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Air Malta’s first small step to recovery

News that Air Malta registered a small operational profit of €400,000 in the first half of the current financial year is a clear sign that the national airline can look forward to the future with optimism. If this is indeed a first small step in the long road to recovery, then it surely came at the right time to lift the spirits of both the management and the staff of the company.

What is significant in this development is not the amount of the profit achieved but, rather, the fact that Air Malta has stopped, at least temporarily, the trend of increasing losses that was developing in the last few years.

The airline managed to reduce costs in many areas including those on fuel and personnel. At the same time, it increased passenger and cargo revenue over the same period last year and this despite tough competition, especially from low cost airlines.

The improved performance is the result of management action rather than fortuitous developments that favoured the company’s operations.

It would be wrong to assume that this encouraging development is the beginning of a trend that will guarantee that the airline will operate profitably in a sustainable way. This was acknowledged by Air Malta CEO Peter Davies, who, in an interview with The Sunday Times, made the sobering comment that “we are not out of the woods”.

The first six months of the company’s financial year include the busy summer period when revenue peaks. The lean period will possibly see Air Malta revert to an operational loss as the number of passengers in the autumn and winter months drops considerably.

One has to keep in mind that the restructuring programme is only in its beginning. Despite reducing the workforce by 450, there are still other aspects of the restructuring process that are still not complete. As Mr Davies confirmed, management is still “trying to overcome many years of processes and procedures which are, quite frankly, not in line with the modern market”. Old habits die hard. Perhaps one of the most challenging aspects of any major restructuring of a business is the need to change the mindset of the people who manage and work in that business.

The national carrier is operating in an increasingly competitive market. Its competitors are mainly the low cost airlines that, almost by definition, react very fast when they are faced with projected losses as a result of deteriorating market conditions.

We have seen some of these low cost operators abandoning certain routes that were not attracting sufficient passengers or reducing flight frequencies to cut unutilised seat capacity. A legacy airline may not be able to follow the same logic as its mission includes the need to offer stability on routes that it serves. This is important for a small island nation like Malta that needs guaranteed connectivity with the European mainland to support its economic activities. So Air Malta will always be competing with low cost airlines from a disadvantaged position.

One other outstanding aspect of the airline’s reform programme is the restructuring of its debt. Few details have so far emerged on how this will be done. One hopes that the way this debt is rescheduled does not simply shift the risk on the local banks that are owed substantial amounts by the airline.

It is still too early to pronounce Air Malta’s restructuring exercise as a success story but a small step may have been taken in that direction.

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