kibris
Founded 1974, ownership – 50% Cyprus Development Fund, 50% Privatisation Programme (shares formerly held by THY)
The designated national carrier of the TRNC operated its first scheduled flight on 3rd February 1975 (with aircraft transferred from THY). First service via Turkey to London was operated in 1981. The airline has used a variety of aircraft types since inception, often sourced from THY (including DC9-32, Boeing 727-200 and Airbus A310-200).Aircraft are configured in an all-economy layout.
The tour operator CTA Holidays is a wholly owned subsidiary.

Current fleet:
2 Airbus A310-200 (configuration – one with 230 seats, the other 246) Owned – 1 formerly Air France (built 1982), 1 formerly THY (built 1986)
3 Boeing 737-800 (configuration – 177 seats) Leased – 1, GE Capital Aviation, 2, SunRock Aviation (built 2000/2001)
1 Airbus A321 200 (configuration – 209 seats) Leased from GE Capital Aviation (built 2001) Delivered March 2004
With 2 more to follow from the same source to replace the Airbus A310s

Network:
Traffic is seasonal and there is an increase in frequency and destinations served during the peak summer season.
Scheduled flights are operated from Ercan Airport to destinations in Turkey. Some of those services continue (using different flight numbers) to various airports in the United Kingdom.

Current schedule to Turkey:

Current (winter) schedule to UK (via Turkey):
N.B. The frequency for the ECN-Turkey sectors are included in those listed above

This schedule provides a total of 1422 weekly seats to the UK.
The 2003 summer schedule provided a total of 3784 weekly seats over the following enhanced network and frequency:

The schedule to Turkey was also increased, with weekly flights to Dalaman (1 hr 15 minutes) being added.

Although based on surveys of reported individual experiences, there is much available material on specialist airline websites reporting “poor” levels of service and timekeeping on services to the UK.

Turkish Airlines – Turk Hava Yollari – THY (Codes TK/THY)

Radio Callsign – Turk Air
The Turkish national carrier operates a large fleet of Boeing and Airbus aircraft on an extensive short medium and long haul network. With a change of plane in Turkey (principally in Istanbul), passengers can connect from worldwide destinations to the TRNC.
All THY services to the TRNC use Gecitkale Airport and are operated by aircraft offering both business and economy classes.

The current schedule is as follows:

Onur Air (Codes 8Q/OHY)

Radio Callsign – Onur Air
Onur Air is Turkey’s largest independent airline and operates a network of charter and inclusive-tour flights throughout Europe and the Middle East. The disparate fleet has been sourced from various leasing companies and comprises a mixture of Airbus and MD (Boeing) wide and narrow bodied aircraft.
In the summer of 2003, Onur Air operated a limited number of charter flights as part of inclusive-tour packages with some tickets also being sold on a seat-only basis. Aircraft operate in a single class economy charter layout.

The schedule was as follows:

4. The Republic Of Cyprus (ROC)

With the current international restrictions on travel to the TRNC (outlined in 1. above), airports and commercial operators in the ROC fall outside the bounds of this survey. It must be noted however that the range of operators, frequency, level of service and number of seats available, is considerably greater than that currently available in the north. As an example, there are currently 35 weekly flights scheduled from Larnaca to London with a further 16 from Paphos. These figures exclude other UK destinations or charter flights.

A New Airline Operation - Scenarios & Equipment

1. Overview
With the previously documented political restrictions on air travel to the TRNC, tourism to the north is minimal. More than one million British tourists visit Cyprus each year, the vast majority of these visit the ROC via Larnaca and Paphos airports. If an agreement were to be reached to reunify the island, and timed to coincide with Cypriot accession to the EU on the 1st May 2004, air travel to Cyprus would be transformed.

It is assumed that Ercan airport would remain the principal gateway to the north. It could be anticipated that any agreement would lead to the removal of the international restrictions and to the introduction of direct international services from the north. Airport and general infrastructure in the north would need to be reassessed in the light of rapidly developing open markets. It has however been widely suggested in the Cypriot media that the disused Nicosia airport be reactivated to serve as the principal gateway for the united island.

The following notes discuss two possible scenarios, based on an agreement being signed or on the maintenance of the status quo. They also discuss possible elements of a new service, equipment options and the possible sources for such equipment.

2. Operation Scenarios
a) A reunited Cyprus
Whilst any discussion post-unification is speculative, it is anticipated that a new scheduled operator to what is now the TRNC could be based in Cyprus, the UK, in another EU country or in a third party (such as Turkey). It would further be anticipated that regulatory authorities would be keen to grant route licences to Ercan (for example) to stimulate links and develop the tourist industry of the north. An airline based in an EU country can apply for licences and operate within any country of the EU (hence the Belgian VLM service between London and Manchester). This would perhaps offer any new entrant immediate access to additional large markets outside the confines of the UK. This should also enable such an operator based in Cyprus itself to open regional (or even domestic) routes to cater for seasonal low demand or for aircraft inactivity at the beginning or end of a day.
b) TRNC
A new entrant to the existing limited market in the TRNC would require headquartering either there or in mainland Turkey. The carrier would require aircraft under Turkish registration, to be licensed and operate under a Turkish AOC. Operations would need to abide by the current procedures for making an en-route stop at a point in Turkey in both directions of a service to the TRNC. Such an operator would also need to apply for route licences from the Turkish authorities and to compete directly with THY and KTHY. It is understood that the Turkish government will not allow a Turkish airline to operate with less than two aircraft.

3. The Operation
It is assumed that the target market for any airline operation to northern Cyprus will aim to cater to established business and leisure markets in the UK. These markets would cover business travellers, VFOR (visiting friends or relatives), expatriate property owners and other independent holiday traffic. Whilst initially focussing on the UK, within an EU framework, potential markets within Western Europe (Frankfurt, Brussels, Amsterdam) would also obviously be open to exploitation.

Based on an assumption that the majority of travellers to use a new service would be travelling for leisure, a relatively low-cost operation could be envisaged. Possible elements would include:
- Single class (all-economy) seating (industry standard seat-pitch 29-30”)
- Inflight catering on a passenger purchase basis
- Relatively high frequency (i.e. daily) service
- E-ticketing
- Internet booking
- Seat allocation on a numbered block basis

The brief is that a new operation should use a terminal in the south east of England. These could obviously include Gatwick, Stansted and Luton. Choice of UK base would be clearly dependent on air traffic control slot restrictions, terminal capacity and operating charges. Alternatively, it is possible that such an operation could utilise smaller regional airports (Manston, Cambridge, Coventry or even Bristol) but a clear case would need to demonstrate dynamic transport infrastructure, terminal facilities and ready catchment area for such a service from all markets (including a local Turkish Cypriot community, as with North London).

4. Equipment
Assuming a relatively high-frequency, low-cost model of operation of flights from Cyprus to the UK and Western Europe, certain types/categories of airliners could be considered. Aircraft would need sufficient payload/range to allow non-stop operations without the need for en-route fuel stops even in adverse weather (i.e. mid-winter). As the operation would be a start-up, it is assumed that relatively low capacity (i.e. narrow bodied) aircraft would be required until demonstrable load growth could be achieved.

Relevant aircraft fall into two distinct groups –
“Classic” older aircraft (generally built in the 1980s) lacking modern technology and with relatively high cost per seat mile but with ready availability on the second-hand/leasing market.
“New-Generation” aircraft provide state of the art accommodation, relatively low fuel-burn and cost per seat mile and are available both new and second-hand and for lease.

Other Classic aircraft are readily available on the second-hand and leasing market. Boeing 737-200, Boeing 727-200 and Douglas DC9-30 and DC9-50 were built largely in the 1970s and early 1980s but will soon not be able to find use within the EU following staged implementation of noise directives.

5. Equipment Sources
There are four principal options for sourcing equipment; purchase of new aircraft, purchase of second-hand aircraft, leasing via a wet-lease (ACMI) agreement or leasing via a dry-lease. With the exception of the third, each requires the setting up of an airline “from scratch,” the obtaining of an Air Operator’s Certificate (AOC), the hiring of cabin and cockpit crew and the arranging of aircraft registration and all insurances. Aircraft cockpit and cabin crew can be readily sourced from specialist agencies/operators.

New Aircraft – straightforward purchase of new aircraft from the manufacturer from delivery positions or completed aircraft from stock (due to cancelled client orders).

Second-hand Aircraft – purchase of used airframes from the previous operator, from financial institutions or from manufacturers who had taken the aircraft in part-exchange on new client orders. Substantial stocks of such aircraft exist following the post-9/11 industry down-turn and regular re-equipment by the world’s airlines. The bulk of second-hand aircraft remain those in the “Classic” category cited above. Re-equipment by major airlines has placed significant fleets in this market (US Airways B737-300, B737-400, Lufthansa B737-300, Swiss MD80, Continental B737-300, MD80).

Leasing – Wet-Lease (ACMI – Aircraft, Crew, Maintenance & Insurance) – an aircraft rental package usually based on a minimum number of block hours per month. The lease will include the aircraft, one or more complete crews, maintenance and insurance for the aircraft. The lessee covers the cost of fuel, local taxes and insurance for passengers and cargo. Additionally, the lessee must cover the flight/navigation charges and generally (but not exclusively) requires that the lessor place the aircraft on their own AOC. The aircraft generally remains on the home country/operator register.
Note – A “damp-lease” mirrors a wet-lease without cabin crew.

A recent example of such a model which illustrates the effective use of a wet-lease agreement is that of Iceland Express. This start-up entered the market as Iceland’s first low-cost airline by deciding to outsource flying to a specialist operator. The airline signed a two-year wet-lease agreement with the UK charter carrier Astraeus to use one of their Boeing 737-300 aircraft. The aircraft operating under the UK airline’s AOC and flight code operates a single daily rotation on each of the Reykjavik-Copenhagen and Reykjavik Stansted routes. The operation has been very successful and it is anticipated that a second aircraft will shortly join the operation.

Leasing – Dry-Lease – an aircraft rental package which does not include crew, insurances, maintenance etc. The aircraft must be registered by the lessee and be placed on their AOC. This type of arrangement is generally used by leasing companies, financial institutions and banks.

There are numerous sources by which to confirm aircraft available on the second-hand or leasing markets. Relatively straightforward research can quickly determine the history and “pedigree” of a particular airframe with the barest of construction information.

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