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michaelfalzon
Michael Falzon

On Air Malta, the government is barking up the wrong tree

The problem the government is facing is not just Air Malta, but a misguided national tourism policy that subsidizes low cost competition

michaelfalzon
Michael Falzon
31 August 2016, 10:52am
By the end of the year the EU will not allow any more state aid to Air Malta and so Malta will seemingly no longer have a national airline
By the end of the year the EU will not allow any more state aid to Air Malta and so Malta will seemingly no longer have a national airline
The Air Malta saga seems to be coming to its inevitable end. By the end of the year the EU will not allow any more state aid to Air Malta and so, as things stand today, Malta will no longer have a national airline. 

If the recent press reports are to be believed, Air Malta will reduce drastically its flights to and from destinations in north Europe – from where nearly all our tourists originate – and increase its connections with destinations to our south. These reports have been denied by the responsible minister, but anybody in the airline business knows that it does not make any sense for our small airline to strike an alliance with a much larger airline which has its hub just 700 km or so away to our north. Otherwise, why would Alitalia need Air Malta? 

Air Malta, which was set up to support our tourist industry, seems to be now, reluctantly, throwing in the towel as far as the Maltese tourist industry is concerned.

Observers close to the tourist industry are deeply worried, and for good reason. Air Malta flies in about half of our tourist traffic, but as a multiplier study made some time ago concluded, a tourist carried by Air Malta contributes a value added of 75% of the total holiday expenditure to the Maltese economy... while a tourist carried by a foreign carrier contributes only 50%. 

How did we get into this mess? No doubt, politicians milked Air Malta throughout its long history by foisting upon it unnecessary employees – even recently, when it was struggling for survival. The purchase of the RJ70s and the setting up of Azzurra Air were further nails in Air Malta’s virtual coffin. 

"The problem the government is facing is therefore not just Air Malta, but a misguided national tourism policy that subsidizes low cost competition at the expense of scheduled airlines even from long established profitable core catchment areas."
Even so, Air Malta could have survived all this.

The lethal blow came some 10 years ago with the mismanaged entry of low cost airlines into the Maltese market. The emphasis is on the word mismanaged. No doubt there is a role that these airlines have to play in our tourist industry. But the entry of low cost airlines was allowed in such a way as to cause havoc to all scheduled airlines. Other airlines created their own low cost airlines, to fight fire with fire. But they chose to hang on to the lucrative high rated scheduled traffic which was their lifeblood. Malta unwittingly decided to turn its national carrier into a low cost airline. This was a battle lost before it began. It was a lethal decision which is now coming to its inevitable conclusion.

The tourist industry is made up of three interdependent sectors. The airline sector, the accommodation sector, and the rest of the country. One cannot survive on its own, unless the other two sectors deliver.

It is the job of the national tourism policy to coordinate these three mutually supporting sectors. No tourist will fly to Malta without a seat at a good price and at a convenient time. It is no use flying to Malta if the hotels do not provide adequate and satisfactory accommodation. And even if we have good flights and accommodation nobody will visit us if there is no potable water to drink, if the sea is polluted and if tourists are mugged in the street.

The national tourism policy is set out by the Ministry of Tourism, or better still by the Malta Tourism Authority (MTA), as the ministry never had the professional technocrats to do this demanding job. The seeds of this epic were sown way back some 10 years ago when MTA was practically taken over by the Malta Hotels and Restaurants Association (MHRA) who, with all the goodwill in the world, had great difficulty to distinguish between the small and the big picture – to move from the micro to the macro. After some five years of chaos that included silly mistakes such as advertising on CNN, creating Brand Malta, sponsoring an English football team, closing and reopening MTA offices abroad, crippling all promotional plans over a period of three years with several chairmen succeeding each other in quick succession, MTA (actually MHRA, who were now calling the shots), organized a self inflicted tourism crisis. This led to the panic that resulted in giving a freehand to – and subsidizing – low cost airlines carrying passengers also from catchment areas like London and Manchester from where Air Malta operated a profitable scheduled service. 

This did not only undermine Air Malta; it undermined all scheduled high rated air traffic such as that for conferences and specialised group travel where the future of our tourist industry should have been. Subsidising low rated traffic drives away all the high rated business and any hope of a profitable operation for any national carrier. Since than it was only a question of time for Air Malta to be forced to give up its role as our national carrier.

It did however fill in hotel beds, at least in the short run...

The airline sector was sacrificed in the short term interest of the accommodation sector. It is no use to point fingers now, but with hindsight one can only conclude that the government abdicated its duty to find the right balance between the various mutually supporting components of our tourist industry and impose a national tourism policy in the national interest rather than in the interest of the accommodation sector only. 

At this stage there is very little that can be done to save Air Malta and a decent funeral is due. What is more worrying is that we seem to keep barking up the wrong tree. As things stand, the new Air Malta will end up in the same situation in some three years from now, unless the tourism authorities see the writing on the wall.

It is the national tourism policy that needs to be looked into and not just Air Malta. Air Malta carries a substantial part of the airline traffic to Malta and in practice it is impossible to restructure only that part of the tourist industry. The problem the government is facing is therefore not just Air Malta, but a misguided national tourism policy that subsidizes low cost competition at the expense of scheduled airlines even from long established profitable core catchment areas.

It can take at least three years to restructure the market the way it should be. So late in the day, it will be painful for all concerned, but this is the only way forward if Malta is to have a national airline that has only Maltese interests at heart. 

And if the government does not do this, unbridled market forces will do it for us – but not necessarily in the interest of our island state.

michaelfalzon
Michael Falzon is a former government minister who served under several Nationalist admini...
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