The Malta Independent 20 March 2019, Wednesday

Joining the elephants’ graveyard

Thursday, 10 January 2019, 12:35 Last update: about 3 months ago

The first big warning came in 2017 when three large European carriers went bankrupt in quick succession: Monarch in the UK, Air Berlin and Alitalia.

The last of these is still flying with the backing of the Italian government, possibly contravening EU state aid rules, but it awaits a new buyer.

Last autumn, a number of smaller airlines collapsed. Latvia-based Primera, Cobalt of Cyprus, Germany's Azurair, Lithuania's Small Planet Airline and the Swiss Skywork all went bust.

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Two further carriers have had precarious experiences: UK regional airline Flybe, which put itself up for sale after poor results, and Iceland's Wow Air, which hastily agreed to a takeover by Icelandair only for it to fall through and a private equity buyer to step in. Norwegian also had a tough time, rebuffing takeover offers from IAG, owner of British Airways.

The pattern is unfortunately similar but it is not easy to spot those airlines which will fail. Industry analysts look out for weak balance sheets, high costs, and ageing fleets. Some seem to survive longer than anyone believes they will. Some benefit from state air, under whatever form. Others have private owners who are prepared to invest. There are a number of airlines in central or eastern Europe who haven't made money, who will never make money but are still going on because the government believes they need a national carrier for some reason.

Then the unplanned for happens: jet fuel last year was double that of the previous year; last summer's delays required passenger compensation. Many airlines took the risk of expanding, because 'being static is slowly shrinking'. In many cases it was a gamble that did not come off.

Sounds familiar? It does if you look at Air Malta in the light of these other small airlines.

Air Malta was comatose even before all this started. Its financials were horrible; there was a risk of having its planes impounded for non-payment of fuel. Then successive governments took a hand - the airline was whittled down until it became a 'ghost airline', it lost some of its planes, it hived off non-core business. Then this government, led by Minister Konrad Mizzi, a child of the airline we might say, went in the opposite direction: it expanded its routes, acquired more planes while its immediate predecessor had gone for a costly image revamp. The airline was supposed to break even last year but that has not been confirmed.

Along with the relaunch, the airline undertook some costly improvements: it drew up a collective agreement with the various components of the workforce, it employed people even while hiving others out, it launched routes that sometimes tallied with those of low cost carriers and it even went and plans to go beyond its former area of operations.

There are all the signs the industry is heading for a crisis, maybe a harbinger of a wider crisis just beyond the horizon. Europe's consumers have enjoyed the benefits of a booming aviation industry with the number of flights increasing and fares falling due to intense competition. The industry is reaching a cyclical peak and smaller airlines will fall more rapidly over the next two years, according to analysts.

One must also consider the volatile price of fuel, which may go up again, and, perhaps more importantly, the consolidation opportunities for the bigger airlines. Consolidation in turn might solve one problem - overcapacity, based on a belief that growth can go on for ever.

For minister Mizzi, who has characteristically taken on his shoulders the entire airline, which he micro-manages, the future months will be crucial. When the other small airlines begin to fall like flies, the Maltese expect the national airline to survive. 
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