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Higher demand key to greater connectivity

Interview - September 25, 2015

Hermes Airports’ CEO Wes Porter discusses their experience as one of the largest foreign investors in Cyprus, making a €500m contribution to the Cypriot economy annually. As the first example of a private and public sector partnership on BOT projects, Hermes Airports looks to create greater demand in Cyprus’ diverse offerings to ensure the connectivity the island deserves.


You were appointed CEO of Hermes Airports at perhaps the most difficult and turbulent time in recent history. Seeing Cyprus move through this crisis and back to growth, what have been the main consequences from your perspective?

The events of March 2013 were obviously difficult for everyone, we saw a fairly dramatic drop in passenger traffic and revenues through the year as a result of that; but since then we have been able to claw that back.

In terms of passengers, this year we will grow our passengers 1.5% over last year, which is good news. It does indicate that there is some propensity to travel to Cyprus and I think that is based on the performance in the EU Market and to a certain extent even the Middle East.

More recently Greece and the issues they have had did cause us some concerns, but the availability for travelling from Cyprus to Greece has opened up tremendously, so we see a lot of Cypriots making that trip back to Greece. 

This definitely helps us and I think that it demonstrates some confidence in the market here. Unemployment rates are down, the GDP is growing slightly and we are seeing an increase in passengers, and there is also an increase in tourism.

These are good indicators moving forward and clearly what we would like to see moving forward is more reforms, continuing innovation, and a strong direction from the Government.

We would like to see the continuation of favourable conditions for investment, not just for the airport itself, but also for the country as a whole.

The banking sector also has to keep on improving and we would like to see the NPLs coming down.

From an airport perspective, I wouldn't say that we are delighted, but I would say that we are in it for the long run. We are pushing hard, as an organization, to help deliver economic benefits to the State and the country as a whole.

We believe there is much more to do and that we should be aggressively pursuing those opportunities, which for us is mainly focused around the delivery of tourism.

In terms of Hermes Airports’ contribution to Cyprus, the figure that you often see mentioned is around 500 million Euros. Obviously, that is an incredible contribution that you are making directly and indirectly. In what areas are you focusing your attention in terms of contributing to Cyprus’ economy?

Our number one priority as a company, as an airport and the entry point into the country, is to help develop the tourism industry.

The tourism industry right now, despite the fact that there has been a slight increase, basically delivers about 2.5 million tourists a year to this country, which means contributing about 2 billion Euros of economic value to the GDP.

We think that tourism is underperforming, materially underperforming. We think that figures should grow within 5 years by at least 2 million visitors. So we are talking about major economic benefits, to the tune of about €1.5 billion in the next five years.

If the country and the stake-holders that have invested in the country, in the tourism product, can continue to work hard together to come up with the right national strategy, the right brand and the right USP for Cyprus, that should get into the minds of the consumers in our key markets, as well as open up new markets.

You need to have a great product and you need to have a sustained effort, as well as a strong target.

The target should be either the number of visitors that you are bringing in, or the economic benefit that you expect, which should be more than 11 or 12% of GDP, it should be between 17% or 20% of GDP before any catalytic benefits are taken in to account.

This needs to be sustained, year on year, indefinitely, no matter what the size of your economy is. So, that is what our priority is, to act in partnership with the stakeholders, such as the government, and the CTO, and I would say that 60% of my time is focused on that right now, and we are seeing improvement.

You spoke about Cyprus’ unique selling points, effectively its brand, which has been a major focus in our interview series. What would you like visitors to really associate Cyprus with?

First of all, I would like people to continue to remember that this is a great destination for sun and sea. It is a highly competitive environment in which we are operating now.

However, from my perspective as a consumer, I think that the cultural richness of Cyprus is understated.  There are weeks worth of stuff that you can do and be amazed by every day.

I think just strolling through and discovering those little mountain villages is worth way more for me than going to the beach and walking myself into a hotel.

There are plenty of people who like the beach and that hotel experience and there are plenty of destinations that offer it.

We will continue to offer it here, but, as a country, we have to exploit the rest of what we have here. We have mountains, hiking and biking, so you really have something for everybody, all year round.

What astounds me is that folks still don't know that.

We are still stuck on the idea that "everybody is on holidays in the summer," we are still stuck on that market.

We don't see the potential in the individual traveller and the individual consumer, because that is really where the market is.

The person that can choose what they are going to do, how they are going to get there, where they are going to stay, how they are going to get around, and all those sorts of things.

I can’t say it enough, Cyprus is a place that has huge opportunities and we are working on a change in the mind-set of the folks that are leading this, which then delivers a stronger mind-set to those folks around the service industry which then adds, hopefully, some benefit to the country in the longer term.

In terms of capacity growth and getting more passengers to Cyprus, where do you see the major expansion in terms of markets?

I am happy that we are seeing a slight increase in overall numbers this year, and that is on the back of the recovery in the UK market, which had declined a little bit in the recent past.

Those numbers are up about 20% or 23% I think in July. But there are also some one-off benefits that you receive due to regional conflict and those aren't repeatable.

In terms of the markets we are seeing the most growth in, it would be Greece, Israel and the UK. Of course we also have declining markets, due to various economic reasons, such as in Russia.

We think that the Baltic market is a great opportunity for us, as well as the Northern part of Europe, as we have seen the Scandinavian market drop.

So we need to continue focusing on these key markets and the UK, which still provides an enormous opportunity. We said that the UK traffic is up 20%, in July specifically, but I do not think that that is good enough.

I think the penetration is not strong enough.

If I look at the number of tourists that are actually coming from the UK, who know about Cyprus, we are not penetrating the market in a way that is profound.

As an example, we delivered 300,000 or 400,000 folks from the UK, from the London market, where there is a potential 7 or 9 million, just in terms of that regional area, the London market, and the core airports.

I think it should be substantially higher and it could be if we are getting into the hearts and minds of people, and we really make an effort to make sure that they are aware, when they are thinking about their long holiday that they do every year, that Cyprus is coming to the top of the mind. 

Cyprus is a great place, especially in the summer; of course, we would like them to love it more in the winter, because this is an amazing place in winter.

Having come from a climate that is similar to the UK, with the same type of things you want to do in the winter, you want to come to a climate that is very temperate.

Here it is still 25 degrees to 28 degrees, and there are excellent experiences that you can have, whether it is in the mountains, seeing the cultural stuff, or religious tourism, or whether it is just sun and sea, because you can experience sun and sea in 28 degrees quite nicely.

Going beyond the tourism side of things, one of the focuses of our report is this idea of Cyprus as an international business hub. An essential for this objective to be reached is greater connectivity. In Cyprus there are still some key destinations that do not have direct flights. How do you see Cyprus’ current connectivity?

In my mind you can not have a business hub without creating demand, so when I talk about tourism, it is about creating demand, when I talk about investments it is about creating demand, which then has favourable returns for corporations and the demand leads to connectivity.

Tourism itself has a strong catalytic effect on investment. It does improve connectivity; it does give opportunities, not just for people to come over, but also for investment to come.

I would say then that it is demand that drives connectivity. You can buy connectivity, if you want to go broke. A country can do that, but that does not drive demand.

It is no different than investment, there has to be a reason, and there has to be a benefit for an investor to come here and that is something the Government has focused on since the recovery from 2013.

So demand is connectivity, which then drives tourism and investment, which then creates wealth. It is a very simple formula.

It is about getting out that key message that if you don't create the demand, you are not going to get the rest of these things, and that is the central core message that we put out there.

Our interest clearly lies in tourism growth, so that is why we are focusing on that, and that is why we focus on marketing in a different way and making sure that there is a strong brand, and awareness that there are things for folks to do.

There are a number of external factors, such as the prospective reunification, that could be a game changer for the island. What is your perspective on a possible reunification?

Of course as you understand this is mainly a political matter. A developing story which firstly concerns the future of the Cypriots and secondly the airports’ operations…

Definitely, we have reasons to be interested in the negotiations and that is why we are monitoring the developments.

Certainly, there are many things that need to be taken into consideration and when it is the right time we will deal with these issues… and I believe that we will do that in a responsible manner, for the future of the airports but mainly, the future of the country.  

Minister Demetriades spoke about the potential for more projects in the realm of BOT and public-private partnerships. How has your experience been in terms of partnering with the government? What would your key message be to other international investors considering Cyprus?

I think the government is very flexible and it has been quite innovative. From the position of my investors, we are delighted to be here.

We have a large investment of 640 million in infrastructure here, and we see it as a good long-term investment.

We are in a great partnership with the government, and they work hard to set the conditions to create value for the state and for the investor.

I think this is quite profound and the fact that they are still looking to privatise other entities, is a good thing, and it will bring benefits to the country.

Back in the early 2000s, before our investment came into the airports, they were a massive money losing operation on behalf of the government.

Now the government receives substantial benefits, direct benefits, through the investment that was made under the concession agreement that is in place.

They have turned it from an operation with massive losses to a very profitable operation for the state.

I think you have a government that is willing, a good partner, they listen, and they work hard to change. The things that you hear about in countries such as these are not necessarily true and it is a breath of fresh air when I am talking to the folks I talk to.

It is engaging, they want to hear solutions, they do not think they have the all the solutions; they are prepared to try different and new things.

So I think that is incredibly positive for an investor to look at, and I think you need to be patient as an investor, you also need to push your agenda a bit, to help them achieve this creation of wealth that you both are interested in.

We can see through the activities they have taken, certainly in the last two years, and more recently around the reforms that they are undertaking, they are not making easy changes, and I think that this is really commendable.

I really enjoy working with the government here.

From the perspective of our own investors, they are happy and when they would like to talk to the government, the government is very open, they will make the time.

So for other investors, from our perspective, we look at Cyprus as a good investment.