New CEO PHILIP MICALLEF is determined to implement Air Malta’s restructuring plan and help make the airline more attractive to potential investors. He speaks to Jacob Borg about how he intends to do this. 

 

Air Malta is set to lose €32 million during the financial years 2014 and 2015. Why would anyone in their right mind want to invest in the airline?

Well, I think Air Malta has to move forward according to the restructuring plan...

 

Which it is not doing at the moment

We are at €16 million [loss]. Basically, there are 17 months left and I think the objective is to get Air Malta into good shape. Don't forget that it has assets. The assets are primarily its landing slots - that's why somebody would invest in Air Malta - probably a non-European airline. Don't forget that, in Europe, the slots are rather congested; it is very difficult to get a slot in, say, Heathrow and other large airports.

Having some form of alliance with an airline that would be interested in the type of market Air Malta flies to is, I think, a very good selling point. Don't forget, we are strategically located. We are also able to connect from the east - and by 'the east' I mean not just the Middle East but also beyond.

As you may know the fastest growing market in the airline industry is Asia: there is a lot of traffic towards Europe. So, in a nutshell, I think Air Malta has assets that airlines would be interested in. Obviously we have to get our house in order.

 

 

Are any discussions under way at the moment?

No. For the moment, at least, my remit - the remit of management - is to focus on the restructuring plan. Who the airline's partners may be, what strategic alliance may be drawn up, is a shareholder's remit of which probably all the options are being discussed, then based on the best option the company will move forward.

 

Surely you would be kept in the loop?

Definitely. We have to contribute by providing information, by providing all sorts of data to arrive at these decisions. These decisions are not clear-cut. You have to look at the economic, you have to look at the political and you have to look at the strategic pros and cons of each option.

 

Would you say Etihad or Qatar airlines are the most likely partners?

I don't know, honestly. Etihad has already taken up Alitalia. I don't know - there could be airlines beyond those two. Why not one from India or the Philippines that want traffic into Europe?

 

What will happen if, at the end of these 17 months, an investor has not been found?

Well, Air Malta will be in a good position to keep trying to improve its profitability.

 

Your chairman, Maria Micallef, said the airline has 17 months and then you need to achieve the necessary economies of scale...

In 17 months we are going to start being profitable. Yes, we need to continue looking. This is not something where, if you don't find somebody, you just close the doors and walk away. I think you need to keep on looking, to keep on seeing options.

We also have to look at our routes - those outside Europe, say to Algiers. Is there a good connection from Algiers to China, from Algiers to India? Can we get traffic via that route?

I think we have to be innovative and think outside the box. We have to be creative and start doing things which add revenue. We need to maybe collaborate on certain routes with certain airlines to get more traffic. We mustn't leave any stone unturned. Don't forget, I've been in this role for two weeks and a few days, so I am trying to quickly get to grips with the reality. I think it can be done. We have to increase the tempo, we need to move faster and be more reactive.

Our customer experience needs to be improved from A to Z. It's not just a case of getting on the plane, sitting there and getting a good service. Our customer service starts from the website. That is where one starts from. Then it starts again from the check-in online or check-in at the airport. It continues to the flight and it continues on to whether your baggage arrives undamaged.

 

So are you saying that the airline will be profitable by 2016?

Yes, we have to be. Or at least to break-even by April 2016. That is my job.

 

 

Have you indentified any particular shortcomings during your two weeks on the job?

I wouldn't say shortcomings per se. I would say there are certain things that need to be improved. One of them that I mentioned in the speech at the AGM is our IT systems. We have very good silo IT systems but they are not communicating well together.

Today, airlines are not just planes, airlines are an information company. We need to take action within minutes. If a route is doing well or not doing well, what do we do, how do we react for next week, etc., etc.

One thing we are trying to do something about - which I think was a mistake in the past - is the lack of continuity. Now, every person from a certain level upwards will have someone shadowing him, so that if that person leaves, things will go on the same.

These things may not sound very exciting but they do help. I think we need to get things properly in place. I think there are some very good, loyal people, despite what people say, but they need to be informed and they need to be motivated.

 

What made you want to take on the job?

Well, there were two reasons, basically. It was not an easy decision. I looked at Air Malta: it has an impeccable safety record and it has very good, loyal people. These two things made me decide in favour of taking up this challenge. \

 

In your speech following the AGM you mentioned more cooperation with the Malta Tourism Authority. Are you going to be putting pressure on the MTA or the Tourism Ministry to cut out the subsidies given to low-cost airlines?

No. We need to make sure that they are fair...

 

What is fair?

I'll tell you now. Low-cost airlines have made a big contribution to tourism in Malta. What I think may be unfair is if money is given to some airlines that just fly in the summer months and then just Air Malta has to carry the traffic in the winter months.

That is what I call fair - or unfair. If an airline is flying throughout the year and the MTA thinks that is the way it should act, then I have no problem with it. I would like to look at many areas of cooperation [with the MTA].

For example seeing which routes they are studying for more tourists to come to Malta. Air Malta should be in line with that route to see whether it is viable to have a flight there.

So you are not really happy with the subsidies being given to low-cost airlines?

I'm not saying I'm not happy. I think they could be fairer but I'm not saying they shouldn't be there.

 

Can you elaborate on this cooperation with the MTA?

We have decided to have regular meetings, focusing on certain areas. When we speak to tour operators, we speak to them together; we decide on a plan of action and decide what we are going to do together.

There is the big tourism fair in London next week, and we are going as one stand and one country. We will be speaking to people together and doing things together. I am told that this did not happen before.

I think the government took a wise step in that we have two board members who actually sit on both the MTA's board and Air Malta's.

 

Air Malta's chairperson said 'hands off Air Malta' to politicians when, let's face it, basically you are a political appointee. How can you expect these people not to butt in?

On the one hand there is the political direction and on the other there is the business direction. I think that Air Malta has to survive and the important thing is that the political direction and the business direction have to converge.

As it is, it is all tied up in the five-year political cycle.

Yes, but I think Air Malta is such an important thing that even if a new government is elected, it would like to have a success on its hands not a failure for a national airline. I may be naive but that is my personal opinion.

 

In your post-AGM speech you mentioned selling more ancillary products while on board, are you talking about selling things like scratch cards ala Ryan Air?

Well all types of things, not just on board but things like negotiating better deals with hotels, car companies; if necessary, renting iPads on board the aircraft. This has to start with our website. You order the goods and find them on the seat when you board. We are not selling anything at the moment, so we need to start moving very quickly on this.

 

So you are going to copy the low-cost model then?

No, sorry it is not only low-cost...

I mean in that you are going to have your basic fare and then try to bundle on additional...

...even British Airways, even American Air Lines, even Delta, they aren't really low-cost. Lufthansa will even sell you a suitcase.

 

You also mentioned a shift when it comes to baggage in your AGM speech, saying the airline is looking at pieces rather than weight. Is Air Malta going to start charging passengers for hold luggage?

No, no. At the moment it is 20kg and you don't pay anything, but you can combine the 20kg with your family or friends. Now, with your ticket you are going to have 23kg and if you want over and above that, you have to pay for it.

 

How much?

It depends. If you pay via the website in economy I think we are speaking of an extra €40 for the second bag, but it is a second bag and it is not per kilo. That is what Lufthansa, British Airways, all the airlines do. In order to have code-share agreements we need to move in that direction, I don't think we have a choice. We are going to make more revenue this way. I don't think we have a choice here, as well, we can't remain in isolation.

 

A lot of people complain about the food on the airline. Are you going to stay with the current contractor?

We are looking at the current contract to actually improve it and...

 

Improve it, so you mean you are going to stick with James Caterers?

I don't know. We have a contract that I think we need to honour. I think, yes, we are looking at it and having discussions so that even within the framework of the contract to actually provide what our passengers want. Do they really want that type of food? Do they want food at all?

What do the passengers want?

Well, we need to see what the passengers really want. It depends on the fare, as well. There are other things we are looking at concerning catering. For example, we are one of the few airlines that provide food on our charter flights.

We need to look at all these things. The customer experience has to be impeccable from A to Z and that includes the food. We are carrying out quality control checks. We have people going into the kitchens where the food is being produced and sampling it.

 

You have also spoken of a cost reduction programme. What will that entail?

Well, the contracts are coming up for renewal in the next year or so. We will actually renegotiate these contracts and not just renew them automatically. It could be that the price will remain the same and we will improve our efficiency which will improve our bottom line.

 

Like what? Can you give a concrete example?

A concrete example, for example our IT...

 

You have mentioned that already, can you mention something else...

We also have the meals - that's another one [laughs] - ok - you've read too much about us. And then there has been the baggage...

 

But that's quite profitable already, isn't it?

It will make much more. There have been leakages there. By leakages, I mean for example people being allowed to take more weight on board than they should.

 

That creates a problem on the fuel. You are using fuel and you are not getting the money for it.

Fuel is another area where hopefully we will be lucky with the hedging that we have done and all the things that we did with the price going down. We could actually see benefits there.

Even our work practises are also causing a reduction in costs. Previously, only full-timers were employed. This would then result in a lot of overtime during the summer months. Part-timers have been introduced this year, and they have a definite contract of, say, three or six months, depending on the work, and that saves a lot of money.

We are going to improve this in other areas. At the moment it is just with the loaders, but we're going to do it in other areas. Air Malta is quite a seasonal airline, traffic decreases quite substantially in the winter.

We are also trying to lease and have the proper, just-in-time availability in the winter. If another airline has a problem with one of its aircrafts, say in Rome, and they need to fly to Madrid, we will have the proper connections via brokers so that we will have a crew on stand-by and they will just go to Rome, carry the passengers to Madrid and have that spare capacity.

We are trying to explore all avenues. It is a mixture of increasing revenues and decreasing costs.

 

Can you potentially see some unprofitable routes being axed?

Yes, yes. We have a route exercise about to kick-off. One of the people who is going to be hired is a chief commercial officer whose expertise is mostly in routes and, yes, I don't exclude that some of the routes will be...

 

Which ones?

All the routes are being looked at, including their frequency both on a daily basis and on a weekly basis. Some of them might be axed, for example we might just axe one of the flights on a Saturday. I don't think you can say we are going to axe route A or route B.

Also we have mentioned that we are looking at doubling the frequency to Brussels on certain days. We saw an opportunity there for a flight in the morning and another in the evening for those who have meetings with the Commission. This way, they will save on hotel bills.

All these things are being looked at so that we are in a position to actually change things and be flexible.

 

Seeing that we are on the topic of cost reductions, what is your financial package with the airline?

Do you want to know my salary?

 

Everything.

Well, I basically have a package that I would say is about a quarter of what Mr Peter Davies used to earn.

 

So how much does that translate to?

About €125,000. That's not exact, but it's in that area - yes.

 

Are any jobs in danger of being lost at the moment at the airline?

No, not at the moment.

 

If not at the moment, then when?

Not until the restructuring is completed, definitely not. We've reached our target of full-timers and that's it. The number of part-timers could fluctuate, yes, and that's why I think it's a very good model.