26 July 2006

The Web
Business Today

Government low-cost proposal targets seasonality problem

Stephen Muscat analysis the call for proposals published by government in its bid to entice major low-cost airlines to include Malta in their itinerary

After two specialized reports prepared by Deloitte on behalf of MHRA and a second one by PriceWaterhouseCopers on behalf of Air Malta, the Government did not shirk its responsibilities and issued a call for proposals to entice low cost airlines to operate new routes to and from Malta.
Whether government’s aim will be achieved or not is still to be seen but the prospectus identifies the need of a scheduled air service to and from, Luton airport, any airport in Northern Ireland, or in the Republic of Ireland, Pisa and Mulhouse-Basel in Switzerland.
These routes are deemed to be either new or under-served. Anybody interested may bid for one route or several or even all the lots.
The Government document is clear on what is defined as a “new air route”. It cannot be somewhere which is already served and it must increase the network coverage and traffic base of our only airport, and must not have been served by the airline or any other European carrier in the previous year.
However, if the route in the last year was served on a seasonal basis and now the proposal is to bring this route to be covered all the year round, the additional service may be eligible for support. Moreover, if an airline intends to switch capacity from one airport to another within the same country, this will not qualify for support. The financing is also not available for a new entrant to open links that already exist and so compete with an existing operator. The message is clear. Government will only assist those airlines that are ready to contribute to the solution of the seasonality problem and attract additional tourists.
The scheme is subject to the European Commission’s approval, and shall include funds for start-up costs, specific route marketing but not to pay for operational and running costs. The grant shall be based on a per passenger basis embarking from origination direct to Malta, and the financing must be regressive on the number of passengers achieved.
In order to follow EU norms, the glide path funding will terminate at the 5th year and for one year the financing cannot exceed 50 per cent of the eligible costs. The route must continue to be serviced beyond the five year maximum financing period. European airlines with a valid license are eligible. Air carriers have to present documentation to support the business plan and provide a number of certificates issued and certified by recognised airline industry regulators relating to quality of service, experience, age of the fleet and insurance policies. There are the financial details to be given relating to financing per passenger.
The Government wishes to have the routes effective for winter 2006/7 and preferably by November this year. This is a tight schedule compounded by the fact that the closing date of the submissions is at end August 2006. The proposal also specifies that a minimum of three flights per week are to be undertaken throughout the year on the Northern Ireland and Republic of Ireland routes whilst 5 flights a week throughout the year for Luton, Pisa, and Mulhouse-Basel.
Bidders for financial assistance must clearly specify their development plan including the marketing and business plan, their sales plans investment plans and other financial and economic information. The route must be sustainable beyond the assistance period and the government may request a bank guarantee other than the financial history of the bidder. It is obvious that the government will carry out its own due diligence and sensitivity analysis to confirm the projections of carriers asking for funding.
Issues of health and safety, local set up and the request for services at the airport are also on the agenda as these are part of the multiplier effect on our economy.
The selection criteria are clear with the highest marks given for technical value such as the sustainability of the plan to develop a route together with the amount of financing per passenger being requested.. A 20% mark is left for date of the route start-up. Before the start of operations the airline must present the slot allocations.
Overall it is evident that government is getting serious in offering assistance for selected routes to increase the number of tourists and tackle the seasonality of visitors. The targeted airports are already serviced by a number of low cost airlines such as Easyjet, Ryanair, Wizzair, ajet, monarch, Thomson Jet 2 com, Central Wings, Budget air and Aer Arann, as well as other airlines that fly to their homeland. It is now up to the low cost airlines together with local businessmen to take up the cue and take on board this new business deal.

Business Today is published weekly on Wednesdays.
Website is updated weekly on Thursdays
Copyright © MediaToday., Malta
Managing Editor - Saviour Balzan
Editor: Kurt Sansone
Business Today, MediaToday, Vjal ir-Rihan, San Gwann
Tel: (356) 2138 2741 | Fax: (356) 2138 5075 | E-mail