Model flying

Continuing efforts to steamroll the Air Malta unions with an austerity plan to try to shift the company out of as yet unexplained mounting core losses are aggravating the situation, destroying morale and generating resentment. Yet, should the unions agree to austerity along the lines proposed by the company it is very doubtful that a sustainable recovery would result, even if no fresh external shock comes along.

The position needs to be laid out clearly to all concerned, frankly and without distortion and spin. Past mistakes have to be acknowledged, if only to learn from them. But the paramount consideration, beyond stemming real losses, must be how the flag carrier can compete in an environment that includes heaps of airline company wreckages.

A survival plan can only have a reasonable chance if, in addition to being well-structured and equitable, it has a definite and realistic time-frame. No operation can operate in survival mode for long. Nor can any company reconcile clear opposites. Like persuasion and imposition, fairness and discrimination.

Like maintaining employment and simultaneously building a basis for sustainability. The jobs consideration is the most difficult to think through and act upon. It is the duty of unions to protect jobs - it is terrible to have to recognise and accept that some job shedding may be necessary to ensure retention of a balance of other jobs. Governments find it politically hard to make that clear.

Instead, they confound the issue by claiming that to cut the earnings of all will keep all in employment, instead of saying that job sharing at reduced pay in a commercial context simply ensures that the threatened collapse will get closer.

The traditional airline industry has been forced into fundamental change all over the world. The devastating events of September 11, 2001, and shocks like Sars, aggravated - and not caused - the problems. These are greatest for national carriers who have a strategic role in their national economy, but face intensifying competition from low cost airlines, as well as a relentless shift away from premium business to leisure travel. Nowadays even business travellers are required by their companies to travel low cost.

Is it possible to survive in such an environment, to claw oneself out of unsustainable losses into viability? Not if anyone digs into trenches of imposition of, or total resistance to, painful change. That understood, then yes, survival should be possible. Take the Aer Lingus model, for instance.

The Irish flag carrier was under severe pressure well before September 11. Among other things it faced razor-sharp competition from Ryanair, a hugely aggressive and successful private cheap-fare, no-frills airline, also Irish. September 11 was the ultimate external blow. A survival plan was drawn up and put into motion under a new chief executive, a man barely 40 who had joined Aer Lingus as a cadet and had risen to chief operating officer.

The annual report and audited accounts for the year to December 31, 2003 record the outcome. They were, by the way, signed and delivered on February 26. Those for Air Malta take nine months to come out. Its accounts for the year to July 31, 2003 are not yet available.

The Aer Lingus report records that a negative operating margin of 4.7 per cent was turned into a positive 6.7 per cent in 2001 and 9.3 per cent in 2003. Costs were slashed under all headings. So was the labour force. About a third of the jobs that existed in 2001 were shed, bringing the workforce to an average 4,281 in 2003, deployed on operating 33 aircraft on average. Work practices were critically reviewed. Pay, however, was not cut.

Earnings for those who remained in employment, in fact, increased. Share participation and profit sharing arrangements, started in 1996, were strengthened through an Employee Shareownership Plan. Employees now own 4.76 per cent of the company. Ten per cent of profits before exceptional items go to an Employees Sharing Scheme.

Incidentally, the annual report details the cost of its chief executive to Aer Lingus. Last year it totalled €498,000 (about Lm213,000). That included a basic salary of €296,000 and performance-related payments of €69,000, as well as superannuation provisions. He pays his own taxes.

Overall cost reductions were complemented by a fundamental repositioning of the airline. Recognising the steady decline in business premium travellers and threat to its leisure share, Aer Lingus became a low fare airline. It slashed fares and attracted higher passenger volumes. Though that translates (so far) into lower turnover because of the decline in yields, the sharp cuts in overall costs restored an increasing operating surplus in 2002. It increased in 2003.

Air Malta is not directly comparable to Aer Lingus. But the unforgiving pressure on the cost base is the same. It is set to intensify with relentless competition from low-cost and no-frills airlines. The language of profit and losses is universal, though specific allowance has to be made for the strategic role of Air Malta relative to the tourist industry.

There should be deeper reflection on Air Malta. The style of leakages, spin and browbeating used by the public investments minister and the company is both extreme and self-defeating. Yet there can be no doubt that hard problems exist and that they have to be tackled without delay, with clear-thinking and sensitiveness.

Before the heat of confrontation rises it could be in the interest of all concerned if they spent some time together to share the details and lessons of the Aer Lingus model.