Air Malta – culinary pleasures of a 'bezzun' meal

Aviation experts were shocked to read how Cyprus recently closed down its flag carrier, Cyprus Airways, after the EU ordered the struggling airline to pay back over €65 million in illegal state aid.

The controversy over dubious cost cutting measures by Air Malta still rages among travellers. The latest policy implemented this year was to make passengers pay if they wish to be served cooked meals on scheduled flights – the national airline is magnanimous as it offers free water and a bezzun – aka a cheese bread roll.

The chairperson solidly defended this policy, saying that it will save €4 million annually and it is not surprising to note that as a consequence the gourmet company providing inflight meals had to sack a third of its work force.

Why are we down on our knees and forced to take such drastic actions?

The answer is plainly obvious – the rescue plan initiated with much fanfare in 2011/2 failed to achieve its promises. Air Malta results show that there is a clear deterioration in performance and a resultant deviation of the financial results from the figures projected in a consultants plan as approved by the European Commission.

There have been improvements since start of the restructuring but the surgeon at the operating table did not cut deep enough and the cancerous growth persisted. One need not be surprised that as a small airline Air Malta is living like a sick patient on the drip.

Quoting both Michael O’Leary (Ryanair) and Willy Walsh (IAG/BA) they have publicly stated that inefficient small State airlines don’t deserve to survive in the cut throat aviation market of today.

Does this mean the death knell for our airline flying the eight pointed cross, as was the case for Cyprus airline?

Not so fast, replies Edward Zammit Lewis – the tourism minister described the closure of Cyprus Airways as “worrying” but does not think Air Malta will follow suit, despite admitting that the national airline’s financial situation is a “difficult” one.

Aviation experts were shocked to read how Cyprus recently closed down its flag carrier, Cyprus Airways, after the EU ordered the struggling airline to pay back over €65 million in illegal state aid. Cyprus Airways, which recently resorted to selling assets, such as its slot at London Heathrow, to stay afloat, had previously received financial assistance in 2007 and EU rules state a company can only receive state assistance once every 10 years, so the Commission opened an investigation into the aid it received and how this was administered.

Cyprus Airways, which was 93 per cent owned by the state and employed 550 workers, had seen its share of the inbound market shrink from 30 per cent to 10 per cent within the last two years. Back home it seems such a paradox, that since four years our statistics show visitors are on the increase and the company running the airport is reporting exemplary profits.

Zammit Lewis said inbound tourism figures in 2014 showed a healthy increase of 6.8 per cent, or 130,000 tourists over the previous year. This is particularly significant, considering that 2013 was a good year for tourism while the rating agency Moody’s had described the sector as a mainstay of the economy and was projecting continued growth in the medium term.

The mood among hoteliers and retailers was also bullish, so why is Air Malta in the doldrums? Only four years ago Air Malta was allocated €230 million as part of a restructuring programme agreed with Brussels on condition that it must become commercially viable by April 2016,  according to the rescue plan designed by international consultants E&Y. (The latter reputedly charged €3 million for advice and implementation.)

Following the change of government in March 2013 and the new faces appointed to run the company, we still hear chairwoman Maria Micallef saying “We need to get out of restructuring mode and start thinking of long-term sustainability beyond 2016.”

Last year Air Malta made a loss of €16 million (year to March 2014), thereby missing its target of slipping into the black in 2016. Projections show another €16 million loss for 2015, when fuel prices have nose dived. As a background, in 2010 it registered a loss of €50m when it was facing a fuel bill of €86 million.

Expect aviation fuel to go down more than 35% and labour costs by another 25% (after restructuring) so one need not be a genius to work out that 2015 should register a decent surplus, but the management are still forecasting another €16 million loss (hence the policy of the bezzun meals).

Party apologists blame the  employment of an expatriate CEO appointed in 2011 to lead the restructuring plan at a cool salary of €500,000, while PN strategists strongly argue that he left tangible benefits, noting that at the start of his contract the airline had a loss mountain to redeem before it could turn into green pastures.

This was quite an ambitious task, considering the heavy competition from low-cost airlines. The E&Y rescue plan tried to cut costs and a good proportion of the work force was right sized at a cost of €30 million while some routes were dropped, but the cost of running its aging fleet (which is all leased) is coming home to roost.

Attempts to increase revenue were thwarted by stiff competition from low cost airlines flying comparatively modern aircraft and higher seat utilization rates. Now the parsimonious idea to save on inflight catering has been tried to save a few pennies. It is ridiculous that passengers paying legacy airline fares have to pay for meals, as well as for value-added services like seat allocation and priority boarding, just as they do on low-cost airlines.

Loyal travellers are going to feel cheated and may switch to alternative airlines, arguing that although the airline has an  excellent record for punctuality it is now penny pinching while still granting freebies to unionized workers for subsidized travel, and moved to new luxury administration offices.

Certainly taxpayers who footed the bill for restructuring four years ago are feeling let down and this alone may make the task of increasing patronage more tricky. The stiff competition facing national airlines goes unabated and few companies survive unless blessed with smart management guaranteeing a culture of commercial independence enjoying strategic and economic cohesion armed with innovation; critical mass and zero tolerance of political interference.

For example, the idea to spend millions to rebrand by spraying aircraft in a new livery introducing a Carnival style colour scheme did not generate the anticipated increase in seat occupancy.

No more cash handouts can be expected from taxpayers so flying with empty seats is a luxury which can no longer be sustained. Some mention the possibility of a strategic partner, especially one which needs to consolidate its routes and exploit slots held by Air Malta at key European airports, as Etihad did when it bought ailing Alitalia.

One is not surprised to read that consolidation of a number of small national airlines with bigger legacy airline companies seemed a common feature as an alternative to bankruptcy. For instance, Air Serbia joined Etihad in a 49 per cent investment in a deal in which Air Sabena relinquished its management control.

To conclude the island cannot afford to lose its national airline, which has seen better days when it reaped ample profits. It is widely accepted that the company has been the subject of many political experiments, such as the hair brained idea to invest in seven turbo-jet Avroliners, which resulted in huge losses.

Bloggers are even suggesting the aviation authority should set up an investigation board into the purchase of the Avro jets and take any necessary legal action to recover the millions lost yet most probably prescription may protect those responsible for the debacle. It is true that the purchase of Avro jets may not be the only rotten apple in the barrel but no stone should be left unturned to ensure the island continues to have adequate transport facilities for cargo and to airlift any humanitarian cases. 

More in Business Comment