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Saved by a superconnector?

Nobody expected that Air Malta’s restructuring programme mandated under strict European Commission conditions, would have seen the airline perform a turnaround into profitability.

5 May 2016, 7:40am
Cartoon: 4 May 2016
Cartoon: 4 May 2016
In Malta’s landscape of alternating power, the game of pragmatism and power politics means that little is influenced by ideology. For the past two decades, the country’s state-owned industrial base and major communications and infrastructural corporations have been gradually sold off to the highest bidder. The results of Malta’s privatisation drive have been, in the main, successful while for others – postage and public transport – were disastrous in the beginning. The part-privatisation of energy and its combined switchover to gas will be the next milestone.

In the meantime, everybody in the tourism industry – but also the general population – is braced for what could be a life-saver for the stuttering fortunes of the national airline, in the form of a part-privatisation to Alitalia, itself having already undergone a similar process through the munificence of the Gulf airline Etihad.

So it has come down to Labour, a party which when in government in the 1970s created the national airline, to finally sell off the family silver. Such is the changing landscape of Maltese political ideology that it had to be under Joseph Muscat, a man who does not shy away from teetering on the right wing of economic policy, to have a chunk of Air Malta ‘sold off’.

Nobody expected that Air Malta’s restructuring programme mandated under strict European Commission conditions, would have seen the airline perform a turnaround into profitability. The state aid it received was crucial and expensive. Its rebranding repurposed the airline for a new century. But inefficiencies inherited through decades of mismanagement and political manoeuvring bloated a workforce that made costs unsustainable. Fending off competition from low-cost giants like Ryanair – which benefit from tax-funded ‘route support schemes’, a subsidised landing fee paid to airlines that fly to underserved destinations – proved to be too much for the top-heavy Air Malta.

Ten years ago, the Gulf airlines Emirates, Qatar Airways and Etihad Airways were not the significant aviation players they are today. Together with Turkish Airlines located in a central nexus that joins the Atlantic world with Asia, these three super-connectors are providing the long-haul routes that are bringing travellers from afar to the hubs in Dubai, Abu Dhabi and Doha before jetting off again somewhere.

Legacy airlines in Europe have seen super-connectors growing fast and in turn national airlines in this part of the world were the first to start losing market share to the super-connectors. While Air Malta suffered almost a 50% market loss to low-cost carriers like Ryanair and EasyJet, which easily capitalised on their short-route dominance and opened up Malta to underserved destinations like Leeds, Valencia, Bologna, Marseille or Krakow; the larger European legacy airlines like Lufthansa and KLM lost market share on routes to Asia to the Gulf airlines.

Air Malta’s reaction to the LCC onslaught has been typical of other airlines’ experiences. It started first with much complaining. Then it inflicted itself with a wage freeze that left its staff demoralised, proceeding with a downsizing that was still not enough; it undertook necessary rebranding and technological redimensioning, renegotiated third-party contracts, and sold off as much of its non-core business – hotels, tour agency – as it could. Air Malta is today a shadow of what it was, retaining its important cargo section and important slots in key European airports that are important for the Maltese and the island’s main tourism markets like.

So it looks like the next step was inevitable. Find a strategic partner that could bring about the necessary turnaround required. Undoubtedly it will be Alitalia, under the guidance of Etihad’s proven track record in seeking out ailing airlines, that will be making the deepest cut in the national airline. It will be politically convenient to tell the airline’s trade unions, that the airline’s salvation will depend on this strategic alliance and that workers will have to be shed.

That will mean golden handshakes, or even a transfer of airline workers into the public service, an expensive tax-funded channelling of unwanted labour into the public sector – it was already done in the €700 million debt-cancellation for the Malta Shipyards, when some 600 of its unwanted workers were put on the state payroll inside the so called Industrial Projects Services Limited.

Even pilots, whose union is also among the most vociferous in the airline, can be expected to have to consent to changes. Under Peter Davies, Air Malta management demanded they work longer hours and cede concessions related to working days off. It is yet to be seen how this new reality will be met by workers’ unions.

DealToday
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