Most economic analysts would agree that Air Malta is of strategic importance to the tourism industry in Malta. When one considers that tourism is one of the biggest creators of employment, it stands to reason that operators in the industry take a close interest in the future of the national airline.
The crux of the matter is how Air Malta should be governed to ensure that it continues to play a strategic role in the tourism industry without breaching EU competition rules. Four years ago the EU approved a rescue package for the national airline amounting to €160 million as long as this package would be a one-time last-time measure to make the company viable.
While improvements seem to have been achieved mainly by cutting the workforce and improving operational efficiency, many economic operators in the tourism industry still fret on the future viability of Air Malta and its ability to continue to support the industry. While everyone seems to agree that financial stability of the airline is a priority there are differing views on how this can be achieved.
The Malta Hotels and Restaurants Association has suggested that government should maintain a “strategic interest” in the national carrier that should remain Maltese-owned.
They argue that the solution to Air Malta’s future governance structure should be modelled on that of the Bank of Valletta.
But is this a viable option? The Bank of Valletta model is quite simple: the Government owns about 25 per cent of the bank and has the right to appoint the chairman and another director – two directors out of nine. BoV also has a non-strategic shareholder in the form of the Italian bank Unicredit. It also has about 19,000 small shareholders.
Many business strategists would argue that this is not the ideal governance structure for a strategically important economic operator like a bank. Similarly it is not the ideal set-up for a national airline, however important it is for the tourism industry. Without an experienced airline strategic partner, Air Malta would struggle to meet the expectations of its stakeholders: its numerous small shareholders, the EU regulators, Maltese taxpayers, its customers and the operators in the tourism industry.
It is a fact of life that Air Malta is considered by the EU completion regulators as a commercial entity that should not be favoured by the government because this would infringe on the rights of its competitors. It is also a reality that in the context of Malta’s size and insularity the tourism industry would suffer if regular flights to strategically important destinations were decided on purely commercial lines.
Many would argue that low-cost airlines have no social or economic obligations to Malta’s tourism industry. They are therefore free to determine when and what destination they service almost exclusively on considerations of route economics.
If the EU competition regulator decides that Air Malta cannot be considered as a special case and therefore exempt from rules that apply to other EU airlines, the most pragmatic governance blueprint for Air Malta would be a strategic alliance with another experienced and reputable airline. If both parties in such an alliance find benefits in joining forces that they cannot easily acquire if they continue to operate independently, this could lead to a marriage made in heaven.
Forging such an alliance will never be easy. But Malta’s strategic location can once again add value to Air Malta’s competitive advantage.