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Fuel, Passengers, And New State-Companies: What Exactly Is Behind Air Malta’s Massive Turnaround?

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Up until 2017, Air Malta’s future was bleak with a strategic partnership with Alitalia collapsing after long negotiations. Fast-forward two years and the appointment of Konrad Mizzi to tourism minister has brought about sweeping changes with a radical shift in approach that has seemingly lifted the shroud of uncertainty over the company.

Yesterday, Mizzi even took the stage at the airline’s annual general meeting to announce that the company had registered a profitable year for the first time in 18 years, recording an operational profit of €1.2 million.

With full accounts yet to be published, Lovin Malta took a look at some of the key indicators outlined in a presentation shown at the AGM to analyse what could be behind the massive turnaround.

1. Did Air Malta’s ambitious plans to access the low-cost market and new destinations drive up revenue?

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Naturally, an improvement in revenue was crucial to turning around the airline’s fortunes and the 7 million euro increase between 2018 and 2017 was a key driver in the company’s ability to record a profit.

The change could be the result of a number of factors beyond the ever-increasing tourist arrivals to Malta. Towards the end of 2017, the government announced its plans to introduce a product aimed at targeting the low-cost market, which has proven to be a success.

Meanwhile, a strategic partnership with Ryan Air has also allowed Air Malta to start accessing previously untapped markets, most notably Tel-Aviv in Israel.

The plan has clearly started to bear fruit with an impressive 11% increase in passengers from one year to the next.

2. Could a drop in fuel prices be behind the decrease in operating costs?

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The revenue growth, surprisingly, also has come with a drop in operating costs, dropping by 6.7% when compared with the previous year.

A notable reduction in the almost 6 million euro drop in fuel costs. Given the increase in passengers, and therefore flights, the dramatic drop in cost may be puzzling.

The global trend of gradually dropping fuel prices may be a key contributor to this. Since 2014, oil prices have been volatile thanks to swings in supply and sanctions against Iran and Venezuela. This was clearly apparent between 2016 and 2018 with the price of oil experiencing significant drops only to start rising and record highs towards the end of last year.

Another noticeable reduction was the drop in aircraft maintenance costs, dropping by almost 5.5 million, whether this is due to an increase in efficiency or a drop-off in the amount of maintenance taking place is yet to be seen.

3. Collective agreements shore up instability but have still left pilots disgruntled

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The increase in revenue and drop in costs certainly indicate that the inefficiency that for so long hampered the airline has slowly become a thing of the past.

The signing of the collective agreements, as Mizzi himself had repeatedly said, was crucial in the company’s pursuit of new revenue streams and markets. However, they have not been implemented without a hitch.

Pilots, the lifeblood of any airline, have been particularly disgruntled.

Despite signing a new collective agreement in January 2018, Air Malta was forced back to the negotiation table to iron out issues related to pilots’ working conditions last October.

Tensions have also been raised by the government’s decision to set up a new airline to hold Air Malta’s London landing slots, Malta MedAir, which have the pilots concerned that it could be used against them in the future.

Pilots have long complained that the increased flying hours that form part of the aggressive growth strategy results in more fatigue, with some sources even indicating that the salary increase is not reflective of the increase of work.

Following the claims, the national airline issued data showing that Air Malta pilots fly an average of 650 hours every year, well below industry standards it said or the legal limit of 900 hours annually.

It remains to be seen whether the airline and its pilots can finally settle their issues in 2019 or whether they are on collision course with one another.

4. Did the selling-off of assets to new state-run companies help balance the books?

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A notable shift in the government’s policy with regards to Air Malta was the creation of new companies in the airline industry.

The aforementioned Malta MedAir is a chief example of this. While not forming part of the operational profit, the company did give Air Malta some 33.9 million euros in gains on the disposal of landing rights in London.

The company is wholly government owned and was set up with an authorised share capital of €70 million with a goal of purchasing airport slots from the airline.

Another company, Airmalta Aviation Services Ltd, syphoned off ground handling staff to another state-owned company. Air Malta’s ground handling division had long been suggested to be a significant loss-making section of the airline.

Both could have contributing factors to the turnaround, but it is unclear.

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