Cobalt, a start-up airline based in Cyprus, has shown record growth performance since its launch only two years ago. At the helm of the young airline’s operation is CEO Andrew Madar, who has a grand vision for Cobalt, as the national flag carrier, to transform Cyprus into an air traffic hub that will one day rival Dubai.
The US-educated business executive and aviation engineer, who has vast experience in China, outlines the island’s potential and his strategy of steady and conservative growth – noting the high growth potential of Cyprus’ GDP and the recent boom in tourism to the country, which he says will increase further as more connections are established.
Madar is adamant Cobalt will not repeat the mistakes of other start-ups that often trip over their ambition and has set as his priority to build big networks rather than big fleets. Cobalt is going full speed at grabbing traffic rights, frequencies, airport slots and new routes.
Cobalt officially launched in July 2016 in the wake of Cyprus Airways’ demise with one dry-leased aircraft flying to just a few cities. Today, Cobalt flies to 20 destinations across Europe and the Middle East, and currently operates six Airbus A320-family aircraft – making it Cyprus’ biggest domestic fleet. Cobalt carried 750,000 passengers in 2017, four times more than during its first year, and is on course to increase to one million passengers in 2018. Already flying to many European capitals, Cobalt is steadily adding other cities on the continent to its itinerary, expanding further into the Middle East and Gulf, and prepping for long-haul flights beyond.
The young airline certainly does not follow the herd, and according to Madar the trump card is its model as a unique hybrid, not a low-cost carrier (LCC). As well as helping to fly record numbers of tourists to Cyprus, Cobalt caters to business travellers and is also now expanding its cargo operations.
The aviation world is paying close attention and Cobalt has already won its first award. The fledgling Cypriot carrier was named ‘Airline StartUp of the Year’ for 2017 by the aviation research company CAPA, which said: “To replace a strong brand such as Cyprus Airways and build up an operation in a market already packed with LCCs and leisure specialists is no easy feat. However, in just over a year Cobalt has done that”.
When Cobalt launched, the Cyprus economy was just coming out of the financial crisis. Who are the backers of the airline and why did they choose to invest in Cyprus?
Our investors are made up of Europeans and Chinese groups. As for choosing Cyprus, they saw the great potential of the island’s location, which is a very logical one for an airline hub. Cyprus is a reasonable distance to London, Madrid, Moscow and many other major European centres, as well as to cities across the Middle East and Gulf. Its status as an EU member and as an island of stability in an often-chaotic region are also important factors. But perhaps the impetus was the vacuum left behind by the country’s flag carrier, Cyprus Airways. You don’t get that kind of opportunity very often.
Seasonality of the market is an issue here. To address this issue, we drew up a business plan with a key part of the strategy focused on using Cyprus as a hub. Dubai made itself a key aviation hub decades ago and against all the difficulties it faced initially. Cyprus has a lot more potential to become a hub following a similar path. Most traffic to the hubs in the Gulf are connecting passengers and we want to win over some of that traffic. Expanding into long-haul operations is another key part of our strategy to make Cyprus a year-round destination, as this would also enhance our connecting operations.
What potential do you see in Cyprus and how do you see Cobalt being part of it?
The tourism industry is booming in Cyprus, it grew some 24% in 2017 and 18% the year before. These are record years. This year Cobalt is already seeing unbelievable sales. We want to make this a year-round destination, not just for tourism, but also for business travellers. Cyprus is a fantastic place for companies in various fields and industries which are beginning to come here already. Many more will come if there is enough flight connectivity, which is what Cobalt is set to provide. Cyprus is a great place to invest – there is plenty of land, properties are cheap, the population is highly-educated, and English is widely spoken. So, Cyprus has a lot of the pieces in place for rapid growth. With a smart airline operation connecting the island to all key destinations, I’m sure more companies will establish headquarters or operation centres here. With the right connecting flights, companies would find it much easier to recruit and place staff here, especially when they look at the beneficial tax rates, the rule of law and the solid system in place for protecting investors.
Four new airlines entered the void left by Cyprus Airways and it seems Cobalt has pulled out in front. What is different about Cobalt, what is your model, your business plan, your strategy?
Our strategy is one of phased expansion with a managed pace. We put focus on operational performance first as our core area, then place our targeted commercial strategy in place step by step. We are very analytical in our approach with the destinations we choose, bringing on connections which will be successful year-round. Our model is of a hybrid-type airline, somewhere between a low-cost carrier (LCC) and a full-service carrier (FSC). We combine low-cost operations for our back-end and standard full-service operations for our front-end. Part of our advantage is that we are focused on paving our own way forward rather than following what everyone else is doing. In Europe right now, the majority of new airlines are moving along the LCC concept. We’re using the technology and the concepts of LCC for the infrastructure to keep the costs down, so our costs are very comparable to low-cost carriers, but at the same time we’re offering products different than the LCC carriers. We offer a full-service business class, for example, with big J class seats and the traditional J class services. This is very unusual in Europe currently. We also offer a basic economy with al-a-carte seats and products, similar to a pure LCC model. Our products and services are carefully tailored for our core customer base, who are not the traditional LCC customers.
Having said all that, I believe our success so far is attributed to our execution capability with the help of our team’s hard work rather than any magic formula on our strategy.
What cities does Cobalt serve?
Our network currently covers Europe and the Middle East. We have 20 destinations with more to come. In Britain we fly to three airports in the London area – Heathrow, Gatwick and Stansted, and further north, Manchester. We have five destinations in Greece, some of which have become commuting connections with high traffic loads almost all year. Elsewhere across Europe, we have Paris, Madrid, Copenhagen, Dublin, Zurich, Geneva, Frankfurt and Dusseldorf. In Russia, we have Moscow, and traffic rights for St Petersburg, so that will follow. Looking East, we’ve just added Abu Dhabi, while Tel Aviv and Beirut are already very successful destinations – we’ve just increased our frequencies to Beirut to 11 a week.
What are your expansion plans for short-haul routes?
We’ll add more destinations across the Middle East – Egypt, Jordan, and more in the Gulf following Abu Dhabi. There will be more destinations in Europe as well in the coming year. We’re looking at more cities in Germany and northern Europe, which are the growing tourist markets for Cyprus.
You’re now gearing up for the biggest step in Cobalt’s future route development – long haul operations. What are your plans for this?
We are indeed looking at long haul as the next big step. This is one of the key elements that would put us outside the box of short haul competitors in the region. We expect China to come first. China is a huge market with travellers that are big-spenders. Chinese travel a lot during their New Year holidays in January and February, which is an ideal gap filler for the Cyprus market. Around 40% of Chinese travellers fly to Europe through the Gulf. We hope to get a share of that traffic, connecting the Chinese travellers through Cyprus to the rest of Europe. In addition to China we are looking at India as well as the US which are also promising markets for us. We’ll introduce wide-bodied aircraft for long-haul flights. Operationally we are poised to start the long haul once we put the first peg in the ground. But actual timing will be determined once our analytics and internal discussions are concluded.
How do cargo operations fit into your strategy?
We don’t have a plan currently to have a fleet specifically for cargo operations. But we have already started carrying cargo on our passenger flights. The results have been better than what we had predicted, and we plan to expand this capability. On cargo, we especially look forward to doing long haul operations to China. With our network and our strong footprint in China, we think Chinese cargo carriage would be a very successful revenue source for us. There’s definitely a potential to set up major operations out of Cyprus for cargo and cargo distribution to Europe through Cyprus. We are targeting this potential as part of our expansion plans.
Are Larnaca and Paphos airports big enough for Cyprus to become an aviation hub?
They’re not quite ready yet for a massive hub-type operation but we’ll get there. All the necessary elements are already in place. Larnaca and Paphos airports have feasible layouts and we have a good relationship with the management company of the two airports, to make enhancements needed. We are currently doing connecting flights through Larnaca and making fixes as we increase our connecting passengers. Arrivals and departures are straight forward with no obstacles, high terrain, or major weather issues year long. And there’s room to expand at the vicinity of the airports to put in more facilities, and an additional runway in the future.
What challenges do you face in turning Cyprus into an aviation hub?
There are some geopolitical issues and challenges in the region that affect our plans. Flights over Syria are restricted because of the conflicts on the ground. This impacts our China connection and other destinations to the east. Also, we are not able to fly over Turkey because of the long-standing geo-political conflicts in our region. This restriction hits us with some destinations such as Moscow.
Are you planning other Cobalt bases in Cyprus or other parts of Europe?
We project to have additional bases in Europe. This is another dimension in our growth plans to address to seasonality and size of the Cyprus market. We will release details on new operational bases once our plans are finalized.
Are you part of any international alliance or what sort of arrangements do you have with other airlines to build these connections?
Until we achieve a certain mass, it won’t be advantageous for us to sign up to an alliance just to get that credibility. But we are aligning individually with some major airlines. For now, we’re being very careful, and handpicking connecting and cooperating partners for interlining and code-sharing agreements. There will be some announcements on this soon, so watch this space.
You relocated to Cyprus to run the Cobalt, what do you personally like about living on the island?
I came here after living for years in China. The environment and living standards could not be more different. I enjoy the change very much. Number one improvement for me is the air quality, plus the beaches, and the great natural setting. I also enjoy the people with the Mid East tempered culture. Cyprus is a great place to live, not just for retirement, but also for an active working life.