Air connectivity is critical for all small islands. They are even more so for island states. The smooth functioning of Malta’s economy depends on reliable air transport on as many air routes as are economically feasible.

COVID has exposed the vulnerability of the country’s air connectivity, with airlines substantially reducing the routes they service. According to a Central Bank report, nearly half of Malta’s air routes have been wiped off the map in less than a year, with the global pandemic taking air travel back 15 years. Low-cost airlines that had helped to increase Malta’s air connections by 84 direct flights since 2005 have this year made drastic cuts to their scheduled operations.

The Central Bank policy note stresses that policymakers should strive to restore connections to important hubs or establish alternative ones, which would be “crucial for the economy to benefit from the eventual global recovery in a post-pandemic environment”. The implications of the disruption to Malta’s air connectivity on the economy are indeed worrying. Air transport represents a small share of GDP but is closely linked to the activities of other economic sectors.

Malta’s open economy multiplies the risk of air connectivity disruption as we import most of the goods that we consume and depend on the inflow of tourists for a large part of our service exports.

The dramatic drop in demand for passenger air transport and an equally substantial drop in freight air transport availability is threatening the viability of many businesses, with a lot of jobs possibly at stake.

In the short term, the government can adopt policies to mitigate the impact of this disruption on the national carrier Air Malta and on businesses that depend on the regular flow of goods and services by air transport.

However, the COVID crisis has introduced a new dimension to the importance of air connectivity security: low-cost airlines, on which Malta has come to depend so heavily, are mainly motivated by profit within the parameters of tight safety regulation and have no obligation to support the economy of any particular country.

While the role of Air Malta in preserving a critical lifeline to the country’s economy and society has always been stressed by political and business leaders, it is not reasonable to expect the national airline to service all the air routes that the country needs in order to sustain its economic activity.

The government must strike a balance between the need to support COVID-affected businesses and the risk of distorting competition. At this stage,  the risk of doing too little is bigger than the risk of doing too much. Even large airlines like Alitalia and Lufthansa now depend on massive government support to survive the current air transport crisis. 

However, a time will soon come when economic sustainability once again becomes a national priority, not just for the national airline but also for businesses whose existence may be threatened by the COVID crisis.

The government needs to preserve business dynamics and allow exit for insolvent businesses. For instance, demand for inbound and outbound travel may be structurally different from that before the crisis and, possibly, lower. Policymakers must avoid backing non-viable firms but support displaced workers. 

Air Malta’s economic viability was stress-tested long before the crisis. The crisis has shown that there is still an economic and social case to be made for Air Malta to be supported by taxpayers. But this has to be done judiciously.

Saving the economy from the misery of a prolonged recession is today’s priority. However, restoring air connectivity to pre-COVID levels has to be done without risking the country’s solvency.