In the recent Air Malta debate, one question is what can Air Malta offer Alitalia that it cannot do itself anyway. If it were just improving connections to an interesting destination (Malta), one could add just another flight, just as Lufthansa added their second Frankfurt flight on top of their own morning flight and the evening flight run by Air Malta - also sold under the LH code.

The MoU tabled in Parliament did not have any surprises, or anything really concrete, for example - surprise! - what commercial firm would not try to save costs/make a profit to improve financial performance?

And clearly with the investment, one would go into commercial agreement with Alitalia (and possibly other Etihad equity partners) -meaning one could potentially stop all the other current ones. Apart from this issue, there is nothing really new that one should presume - little else has been said about routes or fleet strategy.

What clearly will be a benefit is being involved in a more cost-efficient purchasing process. Then you can also read that something could happen to Air Malta's financial liabilities. Will they be taken up - probably by the present shareholder (ie the Maltese taxpayer) - for a new start? And the company might be 'fillet-ised' further into the pure flying business, so to speak, with the rest not necessarily being even part of a holding, but separated from Air Malta as such.

Headcounts or jobs-per-plane ratios are too simple; it is also necessary to consider the wages - and hence the actual manpower cost - per production unit. Outsourcing is old hat at Air Malta, with things sometimes rumoured to be ending up far more costly and not exactly better, simply for the sake of outsourcing them for whatever reason.

Antics such as trying to save money or fuel or whatever by using thinner paper napkins (this indeed happened!) while at the same time doling out money to football clubs in areas to which one does not fly or which are well beyond one's budget, or on nonsense routes are things that will hopefully not happen again under Etihad control.

Then, we should be beware of believing in a Midas touch and just lazily sitting back.

Slots worth more than a euro

What we heard was that, while there would be changes to the Air Malta network - obviously due to changes of connection partners - 'for sure' the routes to London and Brussels would remain.

This takes some speculation off the highly valuable asset that Air Malta holds in the form of slots at Heathrow - at least for the time being. Slots are the specified short 'time frames' during which planes may land or take-off at congested airports. Heathrow slots trade at high prices. With a basically double daily service, clearly a lot of money could be made out of the company by inheriting or selling the slots - definitely making the investment of, say, very little, worth it, given one could still technically take such slots from a subsidiary. A Heathrow morning slot pair changed hands for $75m earlier this year. As Air Malta has been flying to Heathrow - as well as a core set of other routes - without interruption since 1974, it has 'grandfather rights'. This means that it has the right to trade their once allocated slots. Certainly, you can think this through further, with worst-case scenarios - that we hope will never happen - of realisation of assets and shareholder value, but I will avoid doing so here.

Beyond Heathrow

So let's assume that the Heathrow and Brussels flights are indeed going to remain untouched. Then there are also routes that Air Malta currently operates to Lufthansa concern hubs.

Slots there are not as astronomically priced as Heathrow ones, yet they do have a value and might be freed up for, for example, Alitalia to operate from these valuable markets into their own hubs.

These would be the only Air Malta routes and thus slots (partly) affected, given that one would change connection partners, apart from on some minor routes.

Slots shifting

As an example with the Lufthansa hub No. 1 at Frankfurt, Alitalia might need an expanded schedule. Like this it could become more attractive as a network carrier there. Alitalia could get a better market entry to feed into its Mediterranean - or even its small Latin American - network - via Rome or Milan by using slots so far occupied by Air Malta.

That said, Air Malta should be wary of touching this route. Frankfurt has been served without interruption since 1974 - when Air Malta was established with great hopes and succeeded in growing into an airline that helped build our nation and also served as a connection for the Maltese abroad. We cannot have Malta boasting to be a financial services centre and then having no Air Malta flight to the continent's most important banking centre, with an economically attractive catchment area. The code-share with Lufthansa benefited the carriers, the customers, the destination and the Maltese economy. The example thus is hopefully purely hypothetical, as significantly cutting out Frankfurt is clearly a no-go.

As part of its re-orientation since Etihad became its majority shareholder, Alitalia will be ending its partnership with Air France-KLM. This means ending code-shares, thus a reduced frequency from Paris, and Amsterdam feeding into the Rome hub and, of course, the other way around as well. Also in these circumstances, re-allocating slots from Air Malta to Alitalia could lead to growth opportunities for Alitalia.

Currently, routes such as Frankfurt and Zurich generate their loads partly from the point-to-point market, partly from Lufthansa Group domestic or European or global routes feeding into the Air Malta flights for the Malta access segment. The same applies to Air France and KLM, or CSA.

A slot shift does not necessarily mean selling a slot, but could also mean leasing out slots at preferable rates to a parent company. Even with trading, there is no need to actually disclose prices, hence it would be no problem to trade slots at a preferable rate to a parent company.

Slot trading could help realise asset value from Air Malta. The parent company could have the opportunity to gain access at a cheaper rate than if acquiring a slot elsewhere. The problem is that if Air Malta ever wanted to return, slots would cost more. Hence, the leasing option could be a compromise, although analysing the profit importance of such a route before generating easy cash is essential.

One should compare the present access to networks under all those codes giving Air Malta passengers access to the full Lufthansa, Swiss, Austrian, Brussels Airlines, Air France, KLM, CSA, Aeroflot and Meridiana networks (if the Air Malta flights are sold under their code) and hence the opportunity to fill seats, to Alitalia's, Air Berlin's and Air Serbia's western, northern and eastern European or transatlantic network. It would be necessary to check the relevance for the incoming tourism sector and the Maltese economy in general.

That 'dirty work'

Feeding into some network is not 'dirty work', as it was rather prominently called earlier this year. After all, networks, especially the current ones with which Air Malta cooperates, also bring it a lot of passengers rather than on just their own flights, while considerably widening the marketing and distribution base of a small airline with just one market. Take Lufthansa and Air Malta: who does the 'dirty work'? Lufthansa, when feeding an Air Malta flight from Frankfurt or Munich with passengers on relatively shorter flights from, say, Cologne, Bremen, Hamburg, Copenhagen - or Air Malta, when at the same hubs transporting passengers to Malta after Lufthansa has brought them across the Atlantic, or from Asia? The same goes for any partner - it should be appreciated for the work mutually generated. Is it really in a position to choose what loads it wants and what it doesn't, because it is just 'dirty feeder/regional'?

Also as an Alitalia/Etihad partner one will feed into hubs - of Etihad group - however, with, at least with the present network, generally less onward connection potential than possibly now as regards the current markets.

 

Air Malta as a low-cost capacity provider?

There might be an opportunity for Etihad to take advantage of Maltese labour, fiscal and social laws by using Air Malta as a low-cost development vehicle for the EU market. There is also the possibility of it operating from not only Malta but also from another base - in Sicily, for example - and also the possibility of running a sub fleet type on behalf of them. Air Malta should also already have clearly lower costs than, say, Air Berlin from the wages aspect.

Foreign bases are nothing new for Air Malta - see the UK charter base for XL, or their British subsidiary Excalibur Airways in the early 1990s, to the well-intended but ill-fated Azzurra Air.

Currently, Alitalia's Embraer fleet is run by a subsidiary called "Alitalia Cityliner". The planes are branded identically, with the addition of a small 'operated by' sticker. The Embraer 170/190 fleet was increased after the Etihad investment in order to cut costs on routes and frequencies required for the network but where Airbus capacity is not required, hence saving on the trip cost.

At lower capacity, Alitalia's ATR regional turboprop fleet is provided by Darwin (Etihad Regional of Switzerland) and Mistral Air. With a capacity of around 70 seats, this aircraft is ideal for very short flights - such as the Sicily to Pantelleria and Lampedusa runs. Mistral Air is an Italian Post company, which in turn is another shareholder, along with Etihad, in Alitalia.

An equity partnership with Alitalia/Etihad could finally bring a more positive attitude at Air Malta towards expanding the fleet through right-sized aircraft to develop thinner routes, maintain frequency, etc, while it would also get more opportunities for providing capacity during off-peak periods elsewhere, for example. By sourcing them from the Etihad Group, it could also have different types of aircraft readily available for an expansion from an 'allied' company, while not having to bother about building up about its own organisation, since this is too costly for just a small subfleet. Expansion and fighting back is crucial for Air Malta, as it needs to retain local market relevance at the 'too big to allow to fail' level.

Welcome back, CSA

While most news reports referred to a 'maiden flight' of Czech Airlines (CSA) to Malta, it is actually a welcome return after a number of years' absence.

CSA, then still Czechoslovak Airlines, operated to Malta in the 1980s. It continued to operate seasonally in the 1990s and early 2000s. Air Malta has been running the route for quite a number of years, mostly yearround.

The return of CSA revitalises its so far sluggish code-share with Air Malta. Passengers can now not only combine both carriers for each direction, but Air Malta's own flights are thus also sold under the CSA code. This means it can profit from onward connections, particularly around central, but also western, continental Europe, through a convenient and not too large hub, profiting from improved market visibility on the CSA network and point-to-point.

Choosing CSA over a low-cost airline has many advantages. As far as destination Malta is concerned, while low-cost airlines provide point-to-point capacity, a network carrier provides access to a range of source markets, often not connectable on a stand-alone basis, meaning a quality addition to Malta's connectivity.

From the Air Malta perspective, while meaning competition, it also means a partner with an active interest in filling Air Malta's flights as well, as it draws passengers to its own (feeding) flights, and a stronger placement in the market, sideby-side on according distribution channels of the code-share partner.

Following Air Serbia and (Latvian) Air Baltic, CSA is the third Eastern European network carrier at MIA - and here in cooperation with Air Malta.

Some outlook words

Air Malta has been faithfully serving Malta for over four decades. It was built on a great deal of ideals and hopes for the then young small island nation. It is Malta's link to a range of hubs providing pan-European and global connectivity, while also providing point-to-point traffic. It has pioneered many markets, often without help, and because it has nowhere else to go, it is here in summer and winter, in the good years and the not so good years.

Clearly, there have also been quite a few disappointments over the last decade or so, such as Air Malta claiming it had so little funds for anything and then wasting money on things such as flights to Syria and Algeria, costly football sponsorships, some shallow PR, etc. While on the one hand it has apparently been employing masses of people in some fields, it is obviously lacking staff in other strategically relevant fields. Then it was not taking (or was not allowed to take) a more active (financial) interest in aviation-related services such as maintenance. LH Technik Malta started out as a genuine 50/50 joint venture with Air Malta, building on the skills of Air Malta's engineers and their excellent industry recognition. Such know-how, that very few small island communities have, should be appreciated and not wasted. A ground handling division in the form of a separate company within a holding group might also have been more aggressive in taking on and beating competitors.

People inside and outside the company, from employees to supporters to customers, might have been disappointed now and then by some lack of appreciation. There should be an openness to new ideas for business, while it should not be dogmatically said that Air Malta's business of bringing (mostly tourist) passengers as the gateway carrier for two of the big global alliances, and in point-topoint operations to our islands, is the 'wrong business model' per se. We should be open to seeing how it can expand without throwing the good parts overboard and without neglecting this core case of Air Malta's justification for existence.

More recently, Air Malta was supported by the country so that it could continue to play its core role in the future, benefiting the country and providing sustainable direct employment on the islands, capturing that part of tourist spending locally rather than abroad. Even a moderately loss-making Air Malta is an overall economic benefit already through its employment and generation of taxation revenue. An unlevel playing field with some markets resulting in subsidised low-cost parallel flights (see the epic 'London, the new/underserved market' of the mid 2000s) did not help financial performance, either.

What has to be at the forefront is the customer's perspective: what choice of airport, what overall price (well done for the included luggage and no tricks culture!), what flight times? This is what matters most of all. People fly Air Malta primarily because of the destination, when the said three factors fit.