In a speech, he mentioned the coming of Snowflake, Austrian Airlines, British Airways increasing the number of flights, Germania (a low cost airline), Air Polonia (another low cost airline). All these have either decided to come to Malta or else they have increased the number of their flights.

The minister was right to rejoice, for this will surely mean more tourists for Malta. More low cost airlines may indeed come, such as Ryan Air.

But what would be the impact of all this on Air Malta?

According to an internal IT and Investments ministry report, parts of which have been seen by The Malta Independent, “low cost carriers are exploring new virgin markets and Malta with its potential as a Mediterranean destination falls within this category.

“Although this is great news for both MTSA and MIA for opening a new window in a new market for incoming tourism to Malta, this might seem as a threat to our national airline, especially if they start flying from airports or regional markets with high market shares.”

The report speaks of local organisation Bargain Holidays and describes the threat from this small operator to Air Malta.

“Air Malta has already experienced tough competition from the Malta-made low fare operation, Bargain Holidays. This is a Malta specialist ‘cheap bargain all inclusive tour operator’ presently operating a direct schedule service with weekly flights form Manchester (twice weekly), Birmingham and Gatwick Airport (four flights weekly), Leeds and East Midlands (once weekly) and offering cheap accommodation in holiday apartments in Bugibba owned by the same company. Its intentions are to set up its own scheduled airline based in Malta with the intention of developing low fare routes from other markets into Malta.”

Its model, the report says, is not exactly well spelled out. Route is broken down and sold on two one-way factors. However the model is based on a charter operation using cheap packages including accommodation and cost of flight cross-subsidised throughout the package and offering no frills.

Unlike the low cost market segment, it is targeting the low yield mass market from the UK, thus eating away part of Air Malta off-season traffic. It is heavily investing in old distribution networks including travel agents and running a £1 million a year advertising campaign in popular UK dailies rather than the Internet, targeting third age, low income, low education mass travellers.

The Bargain Holidays model, the report says, should not expand further. Basing itself merely on Malta’s low yield mass market presents its revenue model diseconomies of scale to recover costs. Malta is trying to move away from this market segment and no longer offers any competitive advantage to those who are seeking better sun and sea offers in Turkey and North Africa.

Notwithstanding this, Air Malta must not underestimate such a threat as Bargain Holidays. Its effect on Gatwick and Central UK is being felt and Air Malta market share is being eroded by BH’s presence.

The threat from BH and any other low fare airline could also be increased if it sets up base in Malta, following Malta’s entry into the EU

And Air Malta?

Some have argued that Air Malta must convert itself to a low cost carrier. This, however, is impossible. It would require Air Malta to do away with its network of tour operators and with most of its infrastructure. Pilots, for instance, would be on a definite contract whereas they are on an indefinite contract with Air Malta.

It is true that competition is on the increase, both in Malta and elsewhere, but Air Malta has drawn up its own strategic plan to develop its niches.

While there is still the need for people to have a direct link with the carrier, this could also be an opportunity to reduce costs through cutting out intermediaries and using the Internet for booking.

Air Malta has reached an agreement with the Union of Cabin Crew to cut two cabin crew members from its low fare flights to Stansted: this has reduced the HR costs by 20 per cent at no cost to the safety of the plane. One cabin crew member has been removed from the Club Class, which does not exist on low cost flights, and another has been cut from the total number of crew on board.

Basically Air Malta needs to be ready to make quick changes. This is why the airline cannot be held to old collective agreements based on old models. The agreement with the cabin crew showed how changes could be made.

Air Malta is still an airline 80 per cent based on tour operators, so it will have to continue working with them.

But the way ahead for Air Malta is to develop other streams in its revenue side.

Air Malta is not an island in the middle of the sea. It must examine what other airlines have done in the face of low cost travel, SARS, the Iraq war and the Madrid bombing.

In this regard Malta, it seems, has already felt the impact of the Madrid bombings: a conference for 30 people has been cancelled.

What other airlines have done may be instructive:

· British Airways went on a cost-effective drive which included job-shedding: two call centres have been closed down with the loss of 400 jobs.

· KLM ordered some Euro 125 million cuts and shed 2,600 jobs. Planes were withdrawn from circulation. It now says it will cut a further 13 per cent of jobs over the coming three years.

· Lufthansa has registered less yield per passenger compared to the US. A two-year plan entails the loss of 2,000 jobs. Work practices have been changed. The airline has just announced it registered an Euro 154 million loss last year

· Olympic Airways is a new airline, launched most probably in conjunction with the Olympic Games.

· Soberair, a Belgian charter airline, was declared bankrupt in January and 480 people lost their jobs.

· SAS has come up with the Snowflake concept.

· Alitalia has seen a recent U-turn by prime minister Berlusconi, most probably due to the coming June elections.