New business plan on the drawing board

"We have to make sure that we make the right marketing decisions in terms of which routes to operate and in terms of pricing. Only this type of restructuring can assure Air Malta's future development" - new chairman Lawrence Zammit.

Newly appointed Air Malta chairman Lawrence Zammit said the group was working on a new business plan which would be finalised in the next few months.

In an interview with The Times, Mr Zammit said the new business strategy had to take Air Malta into the future - operating in an EU membership scenario.

He admitted that the current situation at Air Malta was quite difficult, but said: "We are determined not to simply treat the symptoms but to deal with the cause of the problems. Our actions have to be oriented in ensuring that Air Malta is not simply well placed to take account of the situation of today but to be able to operate successfully in a new scenario after May 1 (when Malta joins the EU)."

Mr Zammit reaffirmed that Air Malta was facing strong challenges. "First of all, we have to take account of the international economic slowdown. Out of all the various external events such as September 11, Sars and the international economic slowdown, the one that has hit us worst was the international economic slowdown.

"We need to appreciate that although maybe in terms of numbers we could be maintaining our position, the landscape has changed totally. What is worse is that costs have changed, including higher security costs due to September 11.

"The financial year of the company, which ends at the end of this month, will reflect all these developments. In terms of the financial situation I can only say at this stage that the indications are that the results will not be as good as last year."

He believes that for the foreseeable future the international air transport industry would remain a very vulnerable sector. "This will be the case even more if the international economic slowdown persists as the indications are at the moment."

Mr Zammit explained that there was a need to restructure at Air Malta. "This is necessary to make sure that Air Malta is geared to giving more individual attention to its customers and that the group is leaner in its decision-making process. It is also a priority to ensure that accountability is introduced down the line and up the line. We also have to make sure that we make the right marketing decisions in terms of which routes to operate and in terms of pricing. Only this type of restructuring can assure Air Malta's future development."

Mr Zammit, who has been at the helm of the airline for two weeks, said he has spent time taking stock of the situation. "Over the coming months we shall also be looking at the organisational structure of the company. My first impression is that the span of control is too wide. There are 25 group heads reporting to the chief executive. I don't want to jump the gun on what could be happening. However, if it is found that the current organisational structure is slowing down operations and decision making and is eroding accountability there is no doubt that action will be taken to remedy the situation. Having said that, I want to stress that any type of organisational restructuring will take the human factor into account."

He said that his immediate priorities included getting a new business plan into place for approval by the government. Mr Zammit intends to promote the business plan with all stakeholders in the country.

He said Air Malta had an important role in the Maltese economy. "But it is not a one-way situation. It's true that Air Malta has supported the economy and tourism over many years but it is also true that Air Malta has benefited a great deal from the economic growth and the expansion in the tourism industry. Over the years, Air Malta has gone through an element of organic growth as a result of the country's economic growth. Naturally, Air Malta exploited the opportunities that were unfolding over the years."

Mr Zammit said that Air Malta today was at the crossroads. "I believe this is the case for a number of reasons. First, there is the issue of EU membership which will present Air Malta with a number of new challenges and opportunities. There is also the fact that Air Malta will soon start operating in a legal environment which is more liberalised not only so far as traffic rights are concerned but also in the local sector such as ground handling.

"The first exercise that we are carrying out is to redefine our business strategy and what we want Air Malta to be in the future. Our chief executive, Earnst Funk, and his team are working hard on this exercise. We know the opportunities that exist related to tourism, economic development, the cargo sector and the synergy that we need to create with entities like Malta International Airport, Malta Freeport and other key players in the economy. We need to determine in which direction we want to push Air Malta for the future.

"We also need to create strong synergy with the tourism industry in Malta, both the official tourism authorities as well as the private operators.

"We need to make sure that we have a route network that takes account of the realities, not of yesterday or today but of tomorrow. We need to start building for tomorrow."

Asked how he feels now that Air Malta is about to lose its monopoly in ground handling facilities, as MIA is about to implement a decision taken when he was at its helm to liberalise the market, Mr Zammit said: "Thank you for asking me this question, because I really want to set the record straight.

"On liberalising certain services like ground handling today I feel exactly the same as I felt before. I made the stand for liberalisation when I was responsible for MIA because I believe that this new approach was good for the country and passengers. I also believed that such a development could also benefit Air Malta. I am a strong believer that competition is healthy and that competition is not a threat but an opportunity and we do have the capabilities to exploit our position."

Mr Zammit said that over the coming months Air Malta would be taking a close look at its subsidiaries. "I am determined to take stock of our subsidiaries. We are examining the state of affairs at these entities. One has to appreciate that these were set up at a particular point in time and one has to take account of today's realities. There are subsidiaries which are core to our operation and which we need to maintain, sustain and develop. There could be areas where we need to decide whether Air Malta will want to continue being involved in such activity or not."

Mr Zammit said he believed Air Malta was not ready for privatisation. "I have experience of the MIA privatisation process. That was a company which was up to a certain extent ripe for privatisation and yet it took us some years to put the house in order. So I don't think we are talking of a situation here where we can say that Air Malta is ready for privatisation. I would say something different about some of our subsidiaries and we shall be reassessing whether we want to keep doing all the activities that we are doing today with regards to our subsidiaries. Even though we might wish to be involved in some of the subsidiaries, we will need to determine whether we need strategic partners to be involved in their operations."

Should Air Malta keep its interest in hotels and other related activities?

"This is the thinking that we need to do. On one side there are airlines around the world that have hotel interests. But there are many other airlines that do not have hotel interests. Personally, I find it difficult to agree with a very definite view that Air Malta must have an interest in hotels."

Mr Zammit did not mince his words when speaking about Azzurra Air.

"I cannot deny the fact that Azzurra Air is a big burden on Air Malta," he said. "Basically, the story of Azzurra Air has been written, re-written and re-written for a third or fourth time. I must say that Azzurra Air is proving to be a big financial burden for Air Malta. One has to appreciate that this company was set up within the reality of the market as it was developing at that time. We have come to the stage where we need to determine the future of Azzurra Air. There are essentially three options we are currently examining."

The company can be restructured, sold or Air Malta might decide to take more drastic action.

"Although it's premature to determine exactly what direction we shall be taking, we cannot allow the decision to be put off any longer."

He said that Azzurra Air at the moment had to be supported by Air Malta. "Azzurra Air has two main lines of activity: one is charter operation and the other is the operational agreement it has with Alitalia. It is the second which unfortunately is not functioning. One cannot attribute faults here to either Alitalia or Air Malta. I am not speaking in terms of culprits. What is important is for everyone to appreciate that the global operations of Azzurra Air at the moment are being supported by Air Malta and that this cannot go on.

"I must say that dealing with the situation of Azzurra Air is one of my immediate priorities."

On the appointment of Earnst Funk as the company's chief executive last year, which was mired in controversy especially because of his high salary, Mr Zammit says: "I believe that Air Malta should have a clear separation of roles between the chairman and the chief executive. This is the government's policy and it is a policy to which I subscribe fully. Therefore, there is no doubt about the need for an effective chief executive for the company.

"I believe that Mr Funk was the right choice. I have worked very closely with him over the past two weeks and it is clear that we are on the same wavelength on all major issues. As with any senior management position, the performance of the chief executive will be judged by results. I also want to stress that we need to ensure that Mr Funk is given the right authority to act as chief executive and that the board will not stand in his way in taking executive decisions, however unpopular - or popular - they may be. I am sure that Air Malta is better off having Mr Funk around."

Asked whether he believes Air Malta should form part of any strategic alliance, Mr Zammit said: "I have not gone into that issue yet. What I can say is that at this stage it is crucial to determine Air Malta's business strategy and we will take it from there."

Mr Zammit said the decision to invest in a new fleet was a survival issue for the company.

"If we had not invested in a new fleet it would have been difficult to survive. At the end of the day the company has to regenerate itself and the new fleet issue has to be seen in that light. Irrespective of anything, for Air Malta to survive it requires that investment in the new fleet.

"With the help of a new fleet and a sharper business strategy, we will make the investment worthwhile."

In six months' time, Mr Zammit added, Air Malta would start taking the first delivery of its new aircraft. "We are also working on changing the livery and the company's corporate image. No final decision has been taken but there are people working on this aspect. I expect that this will be changed concurrently with the new fleet."

On the impact of EU membership as from May 1 of next year, Mr Zammit said: "In certain respects we have had to operate in a competitive environment within the EU on a number of fronts and for a number of years. For instance, there could have been charter operations from the UK to Malta irrespective of EU membership and therefore competition was there already. On the other hand, the fact that we can fly to any airport in Europe and that we can land at one airport, pick up passengers and take them to another airport are all positive developments which are a result of Malta joining the EU."