KM Airlines’ strategy developments capture the media’s attention from time to time, with stakeholders wondering whether the prospects of the national airline are looking brighter. Still, the latest developments announced by the government are too nebulous to inspire public confidence in the long-term prospects of the national airline.
In an interview with Times of Malta, Finance Minister Clyde Caruana said the government intends to privatise KM Airlines partially and hoped this would happen “ASAP”.
Presumably, the EU had set deadlines for this privatisation when it approved the transfer of business from Air Malta to its successor, KM Airlines. Caruana also confirmed that the new airline “has done well in its first six months”, which is the positive news we were hoping for.
The Nationalist Party has appealed to the government to be more transparent about the way the privatisation process will be defined.
Stakeholders need to know the timelines being built in the privatisation plan, how the country’s national interest will be safeguarded, what benefits the airline will gain from the new shareholders’ involvement, and how the present airline workforce will be impacted.
Partial privatisation of Malta’s national airline could bring financial stability, operational efficiency, and improved competitiveness, while still allowing the government to maintain strategic control. But KM Airlines shares some of the daunting challenges afflicting all European small carriers.
The overcapacity in the airline market makes it mandatory for small airlines to have top-notch airline management expertise to fend off the predatory tactics of the much bigger airlines.
The giants in Europe’s airline industry will do all it takes to grow their market share and will not let smaller airlines’ lives be any easier.
So, if the government’s favoured route is for the eventual buyer of a third of KM Airlines shares to be directly involved in the aviation industry, this is good news.
All European legacy airlines are struggling to adopt a business model that offers the kind of services that legacy airlines specialise in while simultaneously satisfying the demands for low-cost travel that dominate the market today.
Low-cost airlines thrive on their flexibility to shift resources, alter routes, and maximise aircraft and staff productivity as the demand for travel grows.
Legacy airlines find this flexibility requirement much more challenging to achieve. KM Airlines, like its predecessor Air Malta, successfully reduced its cost base by reducing staff and cutting other expenses relating to its fleet of aircraft. This is important.
Still, it will never be enough to make the airline competitive in the context of cut-throat competition in the European market.
It will not be easy for prospective buyers with experience in the aviation industry to be convinced that KM Airlines can add value to their business. In the past, Air Malta tried to sell its perceived strengths by projecting itself as a strategically placed potential hub for other major airlines like Alitalia. This strategy was never more than wishful thinking.
The economies of scale argument is a priority of small carriers like KM Airlines, but not for large airlines who chose their feeder airline partners purely on considerations based on logistic convenience.
This time, the government must be more transparent in its privatisation plans for KM Airlines and ensure that all stakeholders are kept fully informed of all relevant details on a need-to-know basis.
Ultimately, Malta still needs a national airline, despite the constant growth of Ryanair and other low-cost airlines.