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).

Malta Independent - - DEBATE & ANALYSIS -

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 air­ 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.

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