Air Malta cuts operating loss

Air Malta has registered an operating loss of Lm4.8 million over the last (eight-month) financial year (August 2004-March 2005), down from Lm7.7 million in the same period the previous year, its chairman, Lawrence Zammit, announced yesterday.

He described the figures as indicative of "an element of progress", but added that the company was "not out of the woods yet" and that lots more work still needed to be done.

Government Investments Minister Austin Gatt said there were no plans to privatise Air Malta next year but in the long term part of the company could be floated on the Stock Exchange.

Speaking at a presentation of the airline's financial performance, Mr Zammit pointed to a substantial improvement in turnover of Lm9 million and stressed the detrimental effects of the rise in fuel prices.

In fact, the Lm4.8 million loss included Lm3 million in net fuel costs - the airline had to foot an additional Lm4 million for fuel, only Lm1.3 million of which it managed to recuperate from surcharges on tickets.

"If the Lm3 million were subtracted from the Lm4.8 million, the loss would be far less," Mr Zammit explained. "That is why you could say that substantial progress has been marked."

Apart from the rise in fuel costs, Air Malta's accounts were dealt another blow by en route charges (Lm1.2 million), which it had no control over, while competition from ground handling caused an estimated drop in revenues of Lm835,000.

The price of fuel was continuing to increase and its negative impact on the company would be substantial, Mr Zammit predicted, warning that the current financial year, which started in April, was not going to be easy.

Outlining cost-cutting measures, he said staff had been reduced by 115 through natural waste and not forced redundancy. Overtime had also decreased, saving Lm1.6 million in gross salaries.

Mr Zammit pointed out the importance of the rescue pact, signed with the unions in May 2004, as well as cuts on administrative costs and management restructuring - the number of senior executives has been halved. Part of the income is now based on individual and company performance, while allowances and benefits, which were considered excessive, have been rationalised and executive allowances reduced by Lm58,000 between June 2004 and 2005.

Mr Zammit said the company was operating a zero-based approach - looking at the amount of staff every department would need if it were being created from scratch.

Savings of around Lm500,000 have been made through the rationalisation of overseas offices, he said.

"The structure was simply not relevant to today's way of doing business... It did not take into account developments in technology and IT, or the market." Meanwhile, the company's positive growth was due to an increase in passengers from 1,069 million to 1,273 million - 200,000 (19 per cent) more.

Operating results for the first three months of the current financial year marked a loss of Lm1.5 million, Lm850,000 more than the same period last year.

Future threats included the rise in fuel prices. From 2003/4 to 2006/7 - a three-year period - it is projected that prices will have doubled, having a considerable impact on the airline's operation. Declining yields, a drop in ground handling revenues and currency exchange risks were other obstacles, Mr Zammit listed. The terrorist attacks in London also had an effect on the airline's operation and "one never knew what was going to happen next. Until now, however, the company is holding its ground," Mr Zammit insisted.

It would continue striving to increase its revenues and cut its costs in line with its commitment to keep Malta connected with its current destinations for both social and economic reasons, he said.

Dr Gatt underlined the positive aspects of the company's performance, saying Air Malta improved its core operating bottom line by Lm3 million in the eight months between August and March over the same period last year - Lm1.2 million in the 12-month period between April 2004 and March 2005.

"The figures are an indication that what the government, the company and the workers went in for is proving to be successful. This serves as an example for other situations: If we steer clear from rhetoric, we can truly improve our companies," Dr Gatt said.

Today, despite the fact that their take-home pay had decreased, they were working more and their jobs had changed, the remaining Air Malta employees "have a future, unlike those at other places of work, where due to intransigence, a solution cannot be found".

Another lesson to be learnt is that Air Malta, like other companies, works in an environment of cutthroat competition. "We cannot expect the rules of the market not to apply to us; we would be taking ourselves, the country and its workers for a ride if we did."

The results of Air Malta's performance were linked to the commercial reality of aviation. "There is no escaping the fact that the company can only survive if it makes economic and commercial sense. If not, hard decisions must be taken."

Dr Gatt maintained that Air Malta was capable of rising to the challenge, particularly the threat of the increase in the cost of fuel, which every airline had to face.

"Without this factor, the results would have been much better. In a nutshell, instead of reporting a loss of Lm4 million, we would have been reporting a loss of Lm1 million."