This government’s economic philosophy is that the state should intervene as little as possible in the dynamics of the market. We intervene as far as our social and environmental obligations make us, and otherwise restrict ourselves to ensure that competition is fair and that the consumer is protected from deceitful practices. We also believe that government should withdraw as far as possible from participation in commercial activity dismantling the legacies of the socialist past and giving

public entities the choice between commercial viability and closure.

We have not shied from taking tough decisions as long as they were consistent with this philosophy. We deemed it unethical for government to preserve jobs at Interprint at the expense of the private printing industry. We deemed it immoral for government to preserve jobs at Sea Malta at the expense of the competitiveness of Maltese industry.

In both these cases, as in others, the principle was to withdraw state intervention and let the market favour productive employment over protected parasitism.

The “low-cost at all costs brigade” conveniently ignore the simple fact that it is the low-cost airlines that do not want to enter the field of competition – it is the low cost airlines (or more precisely, a particular one) that are asking for subsidies – a word which is anathema when associated with state enterprises but seemingly acceptable if given to a privately owned company.

It is very usual for us in Malta to expect problems to be solved by some sort of magical intervention – this time, quite literally, coming from high up in the skies. Low-cost airlines have become the magical mantra that will supposedly solve all the problems of the tourist sector.

I will not dismiss the claim that a million passengers can be flown to Malta like rain from an unclouded sky without even asking ourselves whether this is new business or merely moving people from one airline to another. Let us suppose that is true and let us also suppose that there will be incremental business. But let us also ask ourselves: what will be the cost?

What, we are told, are a thousand jobs at Air Malta worth compared to all those employed in the tourism industry? Why, we are asked, do we continue to protect Air Malta from the inevitable?

Is this the country that we have become, where a thousand jobs, a thousand families are talked about so flippantly as if we are not talking of people? What is the government supposed to do – send a thousand people home because bed-nights are down this winter? Or should we maybe employ them with government? I assure you that those who expect such behaviour from us mistake us for the wrong sort of government.

It is crucial for me to clarify that we are not sheltering Air Malta with state protection in any shape or form. Air Malta competes in a liberalised market in which all can compete without restrictions. We want it to be that way but even if we did not, an open, fair and liberalised market in the aviation industry is now a matter of law not merely a matter of policy. If charges are high for low-cost carriers, they are as high for Air Malta and for everyone else.

When Air Malta set up in Catania to fly to the UK, when it set up in the UK to fly to Turkey and other destinations, when it started this year the Reggio-Rome route it did not ask for any special treatment. It saw what deals could be struck, it saw what subsidies were available, it worked out its numbers and it went into the market to compete. It did not ask for any special treatment.

Low-cost airlines have been here, are here and will continue to come here – paying the present charges. If any low-cost airline chooses otherwise, then that is its choice and no one else’s – other

low-cost airlines have made a different choice.

The irony is that instead of withdrawing state intervention, we are now being asked to introduce it simply because one low-cost carrier says so! We are being asked to introduce subsidies (not remove them) to disrupt the current balance of the open market. The fact that Air Malta is state-owned is very much beside the point. It is a commercial entity that does not, and can no longer, benefit from state aid.

I wish you, for the sake of the present argument, to imagine that Air Malta was owned by private Maltese entrepreneurs. What would be the reaction to an intervention by the government passing public funds to other competing airlines with the explicit intention and inevitable consequence of driving Air Malta out of business? It would be unethical, immoral and, I submit, illegal.

I have always argued, and continue to argue, that people in public sector companies that are no longer commercially viable should not expect any different treatment than people in private sector companies in identical predicaments. I hold true to that conviction. But the only consistent approach to that conviction is that people in public sector companies that are working in a commercially viable context need not expect the shareholder to axe their jobs in favour of someone else.

While insisting that we are doing nothing to specifically protect Air Malta from low cost airlines, I find it difficult to see why this government should actively protect the competitors of Air Malta. There are other reasons for this and few know them better than low-cost operators themselves.

They have been admirably innovative in finding solutions within the existing economic and market realities in providing a product at a cheaper price. They are the experts at making the most of a market environment and benefiting their passengers in the process. The current market environment includes the existing costs of using Malta International Airport – it is a real cost that does not emanate from the fact that MIA is privately owned but from the mere fact that MIA exists.

The opposition suggested this was a reason why MIA should have remained in state control. This is laughable but typical. The implication clearly is that MIA should operate below cost and make a loss and can do so only if it is state-owned. I’m sorry; I couldn’t agree less with such hare-brained economics. If a commercial operation is not viable in a commercial context, it makes no difference if it is state or privately owned. Even the fact that such an approach continues to be conceived by the opposition suggests that the consensus about free market economy remains a myth in this country.

This is as ridiculous as another argument used by the opposition: that we should not have privatised MIA because this does not allow the government to reduce airport charges and give Ryanair the subsidy it has demanded. The fact that, a couple of weeks ago, government issued incentives on certain routes and for certain times of the year clearly shows that incentives are still possible but also shows very clearly that the opposition pays only lip service to privatisation.

It is frankly confounding how some continue to argue for increases in numbers of visitors in the summer months, for which greater space and greater investment in infrastructure would need to be made, exacerbating our already substantial occupancy problem in the rest of the year. It is even more difficult to understand when, just a few years ago, these very same people were urging government not to issue any new hotel licences because we had an over-capacity of beds and they were being forced to cut prices because of the resultant competition. “The free-market is fine” maxim apparently applies only as long as it suits the person saying it.

There can be no clearer illustration of the sheer insanity of this proposal than the suggestion that has been made to kick Air Malta’s cargo facility from the old Luqa airport terminal (which, by the way, it owns) and turn it into a low-cost mass tourism terminal. Those of you who remember the cringing embarrassment of welcoming visitors through that Third World gate will soon be able to visualise what sort of tourism destination those who have made that suggestion want this country to be.

It may be an old mantra, but if we’re considering flying people through Luqa Airport it risks becoming a forgotten mantra, so I repeat it again. If we squeeze into this country unsustainable low-quality mass tourism, we will drive ourselves out of business and out of a home to live in within very little time. We are past the age of low-cost tourism as much as we are past the age of low-cost industries. It may be good for some Paceville bars; it certainly is not good for the rest of us.

The “low-cost-at-all-costs brigade” argues that Air Malta needs to adapt to the new commercial reality, namely the strategy of low-cost based on a very simple equation – as long as I make a profit I fly, once I do not, I fly... out!

I, on the other hand, am speaking of a national airline flying all the year round from a wide number of well-served points of origin and a high-quality airport as a gateway in and out of the country. Let’s imagine that Air Malta “faces up to the new commercial reality of “low-cost” and adopts a similar strategy.

What will the hoteliers, the restaurateurs and the shopkeepers say, once Air Malta drops 85 to 90 per cent of its routes to compete on the same cost base as its low-cost competitors? I hope they will not complain or expect Air Malta NOT to compete on the same basis. I hope they are not expecting Air Malta to operate a loss-making route for their sakes! A low-cost carrier will not, so why should Air Malta?

What will the Maltese air traveller say when not only will Air Malta fly to maybe three or four destinations only, but airlines like Alitalia, Lufthansa, GB and others no longer make a profit from the Malta route and pack up and go? Do we really expect them to keep flying the Malta route out of charity and goodwill? A low cost carrier will not, so why should they?

Does anyone really think that any low-cost carrier can substitute the network that is presently served by Malta? Does anyone really expect any low-cost to fly to Lourdes for the benefit of the Maltese? Let us also not live under the illusion that low-cost airlines would materialise for the benefit of the Maltese passenger. The Maltese market is tiny and irrelevant to the airline business. Sad but true, we are too few to count in the airline business.

Even leaving apart the local tour operators who would obviously have little business left, has anyone given a thought to the foreign tour operators who today bring the bulk of tourists to Malta? With Air Malta going low-cost and working a handful of routes, what will happen to the business these people bring to Malta? It will certainly not go to the low-cost carriers who make money by raiding tour operator business. Are the “low-cost-at-all-costs brigade” ready to risk the one for the other? Are they confident enough that if the tour operator business goes bye-bye, the low cost will substitute?

I also sincerely hope that everyone has also realised that it is in no one’s interest for this country to become hostage to low-cost carriers who fly in when they like but also as quickly fly out when they like. We have already seen it in Malta with a number of low-cost carriers and other airports have seen it with Ryanair and its likes as well. Has anyone asked the question, once we become hostage to the low-cost carriers what happens if the low-cost pull out?

If it is the market on its own that brings this scenario about, then so be it. But what good sense can there be in bringing this scenario about with our own hands?

I think the government is taking a wise middle-of-the-road approach in making it easier, even with state intervention but on a level playing field, for anyone wishing to bring tourists to Malta when our occupancy is low and from places where we have not yet managed to get anywhere near our potential. But it is one thing to say that we have not yet reached our potential for eight months of the year and altogether another to say that we are facing some alleged crisis comparable with what happened in the mid-80s when we paid tour operators from public funds to sleep people in our empty hotel beds.

It is important for all of us to get some sense of scale. And it is important for Air Malta to remain a genuinely competitive airline in the context of a genuinely free and open market.

Air Malta’s focus over the next two years must be to achieve the revenue growth levels targeted within its plans, and this is the principal target that we have given our new CEO, Joe Cappello. The loss in revenue over the past 12 months has resulted from increased competition, especially in the UK, resulting in lower seat factors in the UK and France as well as lower yields especially in Germany and Italy.

Air Malta needs to restructure its sales force and its distribution systems to target individual traffic business to a far greater degree than it has so far managed to. A new round-the-clock centralised call centre will target individual traffic as well as long-haul traffic. The commercial side will now have to exploit the new incentives the government is offering in order to address the yields and low seat factor in the winter and not simply rely on the tour operator and travel agent distribution channels.

I think the last two years have taught us a very important lesson which should give us courage.

Air Malta and its people are capable of adapting and are willing to change rapidly enough to continue to provide passengers and the Maltese economy with a reliable and affordable service. It continues to do so without imposing conditions on other airlines on the running of our aviation and airport sectors and on

private operators in the tourism and hospitality sectors. It continues to operate in a liberalised open market without any restrictions on anyone wishing to compete with it.

And it continues to change to be ready to fly another day.

This speech was delivered by Investments, Industry and IT Minister Austin Gatt at the opening of the Amitex Fair on Thursday.