So little has changed and so many opportunities have been missed since I was commercial chief at Air Malta until 2011. Air Malta has failed to build a sustainable business as a flag carrier.
When I came to Malta in 2006, I brought four ideas for turnaround:
1. Modernise online sales, pricing and revenue management.
2. Maximise fleet utilisation and fly only to major markets.
3. Reduce costs including with major staff reductions.
4. Build a second base in Catania, thus creating scale and lowering costs.
Point 1 was high risk and had many naysayers. We refocused the airline and the tourist industry on internet sales of short-break vacation travel from March to November.
Air Malta had traditionally relied on agencies selling two-week July/August vacations. Between 2007 and 2008, traffic grew by 15 per cent and revenue by eight per cent on the same cost base. This was the first traffic growth since 2001!
The key success factor was that we hired the brightest analysts from the University of Malta to implement the changes. These were new jobs.
Point 2 was a partial success. Air Malta’s network was refocused on key European airports: Heathrow, Paris, Munich, etc. We cut 50 destinations down to 35. We wanted to cut another 10 more peripheral destinations but special interests blocked this.
Once the positive financial results of our revenue management team were apparent, I asked the board when we could further cut costs. I proposed to cut roughly half of the staff, mainly ground staff, in order to create sustainable profitability. At least one board member apologised privately because staff cuts were not politically possible.
Now, 15 years later, this recommendation may be implemented. What took so long?
Economics must trump politics if government wants to maximise benefits to the Maltese economy- Brock Friesen
Why would Air Malta now want to be a network carrier? Where would it build its connecting hubs and at what cost? Many profitable airlines globally are point-to-point carriers.
My idea was to create a second point-to-point base at Catania. Sicily is a huge market from Europe but, in 2010, it was underserved and neglected.
My objective in building a second base in Sicily was to increase Air Malta’s scale, thus lowering unit costs and increasing profitability. It would have enabled a sustainable business plan as a flag carrier and created many well-paid jobs for the Maltese.
In 2011, there were many who thought that shrinking from 12 aeroplanes to six would save Air Malta.
However, shrinking would increase costs per seat sharply at a time when revenue per seat was falling everywhere in Europe. In recent years, some were so out of touch with airline economics that they wanted to fly to New York and Asia.
I believe that Air Malta’s best course of action is to become a capacity provider for a strong European airline brand. Becoming a contract capacity provider could achieve the two primary objectives: abundant flying to Malta for tourism and maximum high-quality employment for Maltese.
It would mean giving up flag carrier status and no longer marketing under the Air Malta brand. This would be a small price to pay for sustainable viability.
Economics must trump politics if the government wants to maximise benefits to the Maltese economy. Rebuilding Air Malta as flag carrier is not an option.
The alternative to becoming a capacity-provider airline would be to rely entirely on other countries’ airlines to serve the all-important Malta tourist industry. The airline employment needed to support Maltese tourism would be supplied to other countries.
As a citizen of another EU country, I would hope that state aid is not extended to Air Malta in a futile attempt to rebuild a flag carrier. But, perhaps, it could be a basis to build a viable capacity-provider airline business model.
These ideas would have been easier to implement before COVID but it’s not too late.
Brock Friesen served as commercial chief of Air Malta between 2006 and 2010.
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