The winding down of the Air Malta-Alitalia negotiations

About a year ago, the first reports appeared about Air Malta possibly seeing investment from Etihad (Alitalia’s parent company).

some smaller (or larger?) aircraft (possibly plural) to improve the network or frequencies.

This worked under the Mintoff, Mifsud-Bonnici, Sant and Fenech Adami governments, so outsourcing for seasonal capacity increases is neither ‘blue’ nor ‘red’. During the 1990s, it ranged from, say, the 60-seat BAe ATP turboprop to 280-seat Airbus A310s, or various Boeing models all from the mid 1970s to the early 2000s. One could adjust according to changes in seasonal demand, ‘right-sizing’ the fleet and network, and all this without the burden of too complex and costly own structures, on top of a basic year-round fleet.

Results of the Alitalia negotiation

So what did the Alitalia negotiations bring in a worst case scenario if no agreement is forthcoming – which has not yet been said but could be?

• It bought time for Air Malta: with a prospective partial privatisation on the horizon, the finances would be under less tough EU scrutiny. Even with failed deal will give the government time to find an alternative solution and for the company to further improve its operational results

• It might have also bought time for the government, in view of possible election dates and changes affecting the workforce with potential repercussions on votes, granted that the present government did not inherit an easy case.

It put pressure on part of Air Malta’s staff for concessions that might save on costs, while apparently one group of employees could, on the other hand, even improve their financial standing despite all this.

• Some Air Malta staff might call it a day and apply for other (parastatal) employment or retire, meaning it would create fluctuation, but possibly without big termination costs when people ‘resign’, by creating insecurity.

All the due diligence, etc., also brought according contracts for according local legal and accounting services in preparation for a possible deal, with the big fat bills footed by – or so it seems according to the MoU – Alitalia, nobody else but Air Malta; how high this sum was might be an interesting question in Parliament, but then it is probably ‘commercially sensitive’.

for Alitalia and Co, even when nothing materialised, it acquired full insight into things such as revenue streams and structures, passenger streams etc, which might be useful in optimising their own Malta routes.

Hopefully, Air Malta did not sever its year-long ties as regards code-shared routes, or with tour operators, when preemptively adjusting the network towards an Alitalia/Air Berlin/Etihad-focused network. Could the sales organisations sell all possible capacity to tour operators, travel websites, etc., for next summer due to uncertainty about the future of some routes/frequencies/schedules in general?

It is as well to keep in mind that, due to the limitations set by the EU approval agreement for state aid, Air Malta was forced to not only reduce capacity and routes but has also been hindered in the development of alternative EU markets, while a certain low-cost carrier has been cashing in a lot of subsidies for flying ex-Air Malta routes.

Still, our small national airline has kept on trucking so far. When checking winter schedules, one quickly notices that even in respect of relatively important markets, it is only Air Malta that sticks it out from December to February (take Vienna, for example) when one might be losing money but still providing the direct connectivity and thus capacity to fill offpeak hotel beds and all that comes with it.

Air Malta was built as a small airline with hope and good intentions, linking our little country against many odds. It has done a fantastic job in helping to build modern Malta and connecting people while growing the economy, it remains the reliable airbridge all-year-round to the airports key to the national economy and into global networks.

‘Feeding’ is neither a dirty word nor dirty work. Joint marketing is essential for getting into the distribution chains and ‘feeding’ means sharing passengers and connectivity. If Air Malta did not have code-share agreements with Lufthansa (LH, Austrian, Swiss, Brussels Airlines) and its Star Alliance partners which, in turn run flights under LH group codes to, say, Air Canada, and in more recent years also Air France-KLM groups, it might quite probably have ceased operating long ago. These systems ‘feed’ traffic into Air Malta flights and, on the other hand, Air Malta can also take part of their share when feeding into their flights from a northern hub.

Clearly, it does not help negotiations when one plays the princess by communicating that one does not want to do any ‘dirty work feeding’.

It is general industry knowledge that airlines that invest in other carriers either want to have real full control or abstain from investing.

Faroe Islands carrier returns Airbus back to Air Malta

Atlantic Airways, the flag carrier of the Faroe Islands, has returned an Airbus A319 back to Air Malta after reportedly having found it too big/uneconomical for their niche core operation, while apparently also not attracting enough charter contracts.

The airline had so far operated their island airbridge services from/to their challenging Vagar airport using Avroliners. These have smaller capacity and, while not particularly fuelefficient, are very capable on short runways, while overall having lower trip costs in this day and age due to their very low depreciation, so they can be a choice for operators with only a few short flights a day. Another field of business is charter flights between European destinations not involving the Faroes, particularly from Denmark.

The plane, registration 9HAEJ, was put on the (sub-)lease market by Air Malta in order to crop its overcapacity, costs, generate more revenue, and meet the ‘ordered shrink’ as part of the restructuring deal with the EU. One point of the agreement was to – like this! – favour competitors, such as Ryanair, getting more market share.

Air Malta might have been continuing to pay more for their lease to the leasing concern than they received from subleasing it to Atlantic. Used Airbus A319s have (in contrast to used A320s or A321s) a rather low residual value, reflecting accordingly on leasing rates due to unit costs (costs per seat) being not as attractive as on larger Airbus narrow-body planes.

The jet was initially delivered to Air Malta on lease from ILFC (now AerCap, after AIG sold ILFC to them) in 2004, while Air Malta delivered it to Atlantic Airways in May 2013. It is now flying with some blue belly traces of the Atlantic livery plus makeshift airmalta.com titles.

So Air Malta’s fleet has increased by one active aircraft, and the reduction plan might just mean that one is only looking for how to re-deploy this excess capacity by again leasing a plane out to someone else.

Etihad equity partner Air Berlin being split up

Alitalia’s parent company Etihad has a lot of work currently going on regarding one of its other investments – Air Berlin. On the one hand, due to this background in the Air Malta sale negotiations but also due to the fact that Air Berlin and its Austrian subsidiary Niki fly to Malta for a good part of the year, it might be interesting to look at this more closely.

A core of Air Berlin will concentrate on long-haul flights to leisure and business destinations as well as scheduled operations in western and central Europe exclusively from Düsseldorf and Berlin. Some domestic and European flights will continue to be offered from Stuttgart and Munich, which will continue as smaller bases.

Another part of the fleet, 40 aircraft, will be wet-leased (including crew and also more services) long-term (six years) to Lufthansa’s budget brand Eurowings. In this way, the European operations of Eurowings can grow rapidly, with a solid technical base and established routes and tour operator contacts and contract provided by the Air Berlin operation. It can also operate at a more competitive manpower cost than if with a crew paid according to the very generous to say the least Lufthansa/Germanwings conditions, particularly an issue as regards pilots. Air Berlin, on the other hand can employ roughly a third of its own capacity.

Finally, a third part of the fleet will supposedly be amalgamated with travel concern TUI’s in-house carrier TUIfly, formerly known as Hapag Lloyd. TUIfly already operate quite a number of jets for Air Berlin (all Boeing 737s that currently operate for Air Berlin) at, it is rumoured, conditions very favourable for TUI, at higher manpower cost than Air Berlin’s, for example. This was a result of Air Berlin absorbing Hapag-Lloyd’s own low-cost brand ‘HLX – Hapag Lloyd Express’, which was in New York’s yellow cab pain-scheme, with planes then deployed on Air Berlin’s thereby expanded network.

A possible so far unnamed set-up that would be lead by Etihad would use the TUIfly jets currently flying for Air Berlin, the entire TUIfly fleet, plus all the aircraft of Air Berlin’s Austrian subsidiary Niki (which also operates to Malta from Vienna). The TUI carriers in other countries, such as the UK’s Thomsonfly, would not be part of this set-up.

Analysts argue that Air Berlin is shedding precisely what used to bring it some steady income when departing from the tour operator or Majorca-shuttle routes. Air Berlin has so far always been a positive alternative ‘in-between’ Lufthansa on the one hand and Ryanair and German/Eurowings on the other, also on domestic runs, where Air Berlin has so far excelled with good timings, high frequency and good service – and low fares if booked in time.

While Malta has Air Malta, network carriers like Lufthansa and Alitalia, as well as primarily low-cost and a few traditional leisure airlines coming in as a mix for the German market, particularly smaller Greek island destinations, might have to bear the brunt of the repositioning of Air Berlin, meaning a capacity withdrawal there. This, as well as other vacancies left by Air Berlin, might be a chance for Germania, who specialise in niche operations, partly from secondary German airports to a mix of both well-known and niche destinations in the holiday, ethnic and corporate shuttle markets. Why not also for some Malta routes – or for Air Malta?

Maybe now is the time for exploring a ‘Maltese solution’ while continuing a strengthened commercial partnership with its current partners. There is clearly a business case for a strong Air Malta.