IT IS HAPPY 25TH TO EMIRATES BUT IN THE CENTRE OF THE MEDITERRANEAN THERE IS AN ECONOMIC ODDITY AS MALTA’S ECONOMY SHINES BUT THE NATIONAL AIRLINE CARRIES A DEFICIT

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By TESTCustomwebLP TESTCustomwebLP October 25, 2010 13:45

IT IS HAPPY 25TH TO EMIRATES BUT IN THE CENTRE OF THE MEDITERRANEAN THERE IS AN ECONOMIC ODDITY AS MALTA’S ECONOMY SHINES BUT THE NATIONAL AIRLINE CARRIES A DEFICIT

Air Malta’s losses this year are expected to be “much worse” than the €31 million deficit announced for the year ending March 2009. The airline is believed to be losing money even on its Germany routes, where there is no significant competition from low-cost carriers.

As a consequence Air Malta is bracing itself for a major restructuring programme, which will be brought forward after the airline registered its first-ever summer losses. These losses have resulted in the Maltese government engaging Ernst and Young (also in the process of advising BMI) to carry out a full review of Air Malta. Changes are expected to be implemented on or around the turn of the year.

Maltese Parliamentary Secretary for Tourism, Mario de Marco said last week that in what was still a crisis year for the international economy, Malta had managed to outperform its Mediterranean competitors in tourism. Growth in arrivals in the first eight months of this year was at 12% and Malta had equalled the first eight months of 2008, which was a record year. Indeed, Malta is expected to achieve a new record this year (during the same period Spain and Cyprus have registered growth of just 0.5%). Arrivals this year, de Marco said, were 100,000 more than the same period last year, despite the problems caused by the ash cloud in April. Malta’s success, he states, “come on the back of increased government spending on new air routes and tourist advertising”.

This news confirms that there is something very wrong indeed with Air Malta, the nationally-owned flag carrier. When travel to your home base is at record levels but your airline is posting record losses, you know that the game is up and a complete overhaul of your business is required. In the case of Air Malta it is widely known that overstaffing is a very real problem.

The question is: Will the Maltese government privatise the national airline? This will be the best option for the island by far. Politicians based on a small island with a population of just under 413,000 will have great problems getting to grips with the mass layoffs Air Malta requires. In fact, due to the size of the population, the required layoffs at Air Malta would be the local equivalent to mass layoffs in the public sector in the UK. In effect sorting out the national airline would be a Maltese austerity package.

As this is a nationally-owned airline, the Maltese government must negotiate any plans on injecting cash into the airline with the European Commission. This process has been laboriously slow and it is now known that the Maltese government has confirmed that the process is “being speeded up amid worrying figures”. EU rules currently permit the granting of state aid to Air Malta as long as it is just a one-time opportunity and is tied to a restructuring programme aimed at putting the national airline on a sound financial footing. The Maltese government need leeway on this ruling.

In the budget this week the Maltese government must make mention of an attempt to minimise the impact on Air Malta of the so-called bed tax on tourism. The tax was promised two budgets ago to finance the increased marketing efforts of the Malta Tourism Authority and the introduction of new routes, the money for the latter has been spent now the books need balancing. It is likely, due to the state of affairs at Air Malta, that the government will increase VAT by 5% in place of the “bed tax”, thus sourcing the tax money at hotels.

The politically sound way to deal with the problem could, perversely, be to sell the airline in 2011. Air Malta would be a wonderful fit for British Airways Iberia, this combined airline is currently looking for suitors for expansion and Malta with its UK ties and wonderful location could be the best possible investment opportunity. Moreover word is that three large European carriers including a low cost would be very interested in Air Malta.

The people of Malta could be in for a windfall of new found aviation importance.

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By TESTCustomwebLP TESTCustomwebLP October 25, 2010 13:45
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