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Matthew Vella
In an ominous prediction over Air Malta’s future, a report by the Malta Hotels and Restaurants Association warns the national airline faces a threat and needs more time to change, but it cannot “hold hostage” Malta’s tourism economy.
Presented to the MHRA on 24 May by auditors Deloitte, the confidential report on low-cost carriers forms the basis on which Air Malta later based its commentary prepared less than three weeks later on 15 June.
With conflicting claims unsurprisingly characterising both reports, the MHRA report says Air Malta’s position on the impact of LCCs is “extreme” and that “doing nothing is not a safe option”.
Air Malta argues it will lose half of its passengers if Irish carrier Ryanair sets up a six-aircraft base in Malta. But MHRA says the loss will be ‘just’ 15 per cent if Ryanair scales down its base to four aircraft, which would result in 400 jobs liable to be lost at Air Malta.
The national airline however fears it will have to shed a massive 75 per cent of its workforce – 1,400 jobs – in order to survive Ryanair’s six-aircraft onslaught.
“Compared to a 2007 scenario with a 10 per cent decline in tourism without an LCC vase, having Ryanair’s scaled-down based would be 22 per cent better than ‘doing nothing’,” the MHRA commissioned report reads, which says 2,000 jobs stand to be lost in a scenario where nothing is done.
Calling the predictions “dramatic”, MHRA state the figures suggest Air Malta “has a manning problem independently of LCCs.”
“Whilst Government has to ensure (Air Malta’s) survival and restructuring, it must balance its views as a shareholder with the overall national interest,” the report reads.
Yet the confident tone of the MHRA report appears to have been scuppered since Malta International Airport announced that it could not offer any hefty discounts other than what it was offering on its route support scheme.
MHRA was hopeful that MIA would approve discounts of up to 50 per cent on charges. The report in fact claimed that MIA’s management, would “favourably recommend” MHRA’s proposal.
In its report, MHRA argues its counter-proposal can bring at least 800,000 passengers to Malta via Ryanair and easyJet, sending arrivals to 1.65 million, and generating 12.5 million extra bed nights.
The LCC traffic would generate Lm29 million more revenue annually, with a possible one to 1.5 per cent growth for the economy and Lm3.6 million more towards the VAT coffers.
But that would also come with Lm4 million less in the public coffers from the abolition of the departure tax, a condition for Ryanair to start its operations from Malta.
The MHRA report hastily assumed Malta International Airport management would have welcomed the proposal to increase the number of routes eligible for support, and a 40-50 per cent discount on charges for LCCs during the summer months.
It means that the expectation of a Lm2.65 million gap to recoup airport charges for Ryanair and easyJet will have to be reworked.
According to Air Malta’s reaction to the report, since MIA has confirmed no further support will be forthcoming beyond its already announced route scheme, the net cost to government stands to increase to Lm5.35 million, excluding the Lm4 million less in departure tax revenue.
The MHRA proposal originally suggested that government would contribute at least Lm1.5 million to make good for the shortfall, while hotels and other tourism stakeholders would provide the remaining balance from their own funds.
The MHRA said it would double the private sector contribution to the Malta Tourism Authority to Lm750,000, and seek additiona l funds from banks, hotel suppliers and estate agents.
Ryanair has said it is prepared to set up base in Malta starting from November 2006. By April 2007 it would have stationed its fourth Boeing 737-800. MHRA says the timing will coincide with “an improved winter 2007 and an immediate uplift for summer 2007”.
Ryanair has also indicated it wants to scale its base up to six aircraft, a nightmare scenario for Air Malta, who says it will have to shed three-quarters of its workforce. Ryanair says it will employ a potential staff of 240 for such a base.
However, to set up base Ryanair wants a discounted airport charge of EUR7.35 per passenger for a period of 15 years, claiming it is confident every Ryanair flight will be 83 per cent full in winter, and 90 per cent full in summer.
But the report says that a 15-year volume discount open to all airlines, is unlikely to be considered by MIA.
If these targets are not met, Ryanair says it is prepared to refund MIA and the other providers of marketing support against any targets it does not meet.
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