05 July 2006

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Business Today

Air Malta slammed for gratuitous bias on low-cost

Matthew Vella

A report aimed at dissuading the introduction of low-cost carrier giants Ryanair and easyJet, commissioned by national airline Air Malta has unsurprisingly earned rebuke for its negative portrayal of the advent of LCCs to Malta.
Revealed exclusively by sister newspaper MaltaToday last Sunday, Air Malta’s confidential report is claiming a 50 per cent increase in visitors in one year was a “high risk” strategy for a small destination like Malta, fearing domination by LCCs, tour operators pulling out of the market, and a revenue loss of Lm23.6 million for Air Malta if Ryanair and easyJet achieve a traffic of 1,540,000 passengers.
George Schembri, chief executive of the Malta Hotels and Restaurants Association, said the MHRA’s task force on LCCs found the report to be “exclusively based on details provided solely by Air Malta and the government, without any prior consultation with MHRA, Malta International Airport, easyJet or Ryanair.”
The MHRA has also prepared its own report on LCCs, which Schembri said was not for publication when asked whether the association will be releasing the report.
Air Malta’s report was prepared after government asked the national airline to commission professional auditors to analyse the impact of LCCs.
Hoteliers found the move unacceptable given the national carrier’s long-standing opposition to LCCs. The report was carried out by PricewaterhouseCoopers.
Philip Fenech, president of the GRTU’s tourism and leisure sectors, lambasted the report for its “exaggerations”.
Among these were claims that LCC traffic would generate “high risk strains” such as the need for increased coach transfers for 2 million passengers, the increase in public transport routes, and to get tourist venues such as museums to absorb higher volumes of travellers.
“It’s an alarming report, and one which you’d expect the Malta Tourism Authority to publish, not the national airline whose remit is to fly people. It’s an extremely biased report with the obvious intention to exaggerate claims and spin arguments,” Fenech said.
Fenech said both Ryanair and easyJet had boosted trade to the particular destinations where they have operated.
He also poured scorn over Air Malta’s claims that increased mass tourism was undesirable for the island.
“Nobody wants to see Air Malta hurt by the impact of LCCs, and a happy balance should be struck between tour operators and LCCs. But we should look at the national interest. It’s ironic to talk about the problems brought by a large volume of LCC traffic. The answer is quite simple: when we’ll be full up, we’ll just close our doors and reap all the wealth generated.
“But to worry about being full up when we are on our knees crying out for business, is to say the least hilarious. Stop-sales for our beloved destination is nowadays a non-existent terminology!”
Labour’s spokesperson for tourism Evarist Bartolo also described the report as having been too territorial in its approach. “I understand the airline’s argument, but I cannot expect a government to base itself on the arguments presented. Basically, Air Malta portrayed a disaster.”
The Labour MP said the route support incentives for LCCs proposed by government were still awaiting approval from the European Commission, pointing towards the urgency to address the conundrum.
“At this point we also have to think of whether the incentives will be still there in the future, given the EU guidelines. We have to remember that there are also other LCCs operating other routes, and of course we have to focus on the general tourism landscape. If we don’t embellish and clean up the island, revisit prices and the service we offer, all that LCC traffic will go back with a bad impression of Malta.”
The report, finalised on 15 June 2006, said any discounted fees for LCCs to land at the Malta International Airport were “dangerous” and would “create and entrench a dominant market player which would be able to maximise aircraft utilisation and its own profitability, even at the cost of leaving some routes underserved.”
Air Malta claim it would be “wrong public policy, and possibly illegal” to give discriminatory treatment in favour of Ryanair.
Air Malta calculates that displacement will be higher than European averages for LCCs of 40 per cent, in a market with just one national airport.
Given that LCC travellers’ average length of stay is 5 nights, compared to the Malta average of 9.3 nights achieved in 2005, the report states that a high level of displacement of 50 per cent might result in a reduction in hotel occupancy by 1.8 per cent.
According to Pricewater-houseCooper’s calculations, it is assumed Air Malta would suffer 50 per cent of its market share on flights to Luton and Stansted, and in a more ominous prediction, withdraw from operating loss-making routes to Ireland, Sweden, Norway, Spain and Portugal. Charter withdrawals would be expected on routes such as Turin, Hamburg and Marseilles.
PWC calculate that in a scenario where both Ryanair and easyJet bring 1,540,000 passengers in a year, Air Malta would lose 330,000 passengers to LCC traffic, from a total displacement across the entire market of 570,000 – the loss would be Lm23.6 million in annual revenue.
The report states Air Malta would have to downsize its fleet, redeploy its assets, reduce its workforce, and restructure all administrative processes.


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