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Successes and Headaches Alike for Greece in Privatization Drive

September 16, 2005

(Balkanalysis.com Research Service)- While the Greek government can bask in the warm glow of healthy incoming numbers for the 2005 tourism season, in which an 11.5 percent increase is expected, it also is having to deal with headaches such as a recent EU decision against the “ailing” Olympic Airways, which ruled that the Greek national air carrier “…must repay several hundred million euros in illegal aid – a decision that could cripple the company.”

According to Business Day on 14 September, Brussels is claiming the more than 500 million euros in aid Olympic has received since 2002 constitutes an “unfair advantage” over the competition. Even worse, “…the European Commission recalled Olympic still has to repay some 160m euros in earlier funds that have been ruled incompatible with fair competition.”There are widespread fears that the company could sink under the inability to repay the still unknown aid totals – something which is causing significant unrest amongst the workers and labor unions.

Partly because of Olympic’s artificially boosted-up position, internal and international ticket prices have remained stubbornly similar. But the prevalence of package tours – which cater to foreign tourists with an all-inclusive package of lodging, meals and transportation via charter flights – also challenge the industry. In fact, it is often possible for tourists to buy simply the flight and not the entire tour, meaning the cost of getting from London or Berlin to Athens is cheaper than a ticket for even some internal Greek flights.

A further issue pointed out in a statistical study which traces a decline in air travel between 199 and 2003 is fear, presumable of terrorism: “…the transportation market saw negative growth both in value and volume terms, mainly due to the fear of travelling by air. Sea transportation gained value share over air transport and accounted for 32% of value sales in 2003, compared with 68% for the air transport.”

Another problem is that many of Greece’s internal air routes are economically unfeasible out of season, when there are no foreign visitors to head to the smaller and more remote islands. Yet according to Business Day, leading competitor Aegean Airlines is set to order “…eight A320 airplanes from Airbus for338m, euros with an option for 12 more Airbus passenger jets.”

Finally, the domestic airlines have also reacted slowly to new competition from budget airlines from EU countries, most notably Britain’s EasyJet, founded in 1995 by the Greek shipping mogul, Stelios Haji-Ioannou.

As could be expected, the trade unions representing Olympic’s 8,000 employees were displeased. At protests in Athens and Thessaloniki, workers demanded that the embattled airline remain operational and under state control, and representatives warned of the “disruption” that would be caused were it to disappear. According to Christos Polyzogopoulos, chief of umbrella union GSEE, “Greece must have a national carrier … the government will have a huge responsibility if the airline is forced to closed.”

However, on September 14 it was also reported that the Karamanlis government will probably shut down the 48 year-old symbol of Greek aviation. A senior government official told Kathimerini that “…the New Democracy government is not prepared to allow further burden on Greek citizens without there being any hope for Olympic.” Were the government to announce a closure plan, however, employees vowed to shut down every Greek airport in protest.

In reaction to these protests, the government hastily announced it will press on with privatization – if they can find any interested investor, that is -while meanwhile buying time with the time-honored practice of reverse litigation in Brussels.

Yet the news from state-owned tourism sector enterprises is not all bad. On September 2, Kathimerini reported that the government plans to sell off some of its ‘decaying’ state-owned tourism enterprises. Among the actions the newspaper anticipated were the sale of 77 percent of a casino in Corfu, and the leasing of a golf course in Rhodes, a marina in Faliron (Athens) and several run-down hotels. While many of the last are not operating currently, the casino is a profitable venture that could wind up being a cash windfall for the government.

Aside from the Corfu Casino, the specific properties are Afandou Golf Course on Rhodes and the SEF marina near Athens, as well as the Xenia hotels of Vitina, Skiathos, Thasos and Tsagarada, reports the AP. Finally, though it is not tourism-related, the state plans to sell off a former sea-salt plant near Athens.

The effort is primarily due to pressure on the country to reduce its public debt, and continue the privatization trend begun in July, when Greece opened a tender for long-term leases in the case of three unused facilities from the Olympic Games.

“…Greece has pledged to reduce its budget deficit to below 3 percent of gross domestic product, as required by EU budget rules, by the end of 2006,” says the article. “In 2004, the budget deficit was more than 6 percent of GDP.”

And, also according to the AP, “Greece raised euro835 million (US$1.03 billion) through the sale of a 10 percent stake in the country’s largest telecoms operator… Around 85 percent of the shares were sold to foreign institutional investors and 15 percent to Greek institutional investors.” These successes come as some consolation in light of the precarious future and acrimonious present of the state’s national air carrier.

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