Air Malta becoming a ‘hy­brid’, not a low cost air­line – chair­man says

Air Malta’s fu­ture was bleak after last Jan­uary’s an­nounce­ment that a strate­gic part­ner­ship with Al­i­talia had col­lapsed. Fast­for­ward eight months and a new part­ner­ship in the form of a change of Min­is­ter and Chair­man have brought about sweep­ing changes wi

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Air Malta is not be­ing turned into a low cost car­rier, the air­line’s chair­man Charles Man­gion in­sists in a widerang­ing in­ter­view in to­day’s is­sue.

The per­cep­tion that Air Malta is join­ing the low cost ranks of Ryanair and Easy­Jet fol­lows the air­line’s re­cent rock bot­tom €39 flights, but, ac­cord­ing to Man­gion, “We call it a hy­brid air­line be­cause on the flight we are of­fer­ing all ser­vices from business to econ­omy al­beit in sep­a­rate pack­ages. We are pro­vid­ing the ex­pe­ri­ence of the legacy air­line and a low-fare prod­uct which will have the same lev­els of safety and qual­ity of ser­vice.”

While the €39 price tag is cheap, Man­gion says that the air­line will be mak­ing a small profit, with­out much room for ma­noeu­vra­bil­ity, and as such the air­line will need to in­crease an­cil­lary rev­enue sales.

Man­gion also says that the air­line’s au­dited ac­counts for 2015/16, 2016 /2017 will be an­nounced dur­ing an An­nual Gen­eral Meet­ing in Novem­ber, and that 2017 has al­ready seen an in­crease in rev­enue and pas­sen­ger num­bers.

As such, Man­gion says, “The in­di­ca­tions are that there would be a break-even el­e­ment, which is why there can­not be any ma­noeu­vra­bil­ity on the col­lec­tive agree­ments or ad­di­tional pres­sures on the fi­nances of the com­pany.”

As for Min­is­ter Kon­rad Mizzi’s re­cent com­ments about a Plan B of clos­ing the air­line and open­ing a legacy-free op­er­a­tion should col­lec­tive agree­ment ne­go­ti­a­tions fall through, Man­gion com­ments, “I want to make it clear that it was not a threat, but a statement of fact. We are work­ing in a com­mer­cial business en­vi­ron­ment, and if the com­pany becomes in­sol­vent, you au­to­mat­i­cally go into liq­ui­da­tion which will re­sult in mas­sive job losses. This is a route which we are de­ter­mined to avoid but we need the co­op­er­a­tion and com­pre­hen­sion of all in­volved.

“The re­al­ity is we are will­ing to pro­vide ev­ery in­di­vid­ual em­ployee with all the de­tails of the take-home pay and how it will be se­cured. We have al­ready com­mu­ni­cated the fi­nan­cial state of the com­pany to the unions and the works coun­cil.

“There is an open-book pol­icy to show each em­ployee the ac­tual fig­ures of how much their take-home pay, how much their pay will in­crease, so they can make an in­formed de­ci­sion.”

When com­par­ing the re­cent launch of the ‘Go Light’ prod­uct and the an­nounce­ment con­cern­ing col­lec­tive agree­ments with the un­cer­tain sit­u­a­tion sur­round­ing Air Malta eight months ago, there seems to have been a rad­i­cal change in ap­proach by the com­pany and the gov­ern­ment, why?

Air Malta is not an or­di­nary com­pany owned by the gov­ern­ment, it is a na­tional as­set and ev­ery­body agrees it should re­main un­der the con­trol of any gov­ern­ment, both present and fu­ture, for the sim­ple rea­son that it is a cat­a­lyst for our eco­nomic growth.

The Mal­tese econ­omy has evolved sub­stan­tially over the last 30 years. The emer­gence of the iGam­ing in­dus­try, the fi­nan­cial ser­vices sec­tor, the high net-worth in­di­vid­ual, and the IIP con­trib­ute greatly to our na­tional growth which means that the air­line is no longer just ser­vic­ing tourism.

We have ap­proached Air Malta with two prin­ci­ples which work in syn­chro­ni­sa­tion, the first be­ing the sus­tain­abil­ity of the com­pany as a stand­alone com­mer­cial en­tity that can op­er­ate with­out sub­si­dies. It is important to know that the era of sub­si­dies ended with the ex­pi­ra­tion of the EU re­struc­tur­ing plan in 2016.

Se­condly, and more important, is the ne­ces­sity of hav­ing a na­tional air­line which con­nects us to main­land Europe and be­yond. With­out it, our econ­omy will be se­ri­ously af­fected.

These two prin­ci­ples place Air Malta on a dif­fer­ent level to any other com­pany. It is vi­tal for the country that the air­line does not fail.

Be­tween 2012-2017, the re­struc­tur­ing pro­gramme which was agreed to with the EU was aimed at cost cut­ting within the com­pany, but did not in­clude any plans for growth; it was not in­creas­ing rev­enue, ca­pac­ity, or the com­mer­cial as­pect of the com­pany. While the com­pany re­duced its air­craft and can­celled cer­tain routes, it did not bring about ef­fi­ciency as the fixed costs were not spread over a wider com­mer­cial spec­trum in or­der to be­come more com­pet­i­tive.

In­deed, the EU-ap­proved plan en­vis­aged that the air­line would have to give up ca­pac­ity as a com­pen­satory mea­sure in or­der for it to re­ceive gov­ern­ment as­sis­tance.

Di­rectly and in­di­rectly, Air Malta has re­ceived well over €200 mil­lion in cap­i­tal in­jec­tion, be that in prop­erty or di­rect cash, which sup­ported the day-to-day op­er­a­tions with­out any real cap­i­tal in­vest­ment made within the com­pany.

Once the re­struc­tur­ing pro­gramme ended, and a new ad­min­is­tra­tion came in un­der Tourism Min­is­ter Kon­rad Mizzi, an eval­u­a­tion took place and it was agreed that the com­pany needed to grow in or­der to pro­vide more op­por­tu­ni­ties to its work­ers, pro­vide bet­ter con­nec­tiv­ity for the country, and ren­der the com­pany sus­tain­able.

The five-year strat­egy seems to have a par­tic­u­lar fo­cus on growth. Could you elab­o­rate?

The growth is in terms of rev­enue and com­mer­cial growth. Ob­vi­ously, bear­ing in mind that sav­ings have to be main­tained at all times be­cause value for money is vi­tal, but also keeping in mind that the com­pany has to sur­vive on its own ca­pa­bil­i­ties and its own as­sets. We can­not ex­pect to re­ceive any sub­si­dies from the gov­ern­ment. This is a fact that can­not be over­looked at any stage.

The first fo­cus was on rev­enue growth. We have looked at ex­ist­ing routes and de­cided to have an ad­di­tional air­craft and open up new routes. Frank­furt will be in­tro­duced in Oc­to­ber, and the Tu­nis and Tel Aviv routes were added this year.

We have also opened a cargo trans­port route to Tu­nis with a pri­vate com­pany which will fly quite reg­u­larly and will yield about €1 mil­lion. This has al­ready be­gun; in fact, we have one cargo freighter fly­ing ev­ery week to Cologne at night.

There are also plans to in­tro­duce routes to Manch­ester and Malaga next year, and other new routes are in the pipe­line.

We are also in­creas­ing the fre­quency of the flights in win­ter to traditional des­ti­na­tions such as Mu­nich, Dus­sel­dorf, Heathrow, Fi­u­mi­cino, and Brus­sels.

The idea is for the air­craft to fly all the time, filled up with ei­ther pas­sen­gers or cargo. We are not plan­ning to dis­miss any em­ploy­ees, but rather in­crease air­craft and fre­quency, which will pro­vide more op­por­tu­ni­ties and work­ing hours for all em­ploy­ees of Air Malta. We need the ser­vices of pi­lots, cabin crew, and ground staff.

Be­fore the elec­tion, there were al­ways ques­tions on whether the com­pany would have to lose some of its work­force, be­cause of the Al­i­talia dis­cus­sions. We have cho­sen to con­cen­trate on the core business of the air­line, which is the car­riage of pas­sen­gers and cargo. There­fore, we have de­cided to hive off the ground-han­dling op­er­a­tions to a sep­a­rate com­pany owned wholly by the gov­ern­ment, which will in­clude about 400 em­ploy­ees from Ground Han­dling Ser­vice Op­er­a­tions.

En­gi­neer­ing work is be­ing kept with Air Malta for the sim­ple rea­son that it is a core op­er­a­tion of the air­line since the air­craft have to be main­tained.

Given that Air Malta is no longer al­lowed to take sub­si­dies from the gov­ern­ment, is the hiv­ing agree­ment with the ground­han­dling op­er­a­tions be­ing done to re­quest more funds?

The ground-han­dling op­er­a­tions have never recorded any losses, be- cause it also ren­ders these ser­vices to other air­lines. Now it will be able to pur­sue this area in a more business-like man­ner. The ground-han­dling op­er­a­tions will not only pro­vide ser­vices to Air Malta but also to other air­lines that are op­er­at­ing here and be ren­dered more com­pet­i­tive, and be pro­vided with cap­i­tal in­vest­ment. We will out­source our ground-han­dling ser­vices to them and it will be cost neutral.

The com­pany re­cently an­nounced the ‘Go-Light’ prod­uct. What made the com­pany de­cide to go down this route?

When we em­barked on this pro­ject of growth, we knew we had to ad­dress the Air Malta prod­uct. The air­line has es­sen­tially had the same prod­uct line for many years while the avi­a­tion in­dus­try and cus­tomer per­cep­tion changed. Bri­tish Air­ways, Lufthansa, and other legacy air­lines have all changed, so we knew Air Malta had to as well.

We have to ad­just to cus­tomer needs, not make the cus­tomer ad­just to us. This how we ended up with what we call the hy­brid prin­ci­ple. The air­line will con­tinue to op­er­ate with the same lo­cally and in­ter­na­tion­ally renowned brand of safety, ser­vice and re­li­a­bil­ity, and op­er­ate to pri­mary air­ports. It will now offer a var­ied prod­uct and with ‘Go Light’ we have pro­duced what I be­lieve is a very com­pet­i­tive prod­uct. It is a cus­tomer-cen­tric prod­uct which is flex­i­ble to the needs of any in­di­vid­ual.

We will still be cater­ing for all kinds of clien­tele; in fact we are look­ing to cre­ate a bet­ter business class. Business de­mand is chang­ing and there are op­por­tu­ni­ties to im­prove the business class and in­crease de­mand for the ser­vice.

You had pre­vi­ously said that the in­fa­mous ‘bez­zun‘ will be gone by Jan­uary. Will Air Malta still have a cater­ing ser­vice?

We are going to im­prove the in­flight ser­vice and qual­ity. It will be a to­tally new ser­vice; we are look­ing to offer bet­ter cater­ing on the flights. A choice will be of­fered be­tween ei­ther an in-flight meal or other se­lec­tions. The bez­zun will re­main free un­til Jan­uary be­cause it is un­der con­tract and the cost will be borne by the com­pany.

Is it fair to say Air Malta is becoming a low-cost air­line?

No, we call it a hy­brid air­line be­cause we are of­fer­ing all ser­vices from business to econ­omy on the

flight, al­beit in sep­a­rate pack­ages. We are pro­vid­ing the ex­pe­ri­ence of the legacy air­line and a low-fare prod­uct which will have the same lev­els of safety and qual­ity of ser­vice

The ex­pe­ri­ence of the legacy air­line should re­main there be­cause it pro­vided a cer­tain amount of cus­tomer sat­is­fac­tion and we need to keep the ser­vice ori­en­tated to them. These new pro­cesses will re­quire a change in men­tal­ity in the em­ploy­ees pro­vid­ing the ser­vice, but I am sure they are up to it; they have a great rep­u­ta­tion and will con­tinue to up­hold it.

Be­yond the prod­uct, what other facets are there to the strat­egy?

Step 3 will place sig­nif­i­cant im­por­tance on con­nec­tiv­ity and an in­crease in fre­quency to link Air Malta to other ma­jor air­ports. We be­lieve that by open­ing new routes will sat­isfy a big de­mand for Malta as a des­ti­na­tion and we will get the re­quired de­sired re­sults.

A fur­ther de­vel­op­ment of our strat­egy re­lates to wider con­nec­tiv­ity, by con­nect­ing peo­ple from Europe to North Africa and be­yond. Here we see a niche op­por­tu­nity for fu­ture growth. We be­lieve Air Malta can be­come the con­nec­tiv­ity air­line for the Mediter­ranean, where we can have hubs out­side Malta. This, of course, needs to be es­tab­lished fur­ther as­sessed through mar­ket re­search, along with in­ter­nal and ex­ter­nal opin­ions, to ex­am­ine where we can offer com­pet­i­tive prices and ef­fi­cient ser­vices.

Where will Air Malta be at the end of this five-year plan? The gov­ern­ment was pre­vi­ously fo­cused on find­ing a strate­gic part­ner. Is this the end game?

Let us not get ahead of our­selves. We are still in year zero but we be­lieve that by the end of five years we will have an in­creased fleet, bet­ter con­nec­tiv­ity, and a sus­tain­able air­line that is mak­ing a profit. This would al­low us to look for fur­ther op­por­tu­ni­ties. We do not know whether it will be a joint ven­ture or a strate­gic part­ner, we will need to look into it then. At least Air Malta will be able to have an at­trac­tive prod­uct for a part­ner or a joint ven­ture from in­side or out­side the EU.

Cargo trans­port from Europe to Africa is an area we will fo­cus on a lot as we be­lieve there are great op­por­tu­ni­ties for ex­pan­sion and rev­enue gen­er­a­tion.

De­tails on the col­lec­tive agree­ments were an­nounced last week, but ap­pear to have hit a stum­bling block. Could you ex­plain the cur­rent sit­u­a­tion?

There is a rea­son why the col­lec­tive agree­ment is for five years, as it is cru­cial to this five-year plan. It im­per­a­tive to un­der­stand, as we have al­ready ex­plained to the unions, that the air­line is more or less at a break or make point. We are ask­ing all em­ploy­ees for more pro­duc­tiv­ity, flex­i­bil­ity, and ef­fi­ciency; we are not mak­ing de­mands that are out­side of the norm. We are fol­low­ing the IOSA reg­u­la­tions which ev­ery Euro­pean reg­is­tered air­line has to abide by.

When com­ing up with the pack­age, we knew we must ap­ply the same prin­ci­ple to all the em­ploy­ees and would en­sure an equal per­cent­age in­crease. We told them that the take-home pay of the best in the last three years (2014, 2015, and 2016) will be guar­an­teed and that there will be in­creases in their ba­sic pay (5%, 1.5%, 5%, 1.5%, 5%). If in any year within the next five years, the take-home pay of the best year is not reached, the com­pany will top it up for each in­di­vid­ual.

The pro­posed in­crease will cost us €16 mil­lion over five years. The cur­rent wage bill is in the region of €35 to €40 mil­lion, which will change with the ground-han­dling op­er­a­tions be­ing hived off.

Air Malta can­not ask for a sub­sidy. It is pro­hib­ited and can­not be done, and if any­one has it in his or her mind that we would be able to hide it is liv­ing in fan­ta­sy­land. Air Malta can only rely on the as­sets it has, which are the flight slots and those are hy­poth­e­cated in favour of BOV. The sit­u­a­tion is ex­tremely del­i­cate and I am only say­ing this be­cause peo­ple have to com­pre­hend the real sit­u­a­tion.

We have to be very care­ful, which is why we are say­ing that this is the max­i­mum be­cause we sim­ply can­not give more, it is not a ques­tion of ne­go­ti­a­tion, and I think it is a fair offer.

I un­der­stand that unions have the in­ter­ests of the em­ploy­ees, but en­dan­ger­ing the ben­e­fits they have al­ready ob­tained is a dif­fer­ent thing en­tirely and needs se­ri­ous con­sid­er­a­tion.

So was Min­is­ter Mizzi’s statement con­cern­ing in­sol­vency an ul­ti­ma­tum?

I want to make it clear that it was not a threat, but a state of fact. We are work­ing in a com­mer­cial business en­vi­ron­ment; if the com­pany becomes in­sol­vent you au­to­mat­i­cally go into liq­ui­da­tion which will re­sult in mas­sive job losses. This is a route which we are de­ter­mined to avoid but we need the co­op­er­a­tion and com­pre­hen­sion of all in­volved.

The re­al­ity is we are will­ing to pro­vide ev­ery in­di­vid­ual em­ployee with all the de­tails of the take-home pay and how it will se­cured. We have al­ready com­mu­ni­cated to the unions and the works coun­cil the fi­nan­cial state of the com­pany.

There is an open-book pol­icy to show each em­ployee the ac­tual fig­ures of how much their take-home pay will be how much their pay will in­crease so they can make an in­formed de­ci­sion.

Both you and the Min­is­ter have stated that col­lec­tive agree­ments will be com­pleted by 1 Jan­uary 2018, which is barely three months away and be­yond the hiv­ing agree­ment, and it ap­pears that this may not be reached. Do you have faith that the col­lec­tive agree­ments will be con­cluded?

I went on the ground to meet em­ploy­ees, I have not yet met ev­ery­one, but there were two things that I noticed which give me a lot of hope. The em­ploy­ees truly love Air Malta, and I be­lieve that they will un­der­stand once we ex­plain the sit­u­a­tion that there is a fu­ture for the com­pany. The com­pany is in a com­pletely dif­fer­ent sit­u­a­tion to what it was six to eight months ago, we are no longer in an un­cer­tain state, and we are not only of­fer­ing job se­cu­rity but also a po­ten­tial im­prove­ment of wages.

We do need to con­clude it as quickly as pos­si­ble since all our plans, the new routes, air­craft, hinge on these col­lec­tive agree­ments. The ball is rolling, but hur­dles in the way will only slow ev­ery­thing down.

Air Malta may be break­ing even but needs heavy in­vest­ment in ICT. Are there any plans in place?

We have in­vested €2 mil­lion to up­grade the IT, which was not done in the last 10 years and was no longer com­pat­i­ble with sys­tems abroad. Code-shar­ing and sim­i­lar agree­ments could not be ex­ploited be­cause of the IT in­fra­struc­ture, but by next sum­mer Air Malta will be top notch in the field of sales, rout­ing, and IT. This is the next leap and will in­crease job op­por­tu­ni­ties for pro­fes­sion­als grad­u­at­ing from univer­sity.

Air Malta is a seasonal air­line with has dou­ble the number of pas­sen­gers in sum­mer than in win­ter. How is the strat­egy going to tackle this is­sue?

Dur­ing the sum­mer months, espe­cially in July and Au­gust, Malta has reached sat­u­ra­tion point and the cash flow is very good. The ‘GoLight’ prod­uct and all the other el­e­ments are tar­geted at im­prov­ing the low and shoul­der months in win­ter, and we will tar­get it ag­gres­sively. This is why we launched the prod­uct be­fore any col­lec­tive agree­ments were reached be­cause we need to ad­dress the is­sue now.

Will the fares yield a profit?

A flight at €39 is cheap, as most of it is taxes. Nev­er­the­less, we will be mak­ing a small profit with­out much ma­noeu­vra­bil­ity, but we need to in­crease an­cil­lary rev­enue sales.

While there has been a lot of trans­parency re­gard­ing Air Malta in the last few months, the public is still com­pletely in the dark over the real fi­nan­cial sit­u­a­tion of the air­line. Can you di­vulge any de­tails?

The au­dited ac­counts 2015/16 and 2016/2017 will be an­nounced at an AGM to be held in Novem­ber this year.

What sort of fig­ures are we look­ing at?

The in­di­ca­tions are that there would be a break-even el­e­ment, which is why there can­not be any ma­noeu­vra­bil­ity on the col­lec­tive agree­ments or ad­di­tional pres­sures on the fi­nances of the com­pany. To be fair, 2017 has al­ready seen an in­crease in rev­enue and pas­sen­ger num­bers.

You were also chair­man of Ene­malta; it seems that you and Kon­rad Mizzi have a close work­ing re­la­tion­ship, is that cor­rect?

Def­i­nitely, the Min­is­ter and I work in tan­dem. He is very fo­cused, hands-on, and has ex­cel­lent man­age­rial qual­i­ties, but he also has business acu­men and sharp­ness. He un­der­stands the is­sue and can think prop­erly about so­lu­tions. With regard to Ene­malta, we an­a­lysed the sit­u­a­tion im­me­di­ately and held that it re­quired a strate­gic part­ner. With Air Malta, we knew the sit­u­a­tion was dif­fer­ent; he is a de­ci­sive min­is­ter who cares about the air­line and his hands-on ap­proach is greatly ap­pre­ci­ated by the work­force.

He al­ways fol­lows the strat­egy and wishes there will a pos­i­tive conclusion to the pend­ing col­lec­tive agree­ments. He spoke of in­sol­vency as a statement of fact, be­cause if the com­pany can­not meet its debts it will be­come in­sol­vent. He wants to avoid that but needs to be a re­spon­si­ble politi­cian and see the big­ger pic­ture in the na­tional interest.

You have a long and re­spected his­tory in pol­i­tics. You were at one time the Leader of the Op­po­si­tion, Deputy Leader of the PL, a Min­is­ter and a PL MP, you have also served as Ene­malta chair­man, you are now the Air Malta chair­man. Given that crony­ism and is­sues on mer­i­toc­racy have plagued both PN and PL ad­min­is­tra­tions. Can you give as­sur­ances that you are free from gov­ern­ment interest?

I have al­ways said that I hope that Air Malta will not be used as a po­lit­i­cal football. Po­lit­i­cally, I have had longish his­tory and have shown that I can eas­ily work with any­one. All I ask from em­ploy­ees is that they are loyal to the com­pany, and if there is any­one who is not be­cause of some po­lit­i­cal al­liance, we will have prob­lems. The ab­so­lute ma­jor­ity of the em­ploy­ees of this com­pany want see Air Malta be­come a suc­cess. The Prime Min­is­ter has in­vited the Op­po­si­tion, which I be­lieve has a re­spon­si­bil­ity to Air Malta, to hold dis­cus­sions on the air­line. There is a lot of ap­proval for our new strat­egy which is ben­e­fi­cial to any party as suc­ces­sive gov­ern­ments will in­herit this na­tional as­set.

Robert Ar­rigo told me in an in­ter­view that this was pro­posed by the PN through­out the pre­vi­ous leg­is­la­ture, and ac­cused the gov­ern­ment of of­ten ig­nor­ing their pro­pos­als. Have they been con­sulted or ap­proached you over the few months you have been chair­man?

Let’s be frank, they had the lead­er­ship is­sue and I didn’t think it was ap­pro­pri­ate un­til all was set­tled. I have no ob­jec­tion ex­plain­ing to the Leader of the Op­po­si­tion and Shadow Min­is­ter what the plans are, which is al­ready public knowl­edge. We are look­ing re­al­ity in the face and re­act­ing ac­cord­ingly. I am pos­i­tive that rea­son­able­ness will pre­vail even though it is a hot po­lit­i­cal area.

In the end ev­ery­one has to as­sume re­spon­si­bil­ity – my­self, the em­ploy­ees, the gov­ern­ment, the Op­po­si­tion and the unions. Air Malta, which started op­er­at­ing in 1974, was, is and will re­main a vi­tal as­set to our econ­omy.

Photo: Michael Camil­leri

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