Air Malta, the sole Maltese airline offering scheduled flights, has made major losses in the recent years. The fully state-owned carrier is currently undergoing a big restructuring process.
ch-aviation had the possibility to meet Peter Davies, CEO at Air Malta and to talk with him about the restructuring process and the future of the airline.
When did you start to work at Air Malta and what have you done before?
I joined Air Malta in March 2011. I have worked in the airline business for the last 40 years and previously I served as CEO for Air Southwest in the UK, Caribbean Airlines in Trinidad & Tobago and for SN Brussels Airlines in Belgium.
What has changed since then?
When I came to Air Malta the situation was very serious. The airline was struggling hard financially and a number of processes were broken with Air Malta in a fight for survival.
In 2011 the airline made a loss of 30 million Euros.
The restructuring plan was a critical element to start the turnaround process. We were in a position where aid was required from government and the government needed the European Commission’s approval.
We went through an exhaustive process to make sure that the five year business plan we presented was robust and achievable. Our objective was very clear: for the airline not only to survive but also to achieve sustainable profitability.
European Law states that a government can only ask for state aid once in 10 years. We needed to make sure that the restructuring plan would succeed. It was essential that our plans were thorough and credible..
Air Malta is now on course to achieve break-even this year after restructuring efforts helped it narrow losses in the year to 30 March 2013 to around €15 million.
By next year we expect to be profit-making.
What are the main aspects your the cost savings program?
My first priority was to streamline the organisation and reduce costs. We have modernized the management and since we were highly over staffed, we needed to reduce our work force by 450 people.
We needed to become more efficient. Other costs including supplier contracts were not in line with industry standards and had to be revised.
The second priority was to review processes and procedures across the areas of the airline which were outdated and not in line with the requirements of an airline the size of Air Malta.
We also needed to improve our revenue position. We now have extra income through ancillary revenue like seat reservation, charges for seats with extra legroom and similar. The airline did not offer all of these services before.
In parallel to these changes we embarked on an internal ‘cultural revolution’, to support the big changes that we were doing. To be a true agent of change, you need to disrupt the ways you do things.
We are making progress on all fronts and the national pride in Air Malta is being regained.
Was there a lot of resistance by the employees?
It was not easy but we had to tell them the truth. We had to be honest to them. The airline would have shut down completely if we had not reduced the number of employees.
We wanted to pull them through instead of pushing them through. We organized meetings, kept employees informed of developments and offered schemes for voluntary and early retirement.
Overall the process was smooth and not one single day was lost due to a strike action.
You are wholly owned by the Maltese government and they are financing your restructuring process. Is there any danger that the European Commission forces you to pay back the subsidies?
We don´t have to pay-back these funds as long as we stick to the restructuring plan. The European Commission has given us the green light to move forward.
What were the main goals of the rebranding one year ago? Is it justifiable that a struggling carrier spends a lot of money on a new design?
The Air Malta brand was tired. The previous livery was created over 20 years ago and we needed to be re-positioned for the 21st century. But, more importantly, since a lot of our business is leisure based, we have to promote Malta overseas. Our branding now focuses on the destination and the airline now aims to become the ambassador and the guide for the Maltese Archipelago.
Malta is a fantastic country full of colour and vibrancy. We have to sell this. Our rebranding represents the culture, the heritage, the colours and the sense of pride of the people who work and live in Malta far more effectively. Through our new livery we are flying ‘The Pride of Malta’. We have repainted most of the fleet in the new brand and it was exceptionally well received in Malta and overseas.
©: Air Malta – Cedric Galea Pirotta
You currently still have ten aircraft and around 1000 employees. That means a lot of employees for each aircraft?
We used to employ over 1200 full time staff. This number has gone down to around 800. During the summer months we are now employing temporary staff to handle the increased workload.
We are continuing to work on improving our processes. When we are profit-making again we plan to expand and we would require more staff.
Your business is very seasonal. Do you plan to store aircraft in the winter season?
Malta also attracts a lot of tourists during the winter. That is a real advantage for us. Of course the number of passengers and flights is lower than in the summer period so we need less capacity. One aircraft has been leased to Sky Airline in Chile for three months each winter for a number of years now. We also do all heavy maintenance checks in winter. That means that only eight of our ten aircraft are flying on our network during the winter season.
You currently have a fleet mix of A319 and A320. Would it be easier to reduce your fleet to just one aircraft type?
That would make no difference for us. The Airbus A319 and Airbus A320 are actually part of the same family of aircraft so there is no problem regarding maintenance, equipment, facilities and crews.
It is quite a long distance from Malta to the UK. Why didn´t you buy the Airbus A321?
It has a much better performance per seat, especially on long routes. We have the option to introduce the Airbus A321 and it would be a great opportunity for us,especially on our routes to Frankfurt, London Heathrow and Brussels.
What are your most important markets?
The UK is the most important market for us. Other important markets include Germany, Italy, France, Switzerland and Russia.
Ryanair is a big competitor for you as well as Monarch. They are both flying on the very popular UK routes. Have you reduced frequencies and routes in the UK market because of their strength?
As part of the restructuring plan we had to reduce capacity on our profitable routes. This was part of the ‘compensatory measures’ we needed to take to be granted approval for the plan by the European Commission.
All in all, how much has total leisure air traffic and your position changed on Malta in the recent years?
The number of visitors has grown considerably and Malta is experiencing record numbers of visitors as well as the air traffic. Our passenger volume today is the same compared with our results a few years ago so we did not lose passengers due to the entrance of low-cost carriers but of course we lost market share.
Our yield is increasing due to the introduction of ancillary revenue. Malta Airport currently handles 3.5 million passengers a year and the number grows by five to six percent per annum.
Another market is the regional market with routes to Italy. Italy is in a big financial crisis. Do you see a big decline in passenger numbers?
Two years ago the number of passengers between Malta and Italy decreased but the market is now growing again. Malta and Italy have very close relations and there are also a lot of holidaymakers traveling on our flights between the countries.
We offer services to Catania, Rome and Milan and we also operate flights between Catania and Munich. Sicily is a very popular route since the two islands offer different attractions and there is significant travel between both islands…
How high is the percentage of business travelers?
10 to 15 percent of our passengers are traveling for business reasons. The percentage of business travelers is varying a lot on our routes. For example on our flights to and from London Heathrow we carry 20 to 30 percent business travelers.
Are you offering a business class product?
We offer a full-service business class on flights to selected destinations like London Heathrow, Amsterdam and Frankfurt. We have different configurations on our flights.
Malta Airport has announced to waive landing charges during the winter period? This might be really good for you because you are flying all-year-round?
We have been in negotiations with the airport operator to establish this charge policy. It is of course a positive step for us.
Will you operate more flights to destinations in North Africa like Libya, which is known for high yields in connection with your broad European network?
We have commenced flights to Libya recently and the yield is encouraging. This summer we also operated services to Algiers. We have plans to extend our network in the area and we are currently looking at Tunis, Casablanca and Cairo.
We also have the opportunity to commence flights to the Middle East or to the Sub-Sahara region. Flights to destinations in countries like Niger, Chad or Mali are not planned.
Do you know why Hi Fly has applied for traffic rights from Malta to New York?
No we don’t.
©: Air Malta – Kurt Arrigo
Where do you see Air Malta in a few years?
First we need to be profit-making again. That is our main goal for the future.
Our future also depends on how the country sees itself. We have plans to take advantage of the location of Malta for transfer flights to the regions I already mentioned earlier.
We have no intentions to join an alliance.
Thank you for the interview!