At least two to tango

It was one of the best attended business breakfasts organised by Malta Today over the past months. The topic was: "Low-cost airlines, what future?" I was pleased to participate in the frank discussion that ensued and I believe that it was an ideal opportunity to deal with many misconceptions.

Two completely wrong ideas that appear to persist in some people's minds are whether Malta is adopting a prohibitionist approach and not allowing low-cost carriers to operate from here, and whether Malta has the highest taxes when it comes to air travel.

It was made clear at the meeting that there is no prohibition against any European airline operating in Malta. If low-cost carriers wish to fly in from the UK, Germany and Italy - to mention the three most preferred and most profitable source markets that could be mentioned - they can do so from tonight.

I have said as much to representatives of low-cost carriers and I am now saying it in print to make sure that at least this basic message comes across once and for all. The issue therefore is whether we should, within fair competition and level playing field rules, offer any discounts or other promotional support to help low-cost carriers operate from Malta at the rates they prefer.

As regards whether or not we have the highest airport departure taxes (and this argument does not directly affect inbound tourism) I explained, at Tuesday's business breakfast, that of the Lm50 to Lm55 that are conveniently quoted by many sources as taxes that have to be paid over the airfare, the truth is that Government's own departure tax amounts to Lm20. The remainder - up to Lm35 - consists of airport charges, security fees, fuel surcharges imposed by some airlines, etc.

Fine - we would love to see this Lm20 tax reduced. I have no difficulty in making that argument myself and can even understand the point that when certain charges are increased they could become less effective even as revenue tools because they lead to fewer people travelling. Governments collect revenue to meet the expenditure required for services that the people request - be it in the health or education sectors, infrastructure improvements or social security nets to give but a few obvious examples.

Apart from raising revenue, governments should strive to save money that is not spent for productive purposes - hence restructuring at such major public enterprises as the Drydocks, PBS, Sea Malta, Interprint, and the Malta Tourism Authority itself.

If the present level of economic success is sustained, Government will be able to revise a number of fiscal measures and the Prime Minister has already publicly indicated the departure tax as one area that could be addressed in this regard. Therefore this should not be considered an issue.

How then should we deal with low-cost carriers? Low-cost airlines represent the most daunting single challenge our tourism industry has had to face since its inception a mere 45 years ago. Unlike the challenges we, have had to face to date, challenges borne out of national or international crises or threats, this challenge is based on an opportunity.

The travel element of the tourism industry over the past six years was remodelled with deregulation of our skies. A more competitive market in the skies married with the marketing opportunities of the Internet led to the availability of cheaper travel. Statistics and the financial performance of companies like Ryanair and Easy Jet show that there was a demand for cheap travel. So much so that today these airline companies are competing in terms of passenger movements, aircraft owned and routes flown with the traditional established airlines. Can Malta be immune to all this?

The truth is that it cannot, and it isn't. The traditional carriers operating to and from Malta have introduced low fares on certain routes to attract a slice of this business. A local entrepreneur also launched a low-fare operation which, judging by its performance last year, is proving to be successful. Of the 50 or so airlines operating to and from Malta, his airline last year placed fifth in volume of passengers carried.

The over six per cent increase in UK tourists last year is in part due to the Malta Tourism Authority's intensive efforts in this market but also to the pricing policies of these airlines. Malta therefore is adapting to this new reality but some would argue we are doing so in a limited fashion. The unlimited fashion would be to remove the one difficulty that is keeping low-cost airlines from including Malta in their schedules, that is the airport charges that currently make it prohibitive for some of these companies to operate to and from Malta.

Government is after ensuring the sustainability of our tourism industry. From the analysis carried out to date - and believe me there has been no shortage of this - we have seen cases for immediate growth both with and without low-cost airlines. However we need to look further at the long-term implications of either strategy.

Yes we will grow if Ryanair and or Easy Jet come to Malta. Yes we can grow if our branding and intensive marketing strategies bear fruit. In both cases, we must ask ourselves: at what price and for how long?

Consider this: low-cost carriers will hit hard at existing formulas that sustained our industry. Related to this is the issue of our carrying capacity. How many more tourists can we actually carry over the 1.2 million we are managing to attract year in year out. MTA puts our carrying capacity at around 1.5 million. Therefore one can argue that all we need to do is to attract an extra 300,000 tourists.

This of course is wrong reasoning. Every January we start off with zero arrivals. We do not carry forward last year's tourists and simply add on additional business.

It is here worth noting that the way our airport is run and the costs associated with running an international airport to the standards we came to expect cannot be easily benchmarked against regional or secondary airports from which most of the low-cost carriers operate. Any argument or calculation that departs from this premise is flawed.

This is not to say that there isn't room for increased efficiency in the running of our gateway. Still, even if we manage to achieve efficiency gains we will still not be able to meet the operating costs of some of the other airports being quoted. There will be a gap to be bridged.

Our ability as a government to subsidise by any other means is limited - and that's putting it mildly - because we must follow EU competition rules.

Nonetheless, I firmly believe that low-cost carriers can help us address some structural shortcomings in our tourism operations. For instance low-cost carriers can be the solution to the seasonality issue that we have long been seeking. They can also provide the necessary impetus for putting Malta in an effective manner on the Internet, the marketplace of the present and future. They could also open Malta to new markets, particularly the Iberian Peninsula and Eastern Europe where we failed to penetrate because of lack of seat capacity.

Low-cost carriers I believe offer the best opportunity to make a volume leap in our tourism industry, in achieving substantial growth in a relatively short time, although that growth would probably level off in later years.

Government, through a specifically set-up core group, will be intensifying its efforts to determine the way forward. This issue cannot and should not be resolved without due thought and consideration. After all, what is at stake is not the cost of our airport but nothing less than our national economy. Any decision we take will have long lasting and deeply felt effects.

Those who expect Government to act swiftly will not be happy with our cautious approach. My appeal to these people is not to interpret our caution as lack of interest in low-cost carriers. What we aim to achieve is a sustainable introduction of low-cost carriers that will ensure a future which does include low-cost carriers not as a new and dangerous monopoly but as an additional partner in a thriving, year-round tourism business.

We should equally ensure that the national carriers and tourism operators who have stood alongside us for all these years to build our tourism industry are not pushed out of the scene in such a way that our country, at its peril, becomes totally dependent on low-cost carriers that would not hesitate at all to dictate to us new terms and conditions whenever it so suits them.

These are the issues facing Government with regard to the arrival of low-cost carriers in Malta. As long as we understand that there are no magic and easy solutions, we remain determined to strike the right balance in this sector as well.

As always it takes at least two to tango, and in the coming weeks we can determine whether there is or not the right formula that above all makes business sense for Malta Inc.

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