The Malta Independent 25 April 2024, Thursday
View E-Paper

Can ancillary sales save Air Malta?

Thursday, 5 October 2017, 09:33 Last update: about 8 years ago

This paper, like the rest of Malta, observes the ongoing developments at Air Malta with interest. There is an ever-present proprietary interest like there is in most Maltese: the airline is 'ours', it carries our colours.

But there is interest also in following the unrolling of the plans for the airline following the recent ministerial changes which led to a number of U-turns by the airline. It is now focused on growth where before it used to be focused on austerity.

Although the plans have not all been revealed, there is more than enough to discuss about.

First of all, the negotiations regarding the collective agreements which the airline now says it hopes to conclude by year-end. On the one hand, it is clear that the wages of most of the employees are not grand on any scale and those of the pilots, while considerable when seen from Maltese eyes, are far less than those practiced by other airlines. There are huge vacancies around, as can be seen from the Ryanair difficulty of getting enough pilots to replace those who left it for Norwegian.

Still, the average 20% increase that is being mentioned could affect the airline's bottom line at a time when it is still trying to emerge from the red. If the airline is trying to adopt a hybrid, if not low-cost, structure, wage increases are precisely what it cannot afford, especially when they do not come linked to productivity increases.

But there is another issue we want to bring up today. Some years ago the decision was taken  for the airline to divest itself of non-core business. This was back in the Austin Gatt times. Now it seems this decision may have been precisely opposite to what other airlines have been doing. They have been increasing ancillary sales like there's no tomorrow.

A report on The Financial Times last week said that over the past decade, ancillary fees have experienced strong growth. The top 10 airlines, ranked by total ancillary revenue, generated $2.1 billion in 2007 but this grew to $28 billion by 2016. Global airlines are estimated to have earned $67.4 billion of income from ancillary sales last year. Sales from ancillaries are now estimated to represent 9.1% of airline revenue for 2016, up from 4.8% in 2010.

We all know the difference when we board an Air Malta plane and a low cost airline plane - the latter make money out of practically everything. Over time airlines have been incredibly creative over charging for services other than the ticket price. Such activities range from frequent flyer miles, bidding for spare seats next to you, on time guarantees, lounge access, hotel bookings, holidays and car hire.

Ryanair, for instance, has previously stated that its ambition was to increase ancillary sales from 20% to 30% of revenues over the four years to March 2020. It has already grown them to 27%.

Of course, people at Air Malta would be probably pointing to the recent Ryanair troubles deriving from that airline's austerity first policies.

But then Emirates, not usually considered as a low cost airline, recently introduced fees for advance seat selection for economy passengers. Then it said it would allow frequent flyer passenger to pay for access to its lounges. Etihad started charging for chauffeur services, previously free for premium-class passengers. And it now has pay-for-access to its lounges.

Air Malta must start thinking about maximizing its revenue from its ancillary sales. One areas where all of us augur this will happen is the removal of the hated 'bezzun' and its replacement by a good hot meal, against payment. 
  • don't miss