The recent Air Malta results show that there is a clear deterioration in performance and a resultant deviation of the financial results from that published in the European Commission-approved restructuring plan.

Commentators will reach their own conclusion about the performance and the numbers presented, but speaking as an experienced aviation manager, it is clear that a single, intense period of change is insufficient. After restructuring, simple maintenance does not produce adequate results to ensure survival and future success.

For Air Malta, there still remains a fundamental structural issue.

Let us first understand the commonality of issues that similar European airlines are facing and recent developments in the industry – both of which Air Malta will need to navigate and manage through to ensure a sustainable future.

The aviation industry is under pressure to reduce costs and increasingly under stress which is driving the recommended consolidation of the industry in Europe (read as airline closures).

To understand the stress and process of consolidation let’s review recent developments in the European state airline aviation sector and that relevant to Air Malta. Last July the Commission approved State aid investment for four European airlines. Air Serbia has just celebrated its first year anniversary following Etihad’s 49 per cent investment and also assuming management control.

Last year, Czech Airlines received a 44 per cent strategic investment from Korean Air and only last week they announced the need to inject up to another €20 million as the airline continues to struggle. Alitalia is the latest State airline – along with other private airlines – to become an equity partner with Etihad. Adria Airways, Air Baltic, Lot (Poland) and Croatian Airlines are all actively exploring varying degrees of privatisation.

Aegean Airlines has bedded in the acquisition of Olympic Air (Greece) and is driving strong profitable growth – noted by their recent announcement to launch a service to Malta – more competition! LCC’s Ryanair, EasyJet and Wizz Air continue to drive growth – not through traditional organic means, more through taking market share. Monarch Airlines recently announced they are changing their strategy to enter the European LCC market. If that is not enough pressure on small airlines, both Michael O’Leary (Ryanair) and Willy Walsh (IAG/BA) have publicly stated that inefficient small State airlines don’t deserve to survive – and I agree.

Air Malta has the potential for a sustainable future

From a commercial perspective the market is highly competitive. All airlines need to reduce their unit cost to the lowest possible base commensurate with the product they are offering. There is sufficient market elasticity for different service values to flourish but the gap between the extremities is increasing as legacy carriers fail to bring operational costs down and suffer from the monopoly and duopoly of service providers.

While the airline industry languishes around a 1.5 per cent margin, suppliers enjoy a 14 per cent return – you can make money in the airline business providing you supply it and don’t fly it.

I disagree that the previous demise of Air Malta was due to low-cost carriers. To understand the impact these carriers are having on the market we need to look at the bigger picture and the structure of the market. Many small national flag airlines are being marginalised in a commoditising industry. European legacy airlines are struggling to shed expensive outdated practices and collective agreements while low-cost operators have not only increased the size of the market but have exploited these inadequacies to improve their market share. This particularly exposes peripheral destination airlines who find it increasingly difficult to compete profitably. Furthermore, regulatory frameworks prevent easy access to capital from State shareholders that have historically funded and perpetuated the continuance of these uncompetitive operations.

Established global alliances are functions of market cooperation and do not create a level of integrated operations and cost savings. Traditional outsource service providers focus on trans­actional activity and are insufficiently en­gaged in commercial risk-reward relationships.

The convergence of these factors requires the true exploration of the underpinning issues leading to the uncompetitive and non-sustainable operations of these airlines. My experience and research has identified the lack of the following key success factors: commercial independence; strategic and economic cohesion; innovation; critical mass; management talent and culture.

Recognising that flying a country’s brand is a vital component to its sovereignty, national identity and a strategic asset for economic prosperity, there is a solution where a State can retain access to their airline’s brand and provide safe, reliable and sustainable strategic airlift.

That innovative solution could offer real hope to Air Malta, and others, if those now leading it can demonstrate whether they have the vision to turn such an approach into reality. Air Malta has the potential for a sustainable future but the company needs to recognise that there are significant competitive and technological forces that are structurally changing the way airlines operate, forever.

Malta has many positive attributes to support a sustainable airline that will further develop and drive its broader economic development and growth. However, Air Malta needs to address the underlying issues noted above either through its own means or by engaging with a team with common objectives.

Airlines must not be treated as a political football; they need to run as independent enterprises while delivering strategic value to the country. So we need to make a profit and serve the country – they are not mutually exclusive; there is a solution!

Peter Davies is a former CEO of Air Malta.

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