The Malta Independent 1 February 2023, Wednesday
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Air Malta management not involved in ‘strategic partner’ talks – CEO

Jacob Borg Monday, 10 August 2015, 10:29 Last update: about 8 years ago

Air Malta’s management team is not involved in the talks with other airlines aimed at finding an investor for the beleaguered national carrier. Instead, it is the government that is taking the lead in these talks.

“Let me make it clear what management’s role is. Management is not involved in these strategic partnership talks. It is the shareholder. They are the owners of Air Malta, namely people from government and their consultants.

“They have set up a data room, and the role of management is to provide information to this data room about the airline.

“Our accounts, our cost structure, our various collective agreements, the salaries. Every piece of information that the people in government dealing with or discussing with a strategic partner request, we provide.

“That is our role. We don’t even know to which airline this information is going to. It is the owners who decide. Questions come to us, but it is not we who are taking the decisions when it comes to these talks. We provide all the information, be it about routes or code-sharing. I do not think it is a management decision honestly,” Philip Micallef, Air Malta’s CEO said.

Elaborating further, Mr Micallef explains that there are two schools of thought in this regard.

“One of them is involving the management from A to Z in all the talks, and one of them is to just involve the shareholders.

“Now whichever one is the correct one...the shareholder decided to do it this way. It would probably be a distraction from the day-to-day running of the business if we were involved in the talks.

Asked about this last week, Tourism Minister Edward Zammit Lewis explained that Air Malta’s Chairperson Maria Micallef is participating in the strategic partner talks, but it would be impossible to drag the whole management team along to such talks.

Air Malta ‘hampered’ by fuel hedging agreements

Air Malta has not benefitted from the international reduction in oil prices, as it has been locked into long-term hedging agreements since 2012.

“Although fuel costs are going down, Air Malta has been hampered because fuel was hedged three years ago. The hedging deal goes on until the winter of next year.

“At the time they got a very good deal, I think our predecessors did an excellent job, when oil was at $140 per barrel, the hedging agreement was for around about $90-95. Now it has gone down to $50. As time goes by the hedges begin to expire, so we can buy at market prices more and more.

“The savings on fuel have not been what we would have liked. There is also the dollar factor. Most of our purchases are in dollars. The dollar has strengthened against the euro, meaning a counter-effect which nullifies the gains you would get from cheaper fuel. Many airlines are experiencing this at the moment. Fuel costs make up a bit more than 20 per cent of Air Malta’s total costs.”

Staff levels and fleet maximisation

Tourism Minister Edward Zammit Lewis is adamant that no staff will be laid off by Air Malta.

Asked if such declarations by the minister do tie his hands when it comes to managing the airline, Mr Micallef says it does somewhat, but there are others way to save money without resorting to job cuts.

“There are other ways to be more efficient, such as by reducing Air Malta’s fleet size. In the summer months we are going to fly the same number of passengers, so you need the same number of pilots and cabin crew.”

“Air Malta is a seasonal airline. If you look at our statistics for summer and winter, we are like two different airlines. Air Malta flies 1.3 million passengers during summer and 0.5 million during winter.

“We fly many more passengers in summer, and competition is tough in summer. Yet we manage to make a profit in summer. In summer, we are not excellent, but we are good.

“Staff costs are around 15 per cent of revenue, which is the industry norm. It is not amongst the best, but it is the industry norm. Our aircraft leasing costs are also in the region of 20 per cent, which is quite good.

“That’s the summer though, where there’s competition. In winter, where there is much less competition, our model gets completely skewed. Our staff costs go up to about 27 per cent of revenue, and aircraft leasing goes up to 30 per cent.

“So we need to find a model which is good for both seasons.”

“In winter you are flexible because of the temporary workers.

“The minister said there will be no laying off of staff. I think there are other ways of finding solutions without laying people off. I think we need to be more efficient and productive. We need to increase our productivity.”

The fleet reduction plans have drawn criticism from some quarters, but Mr Micallef sees this as a golden opportunity to save money in the short-term as well as improve the airline’s fleet utilisation.

The airline will be reducing its fleet of 10 aircrafts to seven in the winter and eight in the summer.

“Ryanair at its peak flies 16 hours per aircraft. Next summer we are aiming to fly 14 hours per aircraft. Currently we fly around nine to 10 hours per plane.

“Changes will also be implemented to the timeslots, with aircrafts departing earlier in order to allow them to come and go again more often. When possible we will fly at night to non-EU destinations. We already do this to Moscow and Tel Aviv. Charter flights will also fly at night.

“We are not doing this just for the sake of it. It is a golden opportunity. The lease of the two aircrafts is coming to a natural end. We will return these two aircraft and by not paying the lease and returning them it will save us €4.1 million per plane. We do not find that amount of money on trees.”

Flying with a reduced fleet is only meant to be a temporary measure, with Mr Micallef saying it is being done for the final restructuring year ending in March 2016 “and a bit beyond.”

“Hopefully both with the savings and an increase in competitiveness, our profits will start growing and we will be able to increase our fleet if necessary.

“But we do not want to increase our fleet just for the sake of increasing it, it must be built on a solid base because we have produced results and can open new routes.

“In March 2016 the restructuring plan will come to an end and all the EU restrictions will be lifted.

“The restrictions are quite tough.  Since 2012 we have not been allowed to fly to any route of our choice. We were asked to reduce route and cargo capacity in exchange for government giving Air Malta money at the time.

“Hopefully that will come to an end, meaning we would be able to start flying new routes. New routes take time to materialise and be profitable. We will again go back to normal growth mode, as at the moment we are in contraction.

“To arrive at growth one has to get one’s house in order and then Air Malta can start growing. These in a nutshell are our challenges, which are not small,” Mr Micallef says with a smile.

“We have an excellent team of dedicated people working hard and coming up with ideas. I think what kept this place going is the staff at Air Malta. The majority of them are very loyal people.”





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