Air Malta and tourism growth
The statements by the chairman of Air Malta in his address at the Malta Hotels and Restaurants Association’s annual general meeting, which were widely reported in the media, require some serious reflection.
In the first instance, it was surpising to hear the chairman saying that the troubles the airline found itself in were caused by the introduction of the low cost carriers He described how these were “unleashed on Air Malta” and how the national carrier had not been “prepared for the onslaught by the low-cost carriers”. I thought that, by now, this finger-pointing debate was over and that it was an accepted fact that the problems of Air Malta were more deep-rooted and that warning signs about its state of affairs were evident over the years, preceding the introduction of the low-cost carriers (LCC) in 2006.
The International Air Transport Association had been issuing stern warnings about the global airline industry over the years, saying that “airlines were facing challenges of epic proportions”. Air Malta was certainly not immune.
At the time, losses had already started to mount for the airline and, following a significant loss in 2003, it embarked on a restructuring process. By 2006, it had registered some progress, however, the process appeared to have ceased and financial losses continued to mount. This all took place before the advent of LCCs in Malta.
One must point out that the policy adopted by the Government for the introduction of LCCs was a clever one yielding immediate results that speak for themselves. Had the Government not acted accordingly, we would have witnessed a collapse of the tourism industry on top of that of Air Malta.
The Government’s policy focused on underserved routes and offered conditional assistance through schemes open to all airlines, including Air Malta.
These schemes should by no means be termed a subsidy but an investment that gave, and still gives, an immediate and handsome return.
Let’s face it, similar assistance has always been given in some form or shape over the past decades to tour operators, trade suppliers and airlines, including Air Malta, with the sole purpose of luring more tourists to our islands. Competing destinations do the same and offer similar incentives.
However, the argument about LCCs is now in the past tense and, what is more important and of concern to us, are the decisions affecting the future of the national airline, the tourism industry and, indeed, the entire economy.
In his address, the Air Malta chairman repeatedly warned against the introduction of new airlines saying that we should retain the current balance, that “more competition might not be healthy” and that “by encouraging too many more airlines to serve our island we could be tipping the balance against Air Malta’s sustainability”.
These statements are indeed worrying. MHRA has stated repeatedly that, ideally, Air Malta should retain its market share to the level of circa 50 per cent. Unfortunately, however, we do not live in an ideal world and we all need to adapt to meet the challenges we face.
These strong statements by Air Malta imply that the growth of the tourism industry should be pegged to that of Air Malta’s. This effectively means that if Air Malta is unable to increase its market share we would remain idle and refrain from allowing other airlines in, even if these fly from markets untapped by the national airline and, therefore, do not risk displacing any business from Air Malta’s customer base.
One must appreciate that Air Malta’s growth potential is somewhat limited to the size of its existing fleet of aircraft and the European Commission’s condition for a 20 per cent passenger drop. I can understand Air Malta’s mindset and we must continue to give Air Malta all the assistance possible to help it survive and become profitable in the shortest possible time but we cannot have it dictating Malta’s tourism growth at the risk of jeopardising the entire tourism industry!
Increasing the market in winter and shoulder months is one of the main objectives of Malta’s tourism policy for the next five years, just published by the Government. The only way we can achieve this is by the introduction of more routes and seats while retaining the summer figures to existing levels. This is necessary not only to achieve growth but also to counter the trend of a shorter average length of stay.
As a leading tourism stakeholder, we expect Air Malta to follow Malta’s tourism policy as set by the Government, which is aiming for growth. What Air Malta is implying is the opposite, that tourism growth should follow or be subject to the size of its market share.
All sectors of the industry nowadays face tough competition and Air Malta is no exception but one cannot expect that the carrier secures its market share by keeping out other airlines at the risk of contracting the tourism industry.
This is certainly not within the terms of the agreement it has with the Commission or its road map to profitability.
Stopping competition is not the answer. We have to look at the sustainability of the airline in the context of the sustainability of the entire tourism industry. Air Malta’s board and its management have, from the start, insisted that they should be allowed to operate the airline and decide on its future on the basis of commercial lines, away from any political intrusion, which perhaps explains why the process of consultation is sparse even with the Malta Tourism Authority. But, then, Air Malta cannot expect to control the strategic growth of the tourism industry as set by the Government.
Air Malta has so far registered remarkable progress, which augurs well for its future, but other industry stakeholders also need to work towards achieving long-term sustainability.
We cannot be made to choose between Air Malta and tourism growth.
George Micallef is a former president of the Malta Hotels and Restaurants Association.