In its 50 years, Air Malta had some notable successes and many more failures that burdened the public purse.
The tourism industry grew exponentially in the last half century partly because Air Malta kept flying thanks to generous subsidies funded by taxpayers. Now, the government is making another act of faith in a new national airline by setting up KM Malta Airline plc.
Prime Minister Robert Abela argues, “We cannot be dependent on foreign airlines. We need to retain control of our national airline, which can meet Malta’s needs while making financial sense”. So, from March 31, 2024, Malta will have a slimmed-down national airline that will look very similar to the moribund Air Malta.
Some will argue that this reasoning is old hat. Many politicians fear their nations will be irrelevant if they abandon their money-losing flag airlines. That’s probably a stretch. The market likely would fill the gap in most places – provided the government got out of the way. But national pride is powerful, and few people want to see national brands disappear.
Various attempts to restructure Air Malta failed for multiple reasons, including political interference in management, wrong commercial decisions, the liberalisation of the European airline industry, and the competitive pressures created by overcapacity in the market. The big question that needs to be asked is whether the new national airline can navigate around the many obstacles that debilitated Air Malta.
Not much has been revealed about the business strategies of the new airline. Thankfully, there was no magic thinking about the new airline serving as the Mediterranean’s favourite hub or new transatlantic routes to boost the airline’s commercial success.
Finance Minister Clyde Caruana insisted: “Every flight has to make a profit. Every flight must be full.” The cost-cutting tactics can make a difference, but they will not determine whether the new airline will be viable.
The short-term prospects of the new airline are moderately good. This year, the travel industry has defied a global economic slowdown, enjoying record bookings and profits as pent-up demand fuelled air travel spending following the pandemic.
Still, industry experts are concerned that high inflation and rising interest rates could dent appetite for air travel in the short term.
The European airline industry still struggles with overcapacity. Consolidating alliances, code sharing, and interline agreements partly addresses this problem.
Lufthansa has taken a minority interest in the Italian national airline ITA while the Portuguese government is trying to find a partner for the struggling national airline TAP. Large low-cost carriers will undoubtedly exploit their economies of scale to carve out more market share in an increasingly competitive environment.
With just eight aircraft, KM Malta Airlines will compete with the giant legacy airlines and the low-cost carriers to achieve enough market share to become commercially viable.
One can only hope that the new national airline will be managed by competent executives who understand and have experience in airline economics. Even more importantly, the government, as the major shareholder, will not use the new airline to promote political patronage.
No more taxpayers’ money must be poured into the airline if commercial viability is not achieved.
Whether KM Malta Airlines’ strategies will be sustainable in the long term remains to be seen once more details are announced on the business model adopted by the airline.