Air Malta’s restructuring programme includes plans to join a global alliance and to increase its in-flight revenue, particularly through the introduction of paid catering services.
This new information is included in the full text of the European Commission’s decision to approve a €238 million State aid injection into the national airline aimed at avoiding its bankruptcy.
The decision, obtained by The Sunday Times, shows that Brussels is optimistic the company will return to profitability by 2015 but also shows that the airline had to scale down its original plans as the Commission considered them too optimistic.
According to the 30-page decision, signed by Competition Commissioner Joaquin Almunia, out of the €238 million State aid to be given to the ailing company, Air Malta will be forking out more than 45 per cent.
This includes the sale of the company’s property to the Government for more than €66 million, a commercial loan of some €25 million from two local banks and increased revenue from various streams, including pre-flight and in-flight operations.
Among the most controversial revenue streams the company is planning to introduce is the sale of on-board catering, which until now has been included in the price of flights.
According to the restructuring plan, “paid catering services will increase the company’s revenue by €4 to €5 million a year.”
Asked a few days ago on whether Air Malta will be imitating low-cost airlines and charging for its in-flight meals, the company cited commercial secrecy.
However, in an interview with The Sunday Times in August, airline CEO Peter Davies had mooted the possibility, though said there should be a “reflection on the ticket price”.
This practice of passengers paying for their meals is already customary on low-cost carriers like Ryanair and Easy Jet, which charge cheap tariffs for their flights while all other services are at a premium.
Apart from paid catering services, the restructuring plan mentions various other streams of new revenue to be developed by the national airline such as additional bag charge fees of between €35 and €45 for any second or subsequent bag and a seat reservation fee of €10.
In order to compensate for these additional costs to passengers, the airline seems to be moving towards a strategy of lowering its prices in order to boost its load factor.
According to the Commission the airline will have to do more than originally planned to compensate for the State aid it is set to receive.
Although originally the company proposed to reduce a number of routes and to forego a number of slots at key airports, the Commission asked for more since Air Malta’s plans “also included the reduction and withdrawal of unprofitable routes” in its compensation plan.
Without mentioning the routes it asked Air Malta to give up, the Commission said that “it identified 14 routes to be reduced in capacity or withdrawn which are profitable as well as a number of charter flights which can be accepted as compensatory measures”.
The decision also confirms that Ryanair and International Airlines Group – the holding company owning British Airways and Iberia – objected to the State aid given to Air Malta and expressed doubts on the return to viability and the underlying assumptions.
Ryanair and an anonymous consultant also alleged that the land sale of Air Malta to the Government was being used so that Malta could inject extra aid into the airline through this transaction. The Commission dismissed this allegation.