Etihad and Air Malta – observations on the potential move

Just before Christmas, a breakthrough in the Air Malta restructuring saga was widely announced in the media – a partial sale to Etihad, the state-owned carrier of Abu Dhabi. After Christmas, the Minister refused to confirm this. In the following we will l

Routes, unions, service and branding

First of all Air Malta itself but also destination Malta and MIA would, in this case, see some major changes in its route, frequency and connectivity structures which are too comprehensive and well, to use the buzzword myself, too ‘commercially sensitive’ to discuss now and here, for which I reckon there should be ample opportunity in due course.

The role of unions would be affected, as, let us put it this way, carriers from the Gulf come from another corporate culture tradition than western European legacy or regional carriers. Yet practices by certain ultra-low-cost carriers from a certain country in Western Europe or Indonesia are clearly not going to happen. One will clearly appreciate the security of existence that might not be given otherwise.

For passengers, there might be different routings when connecting and another choice (not discussed here if really better than what is now), the catering might change again, and there could be things like newspapers available at gates, dedicated terminal gate area at MIA, and so on.

For Air Serbia (ex JAT, rebranded by Etihad), bringing in Etihad was a needed equity boost. Air Serbia has also been put more ‘on the map’ as regards sales and image. This included a nice new livery (while the change for Etihad itself is debatable). Air Malta however is in a far stronger position than JAT was due to measures taken during the last decade, particularly as regards code sharing, plus of course the destination product is stronger, while the other traffic beyond tourism of course is stronger in Belgrade.

Granted the gladness about the strong injection from (presumably) Etihad, one should still not throw everything overboard. Air Malta has a value for the Maltese nation, and has also built positive things over the decades (not just from its commitment to Malta side, but also from the purely commercial point of view), particularly improvements carried out during the last decade to broaden distribution channels and improve global connectivity, and one can only warn about destroying the cooperation with the two affiliated alliances that provide connectivity to Europe and North America and Asia.

One will have to have a feeling and understanding what works, taking up the positive of the Maltese, and have a feeling for what does not work, be it within the firm or also on routes for this very special market, with Air Malta also in the future only having a chance as a multi-role carrier.

Etihad: financial rescue, no panacea

Also Etihad Airways subsidiaries can run into issues, with Darwin not fulfilling ACMI contracts apparently due to not having pilots for some reason, while there are more than enough around in Switzerland willing to work. There are the ongoing financial problems of Air Berlin, which on the routes side has been faced by low-cost airline competition on its domestic and European routes, and pressure from particularly the Gulf but also PRC carriers for Asia, and Delta and American for the Caribbean routes, plus the airport disaster of Berlin and many other issues. Even airlines from the Gulf cannot change all external factors contributing to the financial success or not of a European airline.

Etihad investing in Air Malta will definitely mean some financial stability. But this should not mean a leanback/chill-out attitude for the enterprise. Rather the contrary.

Economies of scale

Beyond the equity issue, Etihad’s openness towards shared economies of scales in procurement of supplies and services, in some cases shared sales organizations and crew training can be a further positive choice for smaller partners. The procurement side (including aircraft spare parts) has been identified as a problematic cost issue for Air Malta for a number of years. Why do all kinds of procurements have often to go through local ‘representatives’ and so on, when in most other European places firms smaller than Air Malta can all freely buy (in the case of an airline) planes, parts, software, other supplies, whatever directly from the relevant firms is still a question. True enough, we also learnt how Enemalta bought fuel.

Cheaper finance

Furthermore, Etihad recently set up a financing platform (tax-optimized in The Netherlands) issuing bonds to raise funds for itself but also the carriers in which it has a shareholding, both for investment like in fleet renewals or for refinancing. Such vehicles can be separately rated, and thus can be interesting for institutional investors. Generated funds are then split among the family carriers, which makes access to finance easier, particularly for smaller or distressed carriers.

Alliances

Where not deemed harmful, Etihad also tolerates cooperation with other carriers, essential in this case as Air Malta is the gateway carrier. However, one has seen with Alitalia that this now means an end of the cooperation with Air France/KLM, while Alitalia’s cooperation with US giant Delta Airlines, so far very beneficial for connectivity between North America and Italy which is essential for tourism, business and ethnic traffic, is now also at stake with Alitalia citing restrictions in the agreement as regards Alitalia’s freedom of expansion.

Would current partners accept a continued cooperation? Currently, Air Malta acts as “Malta access carrier” for both rival Star Alliance and Skyteam core airlines – and it works and tolerated. Both the AirFrance/KLM and Lufthansa blocks are competitors, but both are AEA members. An ownership moving partly away from the state of Malta towards a Gulf ‘real enemy’ carrier could potentially change this. However, it should be commercial sense that will prevail.

Another small European flag carrier that is likely to have Etihad involvement is Montenegro Airlines.

Air Malta helped build Etihad

Actually, Air Malta had given Etihad some technical starting assistance when the Emirati carrier built up its own Airbus A320 fleet, as regards training and also lease of aircraft. Unlike Emirates, Etihad also uses narrow body jets of smaller capacity and not only wide body ones in order to tap into smaller markets/maintain frequencies in a more sustainable financial way.

Two Air Malta A319s to be Volotea’s first Airbus jets

Two Airbus A319s that are leaving the fleet this winter as part of the fleet productivity increase programme are going to be the first of Spanish low-cost airline’s fleet, which is gradually being rolled over from the Boeing 717 to the Airbus A319 due to lack of availability of more B717s (out of production and used planes are snapped up) hindering growth in the long term, combined with low prices/leasing for second-hand A319s. Compared to the A319, the B717s have lower fuel burn and slightly lower marketing risk combined with generally better maintenance performance as planes (and their engines) were ‘built tough’ for many short flights and quick turnarounds. But used A319s are available galore at low prices, and offer the possibility for a fleet to “grow upwards” towards the A320/321.

The two A319s are 9H-AEG (delivered in 2004 and withdrawn from Air Malta fleet end of November), and 9H-AEH (also 2004). Volotea will be adding two other A319s to start off with four aircraft of the type from its Nantes base.

Removing the A319s rather than A320s is right: the A319 has its advantages in range and high elevation/short-field performance, both not required in actual fact, while the A320s offer 30 more seats at basically equal trip costs (one cabin crew extra, minimally higher airport/navigation charges, higher leasing costs, basically equal fuel burn). A320s are more in demand on the used plane or subcharter/lease market, so if Air Malta would be able to lease out some capacity also during low seasons or an eventual fleet rollover, or buy it off the lease and sell it, A320s make more money.

As was announced by Air Malta’s management long before a possible Etihad deal was becoming more evident, the measure of fleet reduction and optimization of utilization again more towards productivity planes that the firm had in the 1980s (even though not reaching those levels) is regarded as a temporary measure, given that so far the carrier suffered also under the diktat of the restructuring agreement, which so far has limited any expansion within the EU. Once Air Malta can successfully leave the programme, the airline will be permitted to grow again also as regards its network/frequencies/routes, if it is allowed to do so by local stakeholders and their actions.