Air Malta: Pressing the button? | Clive Aquilina Spagnol

Despite the world economy still doing very well until the outbreak of the coronavirus epidemic, the last three years have seen airlines collapsing unable to secure credit lifelines. Banks and private equity groups are treating airlines with higher caution. Governments that still have airline shareholdings are visibly unwilling to extend support, if not clawing back their footprint. Etihad’s visionary interest in national carrier Alitalia and Qatar Airways’ strategic interest in Air Italy (Italy’s second largest airline) are a case in point.      

In Europe we had a fair share of notable airline collapses. UK has seen Monarch, Thomas Cook and recently Flybe, all significant names in their own segments, but of particular importance the latter.  Air Berlin and Germania have disappeared in Germany, and France saw Aigle Azur and XL Airways going down the same fate. These are only a handful of operators in the three largest European economies; a complete list of all the airlines worldwide that folded would be a long one.

It is widely accepted that Air Malta has played a crucial role to the social and economic development of its home state since its inception. Being the only ‘home-grown’ state-owned airline ever since (with the exception of another small operator serving mainly the UK for a few years), and with its first 30 years of operation cushioned by a protected air transport market to and from Malta, the airline was inevitably more essential to Malta’s development than it is today.

In 2019 Ryanair alone operated more routes in summer and winter than Air Malta (KM), and deployed roughly the same amount of seats, with a third of the market share each. Another third was offered by all the other airlines. It also managed to carry a significant amount of passengers more than our home incumbent. Its locally based fleet is more than half of KM’s.    

It is also widely known to the general public that Air Malta’s finances are not in a good shape, and this has been persistently the case for the past two decades. Years of operational losses have featured prominently in annual reports one after the other. I am not going to dwell into the underlying reasons for this financial disappointment as this would require a sizeable amount of column inches. What needs to be addressed by the government today rather than tomorrow is whether Air Malta in its current form merits further backing, whether in the form of taxpayer money or prioritisation in terrms of government policy. The justification often given was that of connectivity and of Air Malta’s multiplier effect on the rest of the economy, particularly to the tourism sector, which to date contributes circa 30% of Malta’s GDP. While it is industry-proven that airlines and airports in tiny island-states like Malta are crucial to the economy, relying on this generic proof to justify KM’s status quo won’t befit us any longer considering the fast-changing aviation industry dynamics.

There have been a number of indicators in the past two years that the Malta government is acknowledging this, despite a public relations exercise at times attuned to populist and nationalistic perspectives. The wisely engineered €1.2 million profit announced last year was heralded amidst great fanfare and false expectations projected by government. It was announced as if this was a new chapter for the airline, pushing aggressively and creatively the notion that Air Malta was finally turned around, and it was now on a sound financial footing to operate competitively. To be fair, aiding this crafted projection, Air Malta was awarded a ‘Turnaround Airline of the Year’ award by a market intelligence organisation for the year before.

Likewise, claiming to make Air Malta the ‘Airline of the Mediterranean’ was another symptom of megalomaniac vision. Those who battle it out daily in the unforgiving airline industry were well aware that despite all these sugar-coatings, Air Malta’s vulnerabilities within the broader outlook remained almost the same.

Yet within the cruel realm of reality, the same government simultaneously paved the way for another locally based airline out of private capital outlay. Like Air Malta, it proudly displays the name ‘Malta’, its omni-recognisable eight-pointed cross and red livery on its aircraft, all Maltese by nationality. Malta Air’s portfolio of countries served is not by far different than Air Malta with the exception of North Africa. Extracting the most precious landing slots from Air Malta’s balance sheet was another preparatory step, under the heroic disguise of ensuring that these will remain in the hands of the Maltese taxpayer (as if they can ever can be, legally speaking).         

Different to government, Air Malta management was however more grounded with its message that the airline was not yet out of the woods despite considerable efforts of theirs to cut costs, network expansion and product offering tweaking. It was wise and careful to manage the expectations of its workforce and the Maltese public in general. The backlash against it from the flight deck cohort of this week can also be attributed to the projected pretentions of the past from its shareholder. It is encouraging to observe that recently the government has now changed course to signal, alongside the management, the stark looming realities.

Air Malta’s cash crisis goes beyond the advent of COVID-19. In these trying times all airlines are in the same boat but with the difference that Air Malta does not sit on billions in cash as do some of its competitors. If the cost reductions needed cannot be agreed to, it is laudable for the management and government to downsize the airline to whatever size necessary. With the government abandoning frivolous nationalistic speak but acting and speaking industrially, this is all the more conducive. It will be a good opportunity to reshape it competitively afterwards.

Dr Clive Aquilina Spagnol is a commercial air transport executive and currently a Director of an airline-airport group in the Gulf. The views expressed herein are made in his personal capacity.