Air Malta says its losses have been contained

Air Malta in a circular to its staff has said it has 'stopped the rot' but it is still losing money.

"One of this management's first jobs was to review and approve a budget for 2011/12. Notwithstanding an increase in our fuel bill of €16m from last year the revised budget projected a loss only slightly worse than last year's actual performance. At an initial glance this would have appeared optimistic but as at July 2011 we are proud to say that not only have we achieved budget but in fact improved upon it by €6.4m and assuming we maintain budget for the rest of the year we will financially perform better than last year at an operating level," the staff were told.

But, the airline added, while all that sounded good, the fact of matter was that it was still expecting to lose approximately €30m from operations, "and clearly this is not acceptable or sustainable."

The airline said while the losses were now in check, it needed to focus on reducing them.

The airline explained that in terms of its restructuring plans, it needed to both increase revenue and reduce costs – at the same time.

"We plan to reduce costs in the order of €30m and at the same time increase our revenue by €30m. This is a big challenge but if successful this should see us back to break even by financial year 2014 and as indicated above we have started this process.

"Whilst the summer has provided us with high load factor (passengers per flight) our yields are low (profit per flight), meaning we aren't making profits even though we are flying relatively full planes. This can be improved with better revenue and pricing management and we have Sabre to help us through this transition period. They are world renowned experts in revenue management.

Air Malta explained that EU Approval for funding is a slow process – but this was not a reason for doing nothing. Furthermore, EU funding was not an open cheque book and certainly not a "no strings attached" arrangement.

Some of the key principles involved with a company restructing, in accordance with EU guidelines include:

Compensatory Measures: Air Malta has to scale back its operations in order to receive state aid – such as reduced flying.

One Time Principle: The company can only apply for state aid once every 10 years and therefore needs to plan well

Own Contribution: The Government is limited to providing state aid on an equal basis to the amount that Air Malta can raise of its own accord.

At the end of last month the EU Commission responded to the initial Restructuring Plan that was submitted in mid May. EU approval is necessary to authorise the government of Malta to provide funding to the Airline so that it can restructure and continue operating. The EU Commission raised numerous questions that required detailed responses and after much work within a short time frame a detailed response was submitted on 29 July, Air Malta said.

A formal decision is not expected until the end of this year, possibly early 2012. Along the way there will be various discussions with the Commission.

"Clearly, this is a detailed and time consuming process. However, this should not prevent us from proceeding with our restructuring plan – we can't afford to wait. So we are proceeding as fast as we can, taking steps to secure funding whilst the EU process continues," the company added.

It underlined the need to change rosters, work schedules and practices
to be more efficient.

"Its not just about reducing staff numbers – as unfortunate as that is," the company said.

Early retirement schemes

It added that it was hoped that announcements on early retirement schemes would be made in the next few weeks.

However, it said, all staff would be offered the chance to apply for either a VRS (voluntary redundancy scheme) or an ERS (early retirement scheme).

"We will do our best to accommodate these requests but the company does retain the right to decline an application.

"The organisation is being restructured – it's not only a case of there being less of the jobs that exist today, but it's also the case that some jobs have been made redundant – they don't exist any more in the new structure.

"There are also some new jobs that didn't exist before – our approach will be generally to open these to applications. This will become clear to you when your department structure is communicated to you.

The airline said that the departure of workers from the company will be subject to company approval and will depend on operational requirements.  

Support will be available from the ETC to help departing workers find alternative employment.  

Contracts management

Air Malta said a dedicated project team is focused on supplier contracts.

"We spend €millions per year with our suppliers and therefore well worth spending some time on reviewing them to ensure we get maximum value and high quality service and products."

The process, it said, was proving very productive as suppliers were working
constructively to meet its requirements."

Fuel savings project

The airline said it also had a project to save money in the way it used its aircraft.

"IATA believes that savings could be in the order of €2m per year. A number of workshops will be held for those involved.

Fuel Hedging

The airline said that the 2012 budget fuel is expected to reach approximately €68m per year - €16m more than 2011. "It is our largest cost item. We have amended our fuel hedging policy to be more proactive, monitoring prices daily and through this we have already saved €1m this year.

Cargo Commercial Centre at the old terminal

The new cargo commercial centre will open in mid September at the old terminal. It will provide cargo customers with an opportunity to go to the airport and arrange cargo delivery. "This is part of the strategy to make cargo a profit centre and expand our revenue in this business line."