Air Malta: “If You Don’t Change, You Die.”
Air Malta has for a long time struggled to find its own identity in an increasingly competitive market, suffering years of unprofitability and struggling to overcome multiple challenges, including increasing competition from LCCs, outdated work practices and tensions in the North Africa market, which have impacted its traditionally strongest routes. Dr Mangion, chairman of the airline highlights how the airline has rebuilt its operations with a more financially viable business model and hybrid product that now allows it to compete with LCCs. He explains the transformation has included a cost control mindset, a reduction in the fleet, increased aircraft utilisation, improved staff productivity and the move to a hybrid business model to serve today’s increasingly price-driven industry. “If you don’t change, you die,” he says.
Transcript
Dr Mangion:We are seeing that our strategy for growth that we have adopted last year, summer of last year, following a process of restructuring together with the European Union, where the European Union had commissioned the government and allowed the government to pump about $130 million into our national airline. This process ended up in 2016, and although some cost management was implemented, in actual fact, the basic weakness of that process was the fact that the unit cost of the airline, per kilometre or per passenger, whatever, however you consider it, remained high and uncompetitive in an extremely price-sensitive industry as the aviation industry. And when I was faced with this situation in July of 2017, I had a discussion with the shareholder, who is the government in our case, and we agreed that the only way that we become competitive and look at the future is to grow. And therefore, when the fleet was reduced to about 8th under the process of restructuring, we said that we need definitely things. We need to increase the utilisation of the aircraft, which we did from 7 hours daily to 13 and even 14 in summer. Therefore, there was enormous relief. We had to also penetrate and take a little bit of the market share which we had lost, and we had lost to other competitors. And in order to do this, Between September '17 and April '18, we introduced 21 new routes, increased our capacity in the existing routes by about 30%. This bore fruit in actual fact because we have just concluded our audit estimates and other financial reports for '17-'18 of this year, and the operation, we have registered a profit of a small profit of $1.2 million on the operation. But when you consider that for the last 2 decades Air Malta has only accumulated losses, about $100 million of losses, therefore this operational success, I would say, this turnaround really was a positive thing. And we look forward to the future in spite of the challenges that still present, the consolidation on one hand, that big airlines are seeking. And the question that one would ask, do these leave space for small legacy airlines like Air Malta? And I think there would be space. Why? Because on the macro level, there is growth in the industry. Once there's growth in the industry, one can always find his niche market, his opportunity. And that's what we are trying to do, that we are first of all becoming competitive We've become nimble, we change, we continue our growth strategy. We have opened North Africa, Casablanca, Tunis— Libya is out of the question, obviously, for obvious reasons— and we have also Tel Aviv on the other side of the Mediterranean. Now we are looking at Cairo and Algiers, therefore connecting Europe and North Africa. Further down, we are looking at the Sub-Saharan as well, and even beyond that. Apart from this, we have increased or intensified our codeshare agreements with Emirates, that now we are not only Australia, but also the Philippines and Japan, the Eastern world. And with Air Italy, we are looking also at codesharing arrangements so that we can go even to the States. Therefore, the activity of Air Malta is expanding. What are we looking at? We are looking at joining the islands of the Mediterranean. In Europe, Malta has a direct connection point-to-point extensive, and it's difficult to expand, although we find other cities to link with, like Stockholm, for example, being under consideration. But we are also looking now at the longer strategy of connecting the islands of the Mediterranean. People in these islands want to travel, they want to connect to their mainland, they want to connect to the rest of Europe, they want to connect to Africa. And I think that there is a niche area which an airline like Air Malta can do with lesser cost and with more opportunities, offering opportunities not only for the airline but also for the customer. Obviously, our airline now is becoming more of a hybrid airline. We are keeping all the legacy characteristics. We do have our business class on board, and actually we are revamping the business class as well. We have extended co-chairing, interlining, and all the qualities of a legacy airline, but obviously we have unbundled the ticket, and now it's the customer that builds his own experience. We have opted also now for sales on board as well, buy on board, schemes, which has proven in the last 3 months— just introduced July of this year— it has proven very successful, exceeded even our budget forecast, and therefore that gives us now scope to expand. Therefore, although the challenges are there, the challenges will remain, and we are not out of the woods as yet, but obviously opportunities for growth exist. And this is all based on the fact that people continue travelling, Our economy, the Maltese economy, is very vibrant, a consistent growth of 5 to 6% in real terms these last 4 years. We have become not only a touristic centre and almost a non-seasonal destination, but also very much a business centre for Europe, for the Far East. And even from Africa and beyond. Therefore, I mean, there are these business opportunities growing in Malta. We have already about 40,000 foreigners working with their families here. Therefore, that gave a boost to our population. And all these elements continue to contribute and make our airline very important, not only for tourism purposes, but also for other areas of our economy. And I think we try to ride on these elements, exploit them as much as possible, but also seek opportunities beyond. We have had a neo only a few months ago, an A320. We are expecting to order 2 new neos in June of 2019. That is therefore the replacement of the fleet, will help us more, better cost management savings, environmental considerations will be taken into account. Throughout the next 5 years, the total fleet will be with one configuration and all A320neos. But also with the assistance of our new CEO, who is much experienced in the operations side, especially apart from the commercial savviness that he has, that we are looking also at other A220s on the short distances to develop this concept of the airline of the Mediterranean, where there Working on A220s and smaller aircraft but more efficient obviously renders the prospect more competitive and attractive. The A220s offer this opportunity for short-haul— I mean, the 1 hour, the hour and a half— where you can do it more frequently, connecting an island to the mainland with the frequencies that will be needed. You don't need a big aircraft; it's better to have a small aircraft. Therefore, we are looking for this longer-term strategy of becoming an airline of the Mediterranean, not replacing the A320neos. No, no, not replacing those. That will continue. That's fixed, established. The leases have already been ordered. We might even look at buying, but that's a dream for the future. I can never hope to beat Ryanair. Ryanair, they have invented a model which has been extremely successful, and it is successful. And Ryanair has been beneficial for Malta as well. Therefore, we worked out a relationship to work on a joint venture. They put us on their website, and that gives us the visibility that we need in order to expand our distribution. And we need to develop that. I'm looking at ways of developing it. We don't compete on the same routes. We offer services on different routes, but that gives us the visibility that we need in order to enhance our sales and increase our sales.
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