By Andrea Crisp in London
Air Malta is fighting back. The Mediterranean island flag carrier has been operating at a loss since 2003, but after implementing a strategy two years ago to turn around the struggling airline, chairman Lawrence Zammit (left) can now say they are starting to make progress: “We’re on the way to recovery, but we still have a long way to go – most of it uphill”
Zammit took over as chairman of the Air Malta group in June 2003 at a time when the airline was plunged deep in debt. Increased competition, outdated infrastructure, loss-making activities and a heavy dependence on tourist traffic combined to drag the carrier into the red. Malta is still a busy tourist destination but it has suffered at the hands of other more popular outposts frequently served by low-cost carriers. But Zammit believes Air Malta is on track to break even by the target date of 2008. “We’ve hit most of our targets and done better in most cases. Operating costs have been cut by 7-10% and this figure is still improving. We’ve halved our losses.”
But all this good work has been offset by the impact of increased competition from other European destinations served by low-cost carriers. Like all carriers, it has been hit by the dramatic surge in fuel prices. In the first half of 2005, the carrier’s efforts to cut its costs were stifled by a Lm3 million ($8.5 million) increase in its fuel bill.
“If it wasn’t for fuel costs we would be laughing all the way to the bank,” says Zammit. “Or at least smiling,” adds chief operating officer Joe Cappello.
Part of Air Malta’s cost-cutting strategy has been to divest itself of non-core interests, including the sale of subsidiaries Sterling Travel and Tourism, and Air Supplies & Catering. The company is also deconstructing and reconstructing its core way of doing business.
“We’ve embarked on subcontracting agreements. We’ve subcontracted our IT – we are not IT specialists so we’re leaving that to the people who are,” says Zammit. “We’ve also subcontracted ground-handling duties. This allows us to focus on management issues and also cut costs…We’re growing the business in areas it wants to grow.”
With wages frozen throughout the company as a cost-savings measure, the role of unions in the airline’s turnaround was a significant one. Asked how important it was for the unions to buy into Air Malta’s restructuring, Zammit is concise: “Crucial.” He says: “Labour practices were a cause for concern. We told [the unions] that we could either swim together or sink together. It took quite a bit of time to get them to that level, but I have found unions very receptive to our ideas. The fact we had no redundancies helped keep them onside.”
Zammit is keen to point out that it is not just all cuts and no benefits. “We need a balanced approach…It is important to achieve a breakeven situation but it is also important to have our customers onside,” he says. “Customer satisfaction is important – we’re not cutting on our frontline product.”
On the other side of the equation, Air Malta is looking to diversify its operations and spread its risk. The carrier has set up a base in the UK with two aircraft and operates a scheduled intra-European service between London Gatwick and Catania, Sicily. This has only recently become possible thanks to Malta’s accession to the European Union in 2004. This also gave Air Malta the opportunity to operate a full programme of charter flights to Spain from the UK.
This year promises to be an interesting one for Air Malta, with chief executive Ernst Funk stepping down in April. Funk’s role was always considered a temporary measure since he joined the carrier in the newly created chief executive role. They are currently interviewing for his replacement. In terms of goals for the year ahead, the carrier is pressing ahead with IATA’s e-ticketing initiative; looking to subcontract catering; and will launch new routes for summer, including Palermo–Naples.
But Zammit’s real challenge for the year ahead? “Most certainly revenue generation,” he says without hesitation. “At a level that’s profitable.”