21 - 27 March 2001
Interview with Air Malta's chairman, Louis Grech
Flying high in the face of challenge
The aviation industry is one of the most dynamic and any national carrier has its work cut out for it in its attempt to operate successfully and profitably in the face of stiff competition. Air Malta's chairman, Louis Grech, tells MIRIAM DUNN exactly how the airline intends to ensure it continues to do just that
What do you regard as the major steps forward Air Malta has made during your time as chairman and are you satisfied with the national carrier's overall performance to date?
In the past four years we have adopted strategies and taken decisions, which directly addressed problems relating to our core operations. In 1996, availability of capacity was outgrowing expected demand and load factors were therefore falling. In the aviation industry there is a very narrow margin between costs and revenue and it is very easy to cross the line into the red zone. We primarily focused on route rationalisation and a change in fleet composition took place. The above, together with certain cost reduction measures, were fundamental to improve our results.
As for the latter part of your question I wish to look at it from its historical perspective. There were many barriers we had to break through to get to where we are today.
Air Malta has progressed from a two-leased aircraft airline carrying 54,000 passengers a year to 13 aircraft accounting for around 1.8 million passenger movements last year. The commercial civil aviation scene in Malta was then limited to the provision of handling and other basic services. More problematic was the absence of any significant home market to sustain an airline's viability. More so, in the early 70's the local propensity to travel by air was only a small fraction of what it is today.
Over the years the airline has carried more than 24 million passengers and earned over Lm1.2 billion in revenue. The seed money of Lm1.25m issued by the Maltese government was repaid to its shareholders over and over again. The Group's turnover last year was over Lm124m.
One should also examine the contribution our company makes to the economy. Taking into account the multiplier effect, the airline last year generated around 23% of the total expenditure by tourists, accounted for 7.6% of the GNP, generated 5.6% of government income and was responsible for 6.1% of the full time equivalent gainfully occupied. I think that all in all, Air Malta's track record to date is quite remarkable, especially since, unlike most European carriers, we have not benefited from state subsidies or grants. Looking ahead, however, we know it would be foolish to rely on our past performance. We require vision, determination, resilience and intelligent solutions to meet the stiff, tough challenges of this industry.
Where do you think improvements and developments still need to be made?
Our industry is extremely dynamic and highly sensitive to many factors. We cannot remain static. We are aware that Air Malta has room for improvement and in this respect we are working hard to improve the level of product and service that we are giving. There are a number of areas where Air Malta is reasonably good, but we need to constantly concentrate on the point of customer service, to achieve the highest level of product and service possible. We will focus on placing the customer at the centre of our planning, striving for improved quality and value for money.
Having said that, some of the problems are beyond our control. Our punctuality for example is affected by air traffic delays, which have become a source of frustration, and additional cost to most carriers in Europe. It is a fact that many more aircraft are flying the European skies than a decade ago.
On the subject of air traffic, has the fact that this has increased so much over the years given Air Malta cause for concern?
Air Malta, like other airlines, had to address the issue of increasing air traffic and related hazards. The aviation industry made a drive to develop equipment and procedures so that safety margins in air traffic were increased. These margins are achieved by consistent application of safety precepts.
Air Malta translates such safety precepts into tangible terms by its affiliation with global safety organisations, such as the Flight Safety Foundation. Our company is also a member of and collaborates with the Association of European Airlines in, amongst other matters, the aviation safety environment.
More important, all Air Malta aircraft have installed state of the art TCAS anti-collision equipment. This apparatus warns pilots of possible conflicts with other aircraft so that avoidance action can be taken in time. We also have a comprehensive Accident Prevention Programme, which creates safety awareness. The company's pilot training and aircraft maintenance is also an important factor in ensuring high safety standards.
What is in the pipeline for Air Malta, in terms of fleet and destination expansion?
In the short term we will be implementing a number of corporate projects which we have identified as being necessary to prepare the airline for the future-operating environment. We will shortly be commencing a comprehensive business plan where aviation consultants will work with Air Malta management to define and map out the airline strategy for the next decade. Emphasis will be placed on giving our commercial organisation a new and sharper orientation. We will look closely at the distribution of our product, including e-commerce, as this is a vital element of our marketing mix. Another focus will be route network development, international strategy as well as a detailed fleet plan. Our plan is to renew our fleet over a number of years. It is estimated that the renewal of the fleet would cost the company $350m to $400m.
As far as destinations are concerned we will be examining potential viable new routes, however, this will be done concurrently with a judicious consolidation process of our network.
Does Air Malta face specific problems because it is a small carrier?
Unlike large carriers, small carriers cannot wield formidable global marketing power. In my opinion small airlines need to act prudently since what works for larger carriers does not necessarily work for smaller ones.
For example, whereas the size of smaller carriers makes it difficult for them to greatly impact the workings of the global alliance, the reverse impact could be very significant. Small airlines will need to develop their niche in specialised business, thereby exploiting their respective comparative advantages, whilst fostering a strategy of co-operation to improve their economies of scale. In this context small carriers should be courageous enough to grasp opportunities whenever these present themselves as long as serious economic justification exists. I feel that it is vital that small carriers do not act on trendy industry buzzwords unless they are convinced of a win-win situation.
Smaller carriers, like larger ones, are exposed to an extremely harsh combative price war environment, limited slots, lower yields and high costs. However, unlike larger carriers, their resources are limited.
Air Malta's future strategy has to encompass an efficient fleet, strong distribution system, flexible and creative pricing, revenue maximisation and a good product, while maintaining costs at a sustainable level. I feel that this will be the necessary formula to survive profitably in this complex and difficult industry.
Can we expect to see increases to the cost of flights in April, because of the fuel hikes abroad?
In the past 20 months or so, our fuel bill has doubled, drastically eroding our profitability. Nonetheless, Air Malta has not made any fare increases during the period of fuel escalation. Only nominal increases are being applied this April and these increases will in no way cover the huge escalation in the fuel bill that we have experienced.
Air Malta is conscious of its role as a key provider of tourism to Malta and we have to be careful not to outprice Malta as a tourist destination. Air Malta has been very adept at balancing its dual role of being a commercially viable entity and at the same time satisfying Malta's tourism needs in a cost-effective way.
What about the effect of EU membership on Air Malta?
Our concern is with the Third Package and we have been examining this scenario for a number of years.
Essentially this will affect us by the liberalisation of prices, traffic rights and market entry. Like everything else there will be threats and opportunities. We will need to restructure our organisation to overcome the initial potential difficulties and threats arising out of increased liberalisation. On the other hand, this should give us potential growth opportunities that we would not have had without the Third Package.
Are you personally convinced that the Lockerbie verdict exonerated Malta in terms of airport security?
The opinion of the court was that the security system at Luqa Airport was very elaborate and that it would be extremely difficult for any unidentified or unaccompanied bag to pass through undetected.
As to whether the verdict gave Malta a bad press, I think that anyone who considers himself an objective reader should conclude that Malta's security was not faulted in any way.
Are there any developments in the move to appoint a Chief Executive Officer at Air Malta and do you believe there is room for both positions to co-exist?
Yes, at the moment we have initiated the recruitment process of a CEO. As for your second question, I do not think that having both positions is by definition incompatible. Quite a number of companies have both positions where the division of power works very well. This has to be seen as well in terms of the future, i.e. succession purposes.
On a personal note, what do you regard as your single greatest achievement during your time at Air Malta?
It is not easy to answer that question without sounding pompous. In any event what probably gives me greatest satisfaction is that, together with my colleagues, we have succeeded in turning the company around and returning it back to profitability.
Having said that, however, I wish to re-iterate that nothing should be taken for granted. We know that market forces will continue to depress yields and costs will continue to increase significantly.
The aviation industry is a complex and vulnerable business and it will continue to sustain shocks as a result of external and internal developments. Stakeholders need to understand that it takes very little for a positive situation to transform itself into a negative one. The challenge is formidable, but then, we have a strong and formidable team.