Air Malta not seek­ing strate­gic part­ner at the mo­ment; fo­cus­ing on growth

● Na­tional air­line work­ing to tackle de­lays

The Malta Independent on Sunday - - FRONT PAGE - Kevin Schem­bri Or­land

Air Malta is not cur­rently seek­ing a strate­gic part­ner, and is con­cen­trat­ing on strength­en­ing and grow­ing the air­line.

Talk­ing to The Malta In­de­pen­dent on Sun­day in an in­ter­view, Air Malta Chair­man Charles Man­gion was asked how the air­line went from re­quir­ing a strate­gic part­ner to stave off fi­nan­cial dif­fi­culty, to now, and where the fi­nances to achieve this came from.

Dur­ing the in­ter­view, he also spoke about Air Malta break­ing even. “This year, Air Malta broke even on the op­er­a­tional side, with­out tak­ing into con­sid­er­a­tion the rev­enue gen­er­ated by the sale of the Heathrow and Gatwick slots to the gov­ern­ment com­pany MedAir. This is a con­sid­er­able achieve­ment.”

He was also asked how Air Malta in­tends to be­come the air­line for the Mediter­ranean with such a small fleet of planes.

“In our opin­ion, the air­line has to, in ad­di­tion to other things, con­sol­i­date its po­si­tion as a point-to-point air­line where we con­nect to all Euro­pean cap­i­tals. We also con­nect to North Africa. It is our point-to­point as­pect which makes Air Malta so vi­tally and strate­gi­cally im­por­tant to the sus­tain­able eco­nomic growth of the is­land.”

“We must look be­yond and find a niche mar­ket. We have flights to the North African basin to places like Tu­nis, Tel Aviv and Casablanca, and con­nec­tiv­ity to Europe in the north. We iden­ti­fied a num­ber of is­lands around the Mediter­ranean, such as Si­cily, Sar­dinia, Cor­sica and Cyprus (the lat­ter lost its na­tional air­line) which are un­der-served, re­quir­ing bet­ter con­nec­tiv­ity to their main­land and be­yond,” he said.

Air Malta is not seek­ing a strate­gic part­ner at present; in­stead, it is fo­cus­ing on strength­en­ing the air­line while ex­pand­ing its busi­ness. Air Malta Chair­man CHARLES MAN­GION talks to The Malta In­de­pen­dent on Sun­day about the air­line’s strat­egy, busi­ness model, and re­cent is­sues which hit the me­dia

The strat­egy up un­til a few years ago was to find a strate­gic part­ner for Air Malta. Is it still the air­line’s main goal?

No. Our main goal has be­come to put the air­line on an even keel and on a sus­tain­able path for­ward, pri­mar­ily to serve the Mal­tese Is­lands. This is why we have ex­panded the air­line’s hori­zons.

Are we seek­ing a strate­gic part­ner? At the mo­ment, I can tell you, no, we are not seek­ing a strate­gic part­ner. We are con­cen­trat­ing on strength­en­ing and grow­ing the air­line, ren­der­ing it more ef­fi­cient and in­vest­ing in IT while adapt­ing more quickly to change.

In my opin­ion, the air­line suf­fered many losses when low cost air­lines came to Malta for the sim­ple rea­son that it did not adapt rapidly to change. The avi­a­tion in­dus­try was chang­ing but Air Malta was not.

Up un­til a few years ago, ev­ery­one was un­der the im­pres­sion that with­out a strate­gic part­ner, the air­line would face se­vere fi­nan­cial dif­fi­culty. What hap­pened?

There was a change in strat­egy. The avi­a­tion in­dus­try con­tin­u­ously changes. We needed to ex­pand and re­gain our mar­ket share in our es­tab­lished routes, such as those to Lon­don and Brus­sels. Our mar­ket share was di­min­ish­ing, as the air­line was seek­ing to re­duce its costs rather than chang­ing and adapt­ing it­self to the chal­lenges change brings about. It was re­duc­ing its fleet and routes. We changed this, and in 12 months we opened 21 new routes.

We also in­creased the fre­quency of flights in es­tab­lished routes to bet­ter pen­e­trate the ex­ist­ing mar­ket while find­ing new mar­kets. This brought about re­sults, and we saw pas­sen­ger vol­umes in­crease by around 35 per cent this sum­mer.

We un­bun­dled the econ­omy class, while leav­ing the busi­ness class on main routes. By un­bun­dled, I mean that we adapted to al­low the pas­sen­gers to make their own ex­pe­ri­ence where they for ex­am­ple, pur­chase a Go-Light ticket, de­cide whether they want lug­gage, and choose their seat and so on.

We also im­proved the buy­ing on board (on-board shop­ping) pro­cesses and this week we ex­panded this new prod­uct se­lec­tion by of­fer­ing over 100 prod­ucts to the on-board shop and have changed the avail­able fresh food items for pur­chase in line with the sea­son.

The price re­duc­tion on tick­ets also helped the air­line gain vis­i­bil­ity. When one books a flight on­line, the cheapest ap­pear first at the top. So with the in­tro­duc­tion of Go-Light we be­came more vis­i­ble. An­cil­lar­ies rev­enues are meant to com­ple­ment the yield on the fare. Our an­cil­lar­ies’ of­fer­ings evolve as time goes on.

We also in­vested, and are con­tin­u­ing to in­vest in IT. There wasn’t any real in­vest­ment in IT for a num­ber of years, and in order to be­come more cus­tomer friendly we needed to in­vest. One sees the ef­fect of such in­vest­ment, min­i­mally, within 12 months. As an ex­am­ple, we just made a €600,000 in­vest­ment in the Lufthansa LIDO sys­tem for our op­er­a­tions, which mon­i­tors our whole sched­ules, plans the load of an air­craft, tells us how much fuel the air­craft re­quires, and how to change the sched­ules if a flight is grounded to min­imise dis­rup­tions. It al­lows all this to be done very ef­fi­ciently and we in­tend to ex­tend it to ad­dress ros­ters. IT devel­op­ment is an in­te­gral part of the air­line.

I un­der­stand that the air­line is try­ing to in­crease rev­enue. How­ever, to get to this point how did the air­line go from hav­ing to re­duce the num­ber of flights and fi­nan­cial fears if no strate­gic part­ner was found, to in­creas­ing the num­ber of routes and fre­quency? Where did the money come from?

Around a year ago, the gov­ern­ment set up a new com­pany called Malta MedAir to ac­quire the air­line’s slots in Heathrow and Gatwick air­ports. These slots are a pat­ri­mony for the Mal­tese peo­ple, and are so im­por­tant that we did not want to run the risk that, if a strate­gic part­ner was found at the time, they would take all the ben­e­fits from those slots.

The idea was for the air­line to sell them to this new com­pany, which would lease them back. In fact, they are leased for 20 years, with ev­ery­thing be­ing above board. Ev­ery­thing was scru­ti­nised and there were no is­sues.

This gen­er­ated the nec­es­sary cash, and even helped ad­dress our col­lec­tive agree­ments, as we couldn’t re­ceive any di­rect gov- ern­ment fund­ing for what was agreed on, in­clud­ing early re­tire­ment schemes.

A large part of rev­enue was also gen­er­ated by the in­crease in pas­sen­ger vol­ume, which en­hanced our cash flow.

This year, Air Malta broke even on the op­er­a­tional side, with­out tak­ing into con­sid­er­a­tion the rev­enue gen­er­ated by the sale of slots to the gov­ern­ment com­pany MedAir. This is a con­sid­er­able achieve­ment, and was part of the rea­son why Air Malta was con­sid­ered the turn­around air­line of the year at the re­cent CAPA avi­a­tion sum­mit held in Berlin

This does not mean that we do not have chal­lenges ahead. One such chal­lenge is fuel price in­sta­bil­ity, where we have to keep mon­i­tor­ing the mar­ket closely. An­other is the po­ten­tial im­pact Brexit will have on peo­ple’s de­ci­sion to travel.

Cost man­age­ment is ex­tremely im­por­tant, and we as­sess care­fully how we can con­tain and re­duce our costs by im­prov­ing ef­fi­ciency and re-de­ploy­ing staff rather than en­gag­ing new em­ploy­ees.

We think we can sus­tain our suc­cess, bear­ing in mind what hap­pens be­yond our con­trol, such as fuel prices, the Libya sit­u­a­tion, and dis­rup­tion due to con­ges­tion at air­ports. We also have to ad­mit that our quick growth has brought about cer­tain op­er­a­tional chal­lenges which we are tack­ling head-on.

Air Malta is try­ing to be­come the air­line of the Mediter­ranean, yet the air­line has a small fleet of 10 planes. How do you in­tend to achieve this goal when there are larger air­lines of­fer­ing many routes around the Mediter­ranean?

Air Malta un­der­went a re­struc­tur­ing process, fol­low­ing which we be­gan to for­mu­late a road map for the air­line for the next decade. In our opin­ion, the air­line has to, in ad­di­tion to other things, con­sol­i­date its po­si­tion as a point-to­point air­line where we con­nect to all Euro­pean cap­i­tals. We also con­nect to North Africa. It is our point-to-point as­pect which makes Air Malta so vi­tally and strate­gi­cally im­por­tant to the sus­tain­able eco­nomic growth on the is­land.

We must look be­yond and find a niche mar­ket. We have flights to the North African basin to places like Tu­nis, Tel Aviv and Casablanca con­nec­tiv­ity to Europe in the north. We iden­ti­fied a num­ber of is­lands around the Mediter­ranean, such as Si­cily, Sar­dinia, Cor­sica and Cyprus (the lat­ter lost its na­tional air­line) which are un­der-served and re­quire bet­ter con­nec­tiv­ity to their main­land and be­yond.

While work­ing on this, we will con­tinue to build on the legacy and brand name of Air Malta. The air­line is a good brand with a good safety record; it has a very good rep­u­ta­tion de­spite its ups and downs.

You have al­ready launched a few flights which do not land specif­i­cally in Malta. When it comes to these is­lands, are you con­sid­er­ing ex­pand­ing on that idea?

We al­ready started do­ing so in Si­cily, from Cata­nia and Cagliari to Lon­don Southend and Cata­nia to Vi­enna.

So do you plan on ex­pand­ing this even fur­ther?

One has to look into this. That is why this is a longer-term strat­egy, and while talk­ing about strat­egy one would have to con­sider the type of air­craft one would use, the terms and con­di­tions and the cost. The avi­a­tion in­dus­try is very price-sen­si­tive, and as it evolves, it be­comes more so.

Many air­lines close down due to in­sol­vency, while oth­ers that have grown, like Ibe­ria air­lines and Wiz­zAir, base them­selves on lower run­ning costs and IT ef­fi­ciency. Cost ef­fi­ciency must al­ways be borne in mind.

With re­gard to the in­tro­duc­tion of Go-Light, the re­moval of the set food menu, is Air Malta mov­ing to­wards a low-cost model?

No. We are mov­ing to­wards a hy­brid model. It keeps the com­forts we are ac­cus­tomed to in legacy air­lines, like hav­ing code­share part­ners, a busi­ness class and keep­ing strictly to a sched­ule even if a flight is empty. Of course, we try to never have an empty flight.

At the same time, we need to adapt to the de­mands of the in­dus­try and pas­sen­ger re­quire­ments. A rad­i­cal change was in­tro­duced this sum­mer to give cus­tomers qual­ity and choice on board. Other re­gional air­lines adopt this hy­brid model. While keep­ing the busi­ness class, they un­bun­dle the econ­omy class, of­fer­ing dif­fer­ent choices, in­clud­ing a low cost fare, ad­di­tional ser­vices

which are op­tional to pur­chase and more. We still in­tend to de­velop this fur­ther, as this is the way we see the avi­a­tion in­dus­try grow­ing, pro­vid­ing more con­nec­tiv­ity, fa­cil­i­tat­ing more long-range devel­op­ment through code shar­ing and other prac­tices.

We are in dis­cus­sions with Emi­rates Air­lines to en­hance our code share agree­ment and bet­ter con­nect pas­sen­gers to/from Aus­tralia. We are also in dis­cus­sions with other large net­work air­lines with which we al­ready have code­share agree­ments to ex­pand these and im­prove con­nec­tions to the Mal­tese Is­lands. Once here, cus­tomers may want to visit other coun­tries and fly on Air Malta.

These are all dif­fer­ent streams of rev­enue which will help the air­line and com­ple­ment the yields.

We will prob­a­bly have han­dled around two mil­lion pas­sen­gers by the end of the cal­en­dar year. If we man­age to in­crease yield by €1 per pas­sen­ger, we would in­crease by €2 mil­lion per year.

The Tourism Min­istry is cur­rently headed by a con­tro­ver­sial fig­ure, Kon­rad Mizzi. Has this af­fected the air­line in any way?

I can hon­estly tell you that it has not af­fected us in any­way. In fact, some­times even the min­is­ter is in­vited to in­ter­na­tional con­fer­ences. We have not en­coun­tered in any man­ner any lim­i­ta­tion on our busi­ness ac­tiv­ity be­cause of these re­ports. I per­son­ally have never been asked about it. I thank the min­is­ter for his con­tin­u­ous sup­port.

There have been is­sues with re­gard to some can­cel­la­tions, and mainly de­lays. What are you do­ing to en­sure fewer de­lays and re­duc­tion of such in­ci­dents?

I re­ally re­gret when pas­sen­gers are af­fected by dis­rup­tions. Dis­rup­tions come from dif­fer­ent sources, some within our con­trol, and oth­ers which are not. When a plane is grounded due to tech­ni­cal dif­fi­cul­ties, we try to ad­dress it by pos­si­bly shift­ing air­craft around etc. But what­ever one does, there is al­ways a spill over ef­fect in some way or an­other.

There are also for­eign air­port con­ges­tion is­sues and air traf­fic con­troller is­sues abroad, and we al­ways try to min­imise the dis­com­fort to pas­sen­gers by of­fer­ing mea­sures to make the de­lays less un­com­fort­able, among other things.

Then there are some is­sues which em­anate from the col­lec­tive agree­ment im­ple­men­ta­tion. We are im­ple­ment­ing the terms and con­di­tions in those agree­ments, but there could be cases of mis­in­ter­pre­ta­tion in terms of how a par­tic­u­lar clause is to be im­ple­mented. There is a cur­rent case with the pi­lots and there are on­go­ing ar­bi­tra­tion pro­ceed­ings. On this sort of is­sue, which would be linked to the ros­ter, also de­pends on how many pi­lots or cabin crew re­port sick, or pi­lots re­port­ing fa­tigue. Ob­vi­ously, you can­not force a pi­lot to fly if s/he is feel­ing fa­tigued, so one must then find ways and means to re­place them.

Pi­lots are very ex­pen­sive as­sets, so you can­not have 10-20 pi­lots stand­ing idle. There is a for­mula re­gard­ing the num­ber of pi­lots one needs per air­craft; we agreed on the ra­tio with ALPA and we are work­ing hard to reach that level. The ra­tio is sen­si­tive in­for­ma­tion. We have al­ready hired and trained five new pi­lots, and an­other 14 are start­ing train­ing. This takes time. The com­pany took the nec­es­sary steps to ad­dress this chal­lenge.

There are other as­pects of the col­lec­tive agree­ment in which there would be dis­agree­ment in in­ter­pre­ta­tion. In­for­mally, the pi­lot’s union is­sued rec­om­men­da­tions, as they call them, to their mem­bers. Are they le­gal? This has not been tested and I am not go­ing into that at this stage, but these rec­om­men­da­tions re­strict the flex­i­bil­ity of the op­er­a­tion and cre­ate dis­rup­tions. The com­pany is now radically chang­ing its op­er­a­tions struc­ture and de­vel­op­ing into an in­te­grated op­er­a­tions cen­tre.

The ros­ter will go through a soft­ware to en­sure the work car­ried out by the pi­lots and cabin crew will not be fa­tigue in­du­sive. From a tech­ni­cal point of view, the com­pany is in­vest­ing in a ros­ter to min­imise, as much as pos­si­ble, what could cause fa­tigue. It must be borne in mind that the block hours (time spent fly­ing) ev­ery pi­lot is al­lowed to work (900 block hours) ac­cord­ing to le­gal lim­its, amounts to 75 block hours per month. While the com­pany’s task is to en­sure max­i­mum util­i­sa­tion of the air­craft, the sit­u­a­tion to­day is that our pi­lots do not ex­ceed more than 65-68 hours per month, and our pi­lots fly less than the le­gal 900-block hour limit.

We cer­tainly do not ex­pect any pi­lot to work be­yond the le­gal limit. We are will­ing to train the num­ber of pi­lots per air­craft re­quired, and all ef­forts are be­ing taken by the com­pany to fa­cil­i­tate the op­er­a­tion.

We can dis­agree on in­ter­pre­ta­tion of col­lec­tive agree­ments and so on, but I be­lieve that at the end of the day the ma­jor­ity of em­ploy­ees, from pi­lots to cabin crew, have the com­pany at heart. I take this op­por­tu­nity to thank them all for their ef­forts and com­mit­ment.

Air Malta Chair­man Charles Man­gion

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