Low cost airlines put Air Malta between a rock and a hard place

The introduction of the low-fares airlines, which enjoy heavy subsidies from Maltese taxpayers thanks to the ‘route-support scheme’, is affording them lower landing charges at Malta International Airport, which Air Malta is not being given.

And no matter how drastic the restructuring of Air Malta turns out, low-cost carriers will always threaten the survival of the national airline in a market that is determined by price and economies of scale.

Ernst & Young’s restructuring programme, which has to convince the European Commission that Air Malta can turn a profit in a few years, is confidential, but leaks from irate members on the steering committee have been filling in the information gap.

MaltaToday can reveal that unions have been pushing the idea to have the old Luqa terminal, which still belongs to Air Malta, used as a second terminal and avoid paying charges to Malta International Airport.

But a government spokesman has shot down the union’s proposal to take over Luqa. “It would be too costly to run on grounds of European Commission compliance and security costs. It’s a non-starter. They don’t know what they are saying – the costs of running a terminal are enormous.”

Additionally, MIA – which still has a government shareholding – enjoys exclusivity in its privatisation contract from having any other airports in a 6km radius around the Gudja terminal.

LCCs like Ryanair and Easyjet benefit from cheaper landing charges at MIA, because the government can ‘finance’ the charges for airlines that fly underserved routes and from regional airports. This year alone, the government increased the budget for ‘route development’ to €4.5 million.

Air Malta itself has found it impossible to apply for these same subsidies, explained a high-level official from the airline. “Ryanair and Easyjet have economies of scale that Air Malta doesn’t. For example, they make large orders for aircraft at better prices, pushing overall costs down. Air Malta’s business model doesn’t allow it such economies: it would still have a high cost per passenger, even under the route support scheme.”

Ernst & Young has already proposed cuts in the Air Malta fleet, something which itself would have to lead to immediate cuts in staffing.

But it has also committed itself to look into ‘all’ contracts which Air Malta has with third parties, and that could include everything from airport charges to catering arrangements. “The idea is to exploit Air Malta’s commercial leverage in the industry with its providers and look into all the contracts and outsourcing it has,” a spokesman said.

But the pilots’ union ALPA have made clear suggestions that the Air Malta fleet would be better served with smaller and less costlier planes.

Air Malta staff are angry that all restructuring appears to be focused on reducing staff complement. In the meantime, they have been just informed that they should collect their new uniforms by the 15 April, so as to present the national airline’s ‘new image’.

The scepticism of some employees is palpable: “The ship is sinking, and we are worrying about the uniform, just incredible,” said one employee who spoke to MaltaToday on condition of anonymity.

The steering committee, which meets unions, has so far not pressed on the issue of cargo handling, which is still handled by Air Malta. Instead it has talked about dismantling the airline’s ‘non-core businesses’ such as ground handling, a loss-making operation that is headed for privatisation.

Ground handling at MIA is a liberalised activity. Globalair is the other company that operates at the airport. But Air Malta’s ground handling operation is heavily unionised and it seems that even the General Workers Union is understanding of the high labour costs.

Various companies, including Swissport, are possible contenders for its acquisition. Swissport already provides ground handling for Air Malta.

The steering committee has also raised many valid points over the limits of Air Malta’s role as a public service provider. “Why should Air Malta pay for the ferrying of medical patients abroad, when it should be the government itself or the health ministry to pay Air Malta for the costs of transporting these patients to hospitals in the UK?” a steering committee member said.