A (quasi) public good like Air Malta

I was concerned to recently read in the local press that Ryanair and Easyjet are among the airlines to have objected to Air Malta being provided state aid. I was also surprised to read that the EU was considering the emergency rescue aid amounting to circa €52 million as “unfair competition” and an act of “market distortion”.

How can anyone consciously argue that emergency state aid to the national airline of a small island state whose economy is so dependent on the national airline be considered unfair competition?- Kevin-James Fenech

I think Air Malta approximates the concept of a public good, meaning that no one can (should) be excluded from using it given that Malta is an island state surrounded by sea and no other airline provides the incoming and outgoing traveller to and from Malta with adequate coverage of the major routes.

I also think that should Air Malta be allowed to go under – which it will, eventually, if the state is not allowed to support it or if it suffers further hits – that this will lead to an uncoordinated market dominated by self-interested parties (mainly foreign owned airlines) who may be unable or unwilling to provide a service in optimal quantities. Put another way, foreign owned airlines (especially the low cost airlines) operating to Malta will in all probability cherry pick the lucrative routes, without a care or regard to the needs of the Maltese economy.

I appreciate that some economists – especially the older sorts – might by now be raising an eyebrow. Strictly speaking or more traditionally, a public good would be something like a lighthouse (meaning a beacon light to help guide or warn ships) or a clean (pollution free) environment. But I genuinely think that given Malta’s unique characteristics (i.e. a micro economy with no natural resources and an island state completely surrounded by sea) that it is imperative that it be connected via air transport with its major trading partners or with countries that see Malta as a tourist destination since this is our national livelihood. To be fair, Air Malta is more of a quasi-public good since it shares some but not all the characteristics of a public good.

In the UK, also an EU member, they’ve ingeniously come up with the concept of a “community rail line”. The British realised – after the botched privatisation of British Rail in the 1990s – that some rail routes, whilst not commercially viable, served a very important social purpose at a local-community level and merited being kept open since for some members of society travel by car or air transport was not always affordable and rail was their only option. Hence, the idea of Community Rail Partnerships which is a federation of circa 60 community rails partnership where government subsidy is contemplated.

In fact, if one reads the UK Government’s Rail Development Strategy document, they cite that the objective of this exercise is to improve the “…effectiveness of local railways in meeting social, environmental and economic objectives”. I don’t have the time to delve deeper on this point but I think that in principle this concept has relevance to the Air Malta situation.

The Maltese government should borrow and adapt this concept vis-à-vis Air Malta. I mean how can anyone consciously argue that emergency state aid to the national airline of a micro-economy and small island state, whose economy is so dependent on the national airline, be considered as “unfair competition” and/or an act of “market distortion”?

EU bureaucrats need to apply not just the letter of the EU law but also the spirit of the law especially that concerning “free movement of goods and services” and I would add the free movement of persons within the single market. The Maltese market is tiny compared to that found on continental Europe.

In order for Malta to partake in and benefit from the single market it needs air travel to major destinations guaranteed even if servicing such routes has to be carried out at a loss or with a stakeholder (which includes the government) subsidy. Otherwise, that is if Malta is unable due to its geographical location, on the rim of the EU frontier, to participate in the single market and benefit from EU membership, it almost becomes non-viable to pursue further EU membership. That is how serious the Air Malta situation is in my opinion.

I think common sense should prevail on the Air Malta issue and the major stakeholders need to support Air Malta in this moment and be involved in all major decisions. We all stand to lose from a downsized rump Air Malta unable to service the major routes. This is why Air Malta should be portrayed to the EU as a quasi-public good and that Malta’s size (micro-economy) and geographical location (island in the middle of the Mediterranean) renders Air Malta sui generis where the principles of “market distortion” and “unfair competition” do not necessarily apply.

Failure to make this argument will mean Malta automatically loses important competitive advantage, due to the in accessibility of Malta to and from continental Europe, which will result in our economy being seriously threatened.

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Mr Fenech is managing director of Fenci Consulting Ltd.