It was good to read that, in the opinion of its chairman “despite the tough circumstances” Air Malta was moving well. (The Sunday Times, December 18.) In the context of what has taken place and what lies ahead, the chairman’s encouragement to stakeholders was timely. Nevertheless, the national carrier still has a mammoth-sized task ahead if it is to survive.
The airline must survive also because of its fundamental linkage to the tourism industry- Lino Spiteri
Notwithstanding a €12 million increase fuel prices, operating losses are expected to mirror last year’s figures, at around €37 million. That means that a mix of savings has already been made, although downsizing of the work force has yet to start. Air Malta cut its route coverage by 10 per cent between April and October, giving up routes to loss-making destinations, while introducing others. Flights to Libya have resumed.
Despite the 10 per cent reduction in routes, passengers carried were down by only one per cent. Revenue remained at the same level as last year. As part of its restructuring process the company plans to shed 40 per cent of its workforce, mostly through an early retirement programme that will cost the company around €20 million.
The cost of the scheme has to be added to the €52 million liability burdening the company in the form of a loan advanced to it, the first-ever state aid to Air Malta, which the European Commission approved on condition that the airline is restructured. The objective is to turn the company round within four years by increasing revenue by €30 million and cutting costs by a similar amount.
Whether it will be able to generate cash surpluses to repay the government the €72 million it will owe it, is something that has yet to be worked out and explained, especially given the capital outlays which the company may need to make to maintain and possibly upgrade its reduced fleet.
The chairman did not enter into detail regarding what has been going on since he and other new directors were appointed in May. He said that “a lot of good, hard work behind the scenes has been done.” He added that, had the carrier not reached certain milestones during the past six months, it would have had problems paying the wages this week. Air Malta has secured bank financing, which must have been a difficult task. The company is also paying creditors on time, which is essential if it is to continue to be able to operate.
It seems that the business plan submitted to company’s bankers did the trick. Putting in place a new, mostly expatriate managerial team, notwithstanding the early firecrackers, would also have been viewed positively by the bankers.
The question now is whether the European Commission will be similarly impressed. The chairman said that three weeks ago a fine-tuned restructuring plan was sent to the Commission. Brussels is expected to issue an opinion on the matter for scrutiny by any interested parties by the end of January. That scrutiny is likely to result in critical observations and possibly objections by representatives of airlines which compete with Air Malta, particularly low-cost carriers.
The chairman said that Air Malta was expecting Brussels’ approval of the plan by July at the latest. Meanwhile, the task remains uphill. Even if approval does come from Brussels, it will simply mark the beginning of a completely new phase. In this regard the chairman’s warnings were apt.
The airline’s success hinges on good commercial thinking and weeding out the politics which have weighed it down for years, he told The Sunday Times. “The government, the opposition and all operators need to realise Air Malta can’t keep operating like the past. We need cross-party support. Hoteliers say they don’t know what’s going on, but by now they should know the rules of the game – think commercial.”
In a timely and interesting interview I feel the chairman’s wisest words were the following:
“Reducing employees is not enough. We need to fine-tune revenue management, we need proper training, we need more productivity and passion. We are right-sizing the company with numbers and attitudes. The employees’ energy has to be translated into revenue. I’m encouraged by some of this year’s achievements, but the hard work is about to begin.”
That is where the mammoth steps in. It will have to be tamed. Down- or right-sizing will still leave Air Malta as one of the largest single employer on the island. The remaining jobs can only be protected through successful and profitable operations. In a context of rising competition and a volatile environment, that will be far from easy.
The airline must survive also because of its fundamental linkage to the tourism industry. There is already considerable worry in that sector about the possibility that Air Malta will be flying fewer planes. With proper planning and coordination with those who speak for tourism, that can be overcome. But even that will not be easy.
For months, now, Air Malta has been operating in crisis mode. Crises cause stress. They also act as a necessary spur. Hopefully, the existing crisis can be overcome. Yet the spur has to remain, without break or fail.
A serene and healthy Christmas, New Year and beyond to my readers, the business editor and his staff.