After years of grappling with financial losses, the curtain is drawing to a close for Air Malta, sort of. The transition alludes to the end of Act 1 rather than conclusion of the entire play. The catalyst for this transition was the European Commission’s refusal of the Maltese government’s request to inject funds into the beleaguered airline, owing to EU state aid regulations, which curtail excessive government aid to companies to prevent distortion of competition within the single market.
Prime Minister Robert Abela and Finance Minister Clyde Caruana unveiled plans on Monday for a new national airline set to take to the skies by next March. From the consumer’s perspective, the changeover promises to be almost imperceptible, with the main noticeable shift being the cancellation and refunding of flights booked post-March 30.
This is because the government owns the Air Malta brand name. After a competitive process, the new airline would be able to hire it, and as a result, its aircraft would continue to operate under the Air Malta name and display the Maltese Cross on its livery.
How is Air Malta going to change?
This new venture should be a strategic overhaul with the new airline set to operate with a leaner, more agile framework. Despite the EU commission’s stance, who wanted a smaller fleet, the government negotiated keeping a fleet of 8 planes that will connect Malta to 17 European destinations, instead of the 37 destinations which as recently as 2019 bloated Air Malta’s itinerary. The business plan presented by the government to the Commission believes that the new airline shall be more efficient, achieve a higher passenger load factor and turn profitable in about two years’ time. This will depend on the government’s effectiveness in implementing the strategy correctly and hopefully calming market conditions.
A significant layer of this change is the tackling of Air Malta’s Achilles heel – the burdensome staffing costs spurred by past collective agreements. The existing workforce will have the opportunity to join the new entity come April, albeit under new working conditions attuned to the current aviation market dynamics. Pilots who choose to resign and benefit from the schemes will be barred from ever flying with the national airline or working in the public sector again. The Air Malta staff will be of around 350 employees rather than the 890 which existed as late as 2022.
An Analysis of the changes
When we look at airline transitions in other countries, such as Italy’s Alitalia shifting to ITA, Malta’s approach seems measured. While Alitalia’s transition was marred by financial issues and multiple restructuring phases, Malta’s move appears more streamlined and purpose-driven. The purpose is clear, reduce costs across the board.
A significant drain on Air Malta’s resources was its high staffing costs, a relic from previous collective agreements. The new airline will adopt a more market-reflective employment structure. This could be pivotal in preventing past mistakes and ensuring the airline’s economic viability. With projected costs and revenues suggesting a leaner and more profitable operation, the new Air Malta seems poised for a more sustainable future.
With an average cost per rotation reduced to €28k and average revenue per rotation increased to €31k, the airline now has credible profitability prospects. By maintaining the same passenger volume, the focus on optimizing costs and enhancing revenue streams can bring financial stability to Air Malta.
Air Malta Branding Continuity
The decision to preserve the “Air Malta” brand is important. A brand carries with it a certain reputation, trust, and recognizability. By retaining the name, regular travelers and partners don’t feel alienated. Additionally, it saves on the financial and logistical hurdles of rebranding. While retaining the “Air Malta” brand has its advantages, it also carries the baggage of the past. Some might associate the brand with the airline’s previous financial troubles, and this perception could be a hurdle in re-establishing the airline’s reputation.
Fleet Maintenance and Route changes
Holding onto the eight Airbus A320s is a considerable win for the government in ensuring Malta’s connectivity and keep the airline as a notable player in regional aviation. The fleet’s size and type allow for adaptability, catering to both short-haul lucrative routes and potential future expansions whilst also carrying duties of a national airline such as repatriation in times of emergencies and vaccine carrying, as was the case during the COVID-19 pandemic. At its core, a national airline is not just about transportation. It plays a role in shaping national identity, promoting tourism, and fostering international ties.
The decision to reduce the number of destinations from 37 (as of 2019) to 17 will limit the airline’s reach and might not sit well with certain stakeholders who have vested interest in certain routes. While the idea is to focus on profitable journeys, it could mean losing potential markets and future growth opportunities in the discontinued destinations.
Government Involvement in Air Malta
The EU landscape is dotted with tales of national airlines that couldn’t sustain themselves, such as Belgium’s Sabena and Hungary’s Malev. Malta’s approach, however, is different. By maintaining a degree of control, the government can ensure that the airline aligns with broader national strategies, especially in tourism and trade.
The estimated transition cost of €350 million plus, however, is substantial. While investments are necessary for long-term gains, the immediate financial burden on the government’s coffers is undeniable. If the new airline doesn’t turn profitable in the projected timeframe, the return on this investment could be questioned. The European Commission has stringent rules around state aid. Even though the current transition has been negotiated, any future financial challenges that require government intervention might not be looked upon favorably by the EU.
The government’s announcement about Air Malta’s partial privatization is intriguing. While full state ownership can provide stability, private stakeholders often introduce innovation and financial discipline. Striking the right balance could be key to the airline’s future success. While partial privatization can bring in fresh capital and expertise, it also means relinquishing some control. Striking the right balance between public and private interests can be challenging. If not managed well, it could lead to conflicts of interest and misalignment in the airline’s objectives.