Editorial
Steering the national carrier out of turbulence
Air Malta faces another major challenge in its history: proving it can survive without state aid. The national airline registered a loss of €31 million for 2009. Unless the company is recapitalised, it may face serious problems.
Understandably, neither the government nor the European Commission are prepared to divulge details on the talks reportedly going on between them in Brussels to address this issue and define the way forward. However, there are clear indications of what the outcome of these discussions is likely to be as Air Malta is not the first airline operating in the EU that has faced problems if state aid is denied.
The restructuring of Air Malta started some years ago when the company decided to shed its non-core business, including the running of the airport duty free shops and a number of hotels. This helped it to cut debts and concentrate on its core business. At the same time, it replaced its aging fleet of aircraft with more modern and economical ones. It also introduced an early retirement scheme to shed some of its excess labour, even if this scheme was not as successful as management had hoped.
This period of restructuring coincided with the introduction of low-cost airlines in the Maltese air travel market. These airlines adopted a cherry picking strategy that arguably deprived Air Malta of important income from its more lucrative routes. The national carrier met the threat of competition by often matching the pricing of the low-cost airlines in many of its routes, especially those where it was in direct competition with the likes of Ryanair and easyJet. However, it continued to carry high operational costs that characterise a legacy airline.
The measures taken so far are evidently not enough to save Air Malta from the need of further restructuring to achieve economic viability. While other European airlines like Alitalia have avoided the consequences of insolvency by reforming the way in which they operate, Air Malta's impact on the Maltese economy raises issues beyond the operations of a legacy airline.
The tourism industry in Malta is still dependant on the seat capacity Air Malta provides on various routes in Europe and North Africa. Low-cost carriers have reduced this dependence on Air Malta to fill hotels but private airlines do not have any specific commitment to support tourism in Malta. When demand for travelling to Malta from a particular destination falls below the airline's preset benchmark it is likely that a low-cost airline will drop that service. The country's tourism industry's dependence on Air Malta will undoubtedly be explained fully to the European Commission when plans are drawn up to restructure the carrier's operations.
The Commission is likely to allow the government to increase Air Malta's share capital to avoid insolvency but the company will have to produce a credible business plan aimed at improving its operating efficiency.
Such plans inevitably contain cost cutting measures that also affect staff. It is hoped that acrimonious confrontation between management and employees' unions are avoided. This difficult situation calls for a cold clinical analysis by all stakeholders of what the consequences will be if they fail to steer the company out of this turbulence.
Those negotiating Air Malta's future in Brussels should aim at securing the continued existence of the airline to support the economy in a sustainable way.
5 Comments
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M Farrugia
Jul 23rd 2010, 10:19
On the contrary to what is stated in this editorial low cost airlines did not manage to take up lucrative routes from Airmalta. Airmalta put great pressure on govt. to keep its lucrative routes, such as Germany and France.The result is Airmalta is still charging exorbitant prices to\from these routes and the numbers of tourists from Germany and France are still dwindling despite Airmalta's considerable increase in seat capacity from these routes.On the contrary, tourists from Spain shot up since LCCs started operating.
Instead of putting pressure on the govt to limit access of LCC routes, Airmalta management would do much better to put pressure on MIA to reduce airport fees for all airlines. In this way Airmalta might be in a much better position to reduce its fares. Let's not forget that to accomodate MIA's high fees, govt had to offer subsidies to LCCs.
The national carrier never came close to ' matching the pricing of Ryanair in many of these routes'.
Result: Maltese independent travellers, fed up with Airmalta's years of disservice to independent travellers, are choosing Ryanair for their travels. Airmalta is only there for the service of Airmalta management and Maltese tour operators.
Jesmond Micallef
Jul 22nd 2010, 22:43
continued........
Lufthansa has a range of high quality products in addition to its flight schedules. You see these via their Sky Shop outlets. These products serve the customers of Lufthansa quite well but they also serve Lufthansa quite well too. They promote an image of exquisite high quality and in doing so, they retain their customer base. A sense of belonging sort of to say. The Lufthansa customer or shall I say extended family. They even have toy planes for toddlers !!!
The Deutsche Bahn, Germany's national rail network, uses this image and branding principle quite well too. On some services it competes with Lufthansa while on others, they share services. Porsche is not just a top brand sports car maker, but has diversified into watches, toasters, and other domestic or household products. The name speaks for itself. Again, the sense of belonging, the Porsche customer and extended family.
Air Malta needs to compete, indeed. I know that, we all know that, everybody knows that.......
Maybe Air Malta needs to think very seriously about its Maltese customer and extended Maltese family. Interestingly enough, Lufthansa, Swiss and Austrian are all German speaking airlines.
Jesmond Micallef
Jul 22nd 2010, 22:10
Air Malta had to sell off its very lucrative Dubai route also, albeit that route was being served by Airbus A320 aircraft with max fuel and of course restricted payload. I think a leased Airbus A310 from Austrian Airlines was also used at the end before the route was sold off to Emirates.
Consider Lufthansa with all its allmighty big brother muscle power. It took Swiss and Austrian under its arms, adding another two fine brands to its portfolio. Lufthansa has indeed very powerful branding. In addition to this mega enterprise, Lufthansa also forms part of the Star Alliance group and furthermore it has a whole collection of regional carriers, including low cost ones operating on the continent. How can Air Malta compete with such an an immensely diverse enterprise ?
Branding : Would anyone consider buying a Ford instead of a BMW ? I think not. BMW is a brand name that stands on its own two feet. If people want to buy a BMW, they'll buy it even when the quality is inferior to a Ford product.
Image and Branding is a complete science in its own right in marketing. Does Air Malta have this potential ?
continued.........
S Manduca
Jul 22nd 2010, 16:09
"The restructuring of Air Malta started some years ago when the company decided to shed its non-core business, including the running of the airport duty free shops and a number of hotels."
This is not true, at that time when this so called restructuring took place Airmalta was already in a very bad financial situation created by the RJ and Azzurra air saga. Remember that those two very bad decisions drained the company financially, the RJ aircraft cost about 20million dollars each and Airmalta bought four RJ70s for it's operation and three RJ 85s for azzurra, and the total investment in azzurraair was about LM50 million we were told. So the company ended without cash and had to sell it`s assets including the aircraft it operated to inject cash in the company to keep it going. Now even this money dried up and the company ended up in the red again, why? Simply because the restructuring process was a farce, mistakes like signing aircraft leases which do not make a profit ( XL Air lease is one case in point), employing cabin crew from outside instead of training excess staff from the headoffice as cabin crew etc etc.
A. Brincat
Jul 22nd 2010, 22:45
Let us not forget that another mistake was to change an existing fleet of Boeing aircraft to Airbus! The changeover cost Airmalta money. While it was not viable to keep a mixed fleet of Boeing and Airbus due to a requirement to keep also a mixed inventory of aircraft parts (at the time when substantial maintenance was done in-house), the bad decision was to change to Airbus in the first place.
Some argue that aircraft parts for Boeing are not easily available in Europe. This is not true as there are dedicated Boeing suppliers worldwide.
Pardon my ignorance, but Boeing is cheaper in the long-run.