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Airlines have to adapt to survive in today’s market
“The past three years have been trying times for our airline. She was not alone. The entire aviation industry was rocked by turbulence in the past few years and some, quite simply, did not make it. We have cleared that turbulence COMPLETLY but the flying analogy stops there. This airline wants to keep flying – our country needs it to – and as the landscape ahead of it changes, new challenges come along each as tough as the ones before.
The basic reason WHY we did it - why we changed, survived and got stronger – was that we ALL understood we were in it together and we had to do it together.
In 2004 Government injected Lm30 million in the capital base of this company. That worked as a blood transfusion – a much-needed one off – but the real test was keeping the patient in constant health. The real test is the recurrent account of the company.
In 2004 Air Malta netted core operating losses of Lm10 million. Within two years all involved worked hard and saved the company Lm12 million with cuts in all operational areas. In my experience in both the public and private sectors, I think I am not far off the mark when I say this was a remarkable achievement.
This would be time for champagne. Except that fresh out of that turbulence we are inevitably still rocked by circumstances that make these hard times. Within the same three years that we saved Lm12 million, the cost of fuel increased by the very same amount! The Lm12 million saved by the hard work of every employee of this organisation was wiped out entirely by every drop of fuel used to fly these planes.
So where do we go from here? I believe there are three basic macro scenarios.
Firstly, Malta’s incoming tourist figures are stable and in the general scheme of things any upward or downward figures are single digit variations, which are often minor movements between markets. The macro view shows no tendency of massive growth, nor a massive drop.
In this context Air Malta’s market (if not its share of the business) need not expect a doubling or a halving any time soon either. The underlying scenario for flying in an out of Malta is one of stability and therefore of a continued though gradually diminishing tendency for seasonality.
The second dimension of our current setting is the changing face of the airline industry. The competition landscape for Air Malta has new players who can afford to undercut it because they are relieved of the one commitment none of us would want to consider relieving Air Malta from: to serve Malta and the tourism industry here through thick and thin.
Nevertheless, it is a reality that Air Malta lost 12% market share of its scheduled London route this winter to competition . There is no doubt that Low Cost Carriers offer greater competition and a price war is, to an extent, beneficial – certainly for the customer - BUT beyond that extent – and it is admittedly difficult to decide where to put the line - it could become utterly devastating and the winners would be the ones with the deepest pockets – not Air Malta and NOT the Maltese tourist industry.
The third dimension of the present scenario is the ever shifting price of fuel, a dimension that is not within our control but one that we have to live with.
These are scenarios, which Air Malta can master. They are in no way signs of some inevitable and inexorable downfall. But to master this context, all at Air Malta need to understand it fully at least as fast as, preferably faster than, its competitors. I say this because to keep on flying we must remember that the setting will continue to change and at least as far as the competition scenario is concerned I can see no reason to believe that it will get any less competitive and any less tough in the future.
What are the options facing us?
On the one extreme we know for a fact that the low cost model is a successful business model and that it can work in our time. But does a low-cost Air Malta satisfy the needs of Malta? The answer is patently a resounding NO.
The other extreme is to leave things the way they are and …… PRAY. Of course, this is no option either but I do not believe that the solution is either of these options.
Between these extremes there is the possibility of trying a middle way, which other airlines have taken up. As happened with manufacturing, the old ways we are familiar with may no longer work today. The lesson of industry in Malta that owners, employees and unions had to learn was that textile and traditional industries had to close but that they could be replaced by newer, different industries, work systems and work practices. Is Air Malta any different?
Does the simple fact that it is Government owned make it harder for people to realise that even Government owned companies are not immune to this reality?
We are facing a new reality – a new set of challenges – and they are as steep as the altogether different challenges we faced three years ago. We overcame those and we will overcome these as well.
Three years ago I said ‘Change or Die’.
We changed.
We did not die.
Air Malta need not die now because its people – its managers, its employees, its owner – have proven they can embrace change. As long as we all continue to embrace the internal change process dictated by the market forces surrounding us, Air Malta will continue to fly.
Speech delivered by Minister for Investment, Industry and IT, Austin Gatt at the opening of the AMITEX fair, 26th April 2007 |
