04 October 2006

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Business Today

Rescue and turnaround, Air Malta looks to the future

Last week’s presentation of Air Malta’s financial results for 2005-6 have reflected its rescue plan’s measures since striking an agreement with unions – the results were a gross profit of Lm5.6 million, but its operating was a Lm6.4 million loss, as against the Lm5.7 million registered in the previous year.
Despite this year’s worse-off results, certain operational costs have been contained but still the airline has a long way ahead to secure profitability.
The presentation revealed the airline carried no less than 1.8 million passengers, 300,000 of which lifted from its UK base. It has also started to diversify its operations with 28,000 customers having used its intra-European union operations. The airline also continued to invest and has taken delivery of 10 new Airbus aircraft out of 12 contracted. These have brought the fleet age used by Air Malta to be less than 4 years.
Revenue however did not increase for the carrier with intensified competition, but it has succeeded in reducing its payroll and overhead costs through strategic moves such as flying from its UK base. Moreover the number of employees is 1,758. The restructuring plan which was initiated two years ago show that the airline has reduced its non-fuel costs by 14%, however the fuel costs have shot up by a staggering 71%.
CEO Joe Cappello concluded that the rescue plan was a success, but it is not enough for the current economic circumstances.
Chairman Lawrence Zammit focused on the company’s turnaround plan and its seven key objectives. Air Malta’s bid to increase its revenue remains unaccomplished in monetary terms. The airline will continue to exploit the opportunities from Malta’s EU membership, such as increasing intra-Europe flights. And of course it will enhance its ICT potential for online bookings.
Yet it shall still embark on a process to expand its network of operators that feature Malta in their brochures. An important element to increase profits is to contain costs. Although the “cost per available seat kilometre excluding fuel” has decreased by 15% relating to the Malta-based flights, the fuel cost is 10% of these cost savings, but the cost-cutting commitments made at the time of the rescue plan agreement have been fully met one year ahead of schedule. To continue to improve its operating capability, the airline has reduced the number of management members and is undergoing a business process re-engineering exercise that includes changes in work practices following reduction in staff taking voluntary early retirements.
Air Malta has refocused on its core business and has disposed of its duty free shop operations and a travel company. It is also disposing of three hotels but will develop its own tour operating company called Holiday Malta and strengthening its insurance business. As part of the process of corporate governance expected from each major entity, Air Malta has increased its level of communication with its employees through the works councils and regular meetings with unions.
The company shall continue to outsource operations to reduce costs. It has already awarded the contract for in-flight entertainment and is currently evaluating offers for the catering. Moreover, the company had issued public calls for ICT-related activities such as passenger revenue accounting and is setting up a call centre.
It would have been an incomplete exercise had an explanation not been given on the sale of the RJ 70s that had been purchased by the company and discontinued after some time. The airline has sold off three and sub-leased another four.
Investments Minister Austin Gatt reaffirmed there were no plans for privatisation in the foreseeable future – indeed Air Malta is the national airline but also the airline providing a full service to the nation. None of the scheduled airlines flying out of Malta, nor LCCs planning to start operations, have announced any plans to try to replicate Air Malta’s complete service.
Which means that, without government subsidies for the airline – which are prohibited by EU rules – it is up to Air Malta’s workforce to deliver the results expected and make the nation proud of its national carrier.

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