Too early to panic | Mario de Marco

The fate of Air Malta is critical for the Maltese economy as its survival has bearing on a number of industries: tourism, financial services and manufacturing in the transport of cargo. De Marco insists that it is not an easy time for any airline. In the last two years alone, 35 airlines closed shop while Alitalia and British Airways both experienced huge problems. Maintaining the national carrier in the case of Malta, is however something he describes as critical and pledges his dedication to seeing long-term survival.

“I am fully committed to ensuring that Air Malta survives. I am, needless to say, totally supportive of actions taken by the government to ensure the viability and sustainability of the national airline in the long term.”

Considerable restructuring by the national airline is required for the company to qualify for state aid, which would cover the unprecedented €50 million in losses to be registered by Air Malta at the end of the year. Answering a question as to whether the company would have been in a better position if for instance, issues related to excess of employees were tackled earlier, de Marco points out that over the past four years, there was a reduction of 600 jobs at Air Malta.

“In any event, it is easier to speak with hindsight. It is not simply an issue of reducing the number of staff. Work practises change over the years. In times of recession everyone tries to cut back. A few years back it could have paid to have certain services provided in-house. Today, it may result that some services are better outsourced. It is always a question of economies of scale.

“The government has shown that it does not steer away from restructuring. Services of shipbuilding, financial services and more recently transport services have been restructured. Government will be taking the necessary measures not because it is fashionable to do so but because it is necessary.”

The introduction of low cost airlines to Malta in 2006 has contributed to increased tourist capacity and has forced Air Malta to become more competitive. However whether this has been partly responsible for the demise of the airline is to be determined.

“It is neither fair nor correct to say that Airmalta’s current problems are attributable to the introduction of low cost travel to Malta. The negative cycle in the airline industry dates back to 9/11, consequential drops in demand, followed by hikes in fuel prices, fluctuations in exchange rates, global recession and fundamental changes in industry models. Low cost travel is a phenomenon that has dominated first in the USA and now in Europe. In our case, given that 98% of our tourists come by air, as opposed to 55% of tourists that travel by air within Europe, we are highly dependent on the aviation industry and developments within it.

“Low cost travel has changed the model of travelling. People expect to travel more frequently for shorter periods of time, paying less for flights and possibly more for accommodation.

“We tried to close our doors to low cost carriers between 2000 and 2006 with the result of tourism figures dwindling.

“Air Malta has to operate in a state of competition. Air Malta has had to adapt its pricing policies to compete with low cost carriers even where there are no low carriers flying from the vicinity to Malta because we know that customers are not only comparing prices of flights to the same destination but of other destinations too.”

Though no low cost carriers operate from Germany to Malta for instance, Air Malta has had to price its product to compete head-on with low cost carriers anyway. If a flight from Germany to Malta costs €400 while a flight from Germany to Mallorca costs €100, it does not take much to guess where the German tourist will go. This has changed the way in which airlines have priced tickets and generate revenue. Today carriers try to make up for the low fare by generating ancillary revenue.

“At the ABTA convention, recently held in Malta, a member of the audience from the UK travel trade criticised Terry Walsh of British Airways for an £80 charge to book a specific seat more than a week before travel. Walsh replied this was a way of generating revenue, which has proven to be popular with the client. If a flight is booked less than a week in advance the fee is waived but needless to say, the client has less of a choice by then. This proves that clients want choices and are willing to pay for choice.”

The reduction of 11 flights by Air Malta from UK next summer has caused some concern from hoteliers. De Marco however sees it as too early to begin to panic as various other factors need to be analysed before the direct impact of this change in the market can be considered.

“Air Malta needs to ensure that flights are viable. Nevertheless, the UK is an important market for Malta with 31% of our tourists originating there. Accessibility is key to success in the tourist industry. We saw this in 2010 when we increased connectivity of scheduled flights from 57 routes last year to 76 routes this year. Most new routes came into effect in May and following a heavy marketing campaign, the summer months saw record numbers of arrivals.

“The reduction in flights from the UK has to be seen within a larger perspective. We have approximately 4 million plus seats to and from Malta or, put differently, 2 million plus one way seats in a full year. The reduced seats represent 40,000, of the said total, in a full year.

“We have to see whether Air Malta will be shifting the reduced capacity of 40,000, seats from the UK to another source market, rather than simply cutting flights. If it does so, then the total seat capacity to Malta would effectively remain the same, though admittedly there would still be a reduction from the UK. Other carriers or tour operators may, moreover, be interested to provide additional capacity in the UK. It is too early in the day to panic.”

Nobody disputes the importance of having a national carrier for a country like Malta, which is so dependent on the tourism industry. On being told (by the interviewer) that there were private investors interested in Air Malta, de Marco remarked that he wouldn’t be surprised, and sees it as a vote of confidence in the long-term viability of the airline. However at this point, he still deems it necessary for the island to have a national carrier.

Turning to the proposed transport system, de Marco does not see the pricing system proposed by Austin Gatt as discriminatory. Diplomatically he answers: “it’s not a question of tourists paying more, but of locals paying less.

“The operators of the new transport system will still receive a subsidy from the government, therefore ultimately from the Maltese taxpayer. As taxes are collected from persons resident in Malta I can understand the argument made that residents should pay less than non-residents.

“It is a matter of where we see baseline. If the baseline is the price paid by non-residents, what we are doing is providing a reduced price for residents. A similar system has been employed by the Gozo Channel.

“However, I can understand how, if communicated badly, tourists can get the impression that they are being asked to pay a higher price. Nobody is asking tourists to pay a higher price. They are being charged the same price that will be charged to any non-resident, even if they are Maltese.

“The bottom line is that the transport system was in desperate need of reform. We have to decide whether €12 for a week of unlimited access is an excessive amount to pay. In my opinion it is not. It is a reasonable price to pay.”

The price discrimination being applied has been compared to the eco-contribution tax that was proposed by MHRA but was dropped by government due to difficulties implementing the tax that may have been discriminatory according to EU regulations. De Marco rejects this statement, saying that the tax proposal was dropped, as it was the disallowing boarding on a plane as a result of failure to produce an eco-contribution voucher, which went against EU regulations.

“The idea was dropped, not because of the discrimination issue but the method of operation proposed. The tourist was to buy an eco-contribution coupon from the hotel for €3.50 and would only be allowed to board the plane on presentation of the coupon. We were advised that not allowing a person to board the plane for failure to produce the coupon goes against EU regulations.”

The Malta Environmental Planning Authority (MEPA) falls under de Marco’s control. According to new tariffs, planning fees for a medium sized apartment will increase by 54%, the planning fees for an average sized villa will increase by 90% and the planning fees for a penthouse a hefty 177% according to MEPA sources. De Marco explains the rationale for the changes in tariffs. 

“MEPA has to be self-financing. It doesn’t make sense for the taxpayer to be financing MEPA. Moreover, under the previous tariff system, the DPF for an apartment was €163 per unit irrespective of its size; whether it was one bedroom or four bedroom, whether it was 200 square metres or 50 square metres.

“Under the new tariffs, development permit fees for an average size apartment of 141 sqm are €174, an increase of only 7% on the previous €163 fee. If you take a small flat of 96 square metres the new tariffs are €119, effectively cheaper than the original tariffs. Even where the prices are higher they are only a marginal amount of money in comparison to the overall investment.

“Money collected by MEPA comes from development and environmental permits. Admittedly more money comes from development. However as this is the main cause of the degradation of the environment, contributing significantly to noise pollution, natural degradation, generation of waste and affecting biodiversity of the island, I don’t find issue at all with making developers contribute towards the protection of our environment. The scale has been tipped too long in favour of developers at the cost of our environment.”

MEPA is notorious for taking ages to approve even the simplest of permits. New promises are to see processing of simple applications to be done in a matter of weeks.

“The new legal notice that will be introduced over the coming weeks governing the whole application process is getting rid of the ‘chess clock’ system whereby the processing period got suspended each time MEPA opened some_consultation or asked for some fresh report or document. Under the new system simple applications will be processed within 12 weeks from validation, complex applications in 26 weeks and major developments in 52 weeks.

“I have been in regular talks with MEPA and senior management to ensure they can meet the timeframe. I’ve also been in talks with the Chamber of Architects to ensure that all parties are on board since it requires the efficiency of not just MEPA staff but also the cooperation of architects and their clients.

“We will be introducing a prior screening process to facilitate matters and to guide people on what is in general applicable and what is not, to their planned project.”

The disposal of hazardous waste is another concern of MEPA’s and work is in progress to develop a holistic directory of how hazardous waste is disposed.

“Hazardous waste includes a multitude of items, ranging from chemical substances generated by industry to batteries, used tyres, solvents and white goods used in households. MEPA has an inventory of a number of hazardous waste producers, though this relates mostly to large industry, as it is very difficult at this point to determine what happens to every battery or old computer used at home or at the office. MEPA is currently working on a more holistic plan regarding hazardous waste generated from industries, including smaller ones like the backstreet mechanic, and households.”