Air Malta returns to profitability after almost two decades

Date:   Saturday, 23rd March 2019

Ref:     006-2019 EN

Air Malta returns to profitability after almost two decades

·         Presents its Annual Report and Consolidated Financial Statements for Year Ended March 2018

·         Registers an operating profit of €1.2 million compared to a loss of €10.8 million last year

·         Increased revenue by €5.3 million

·         Decreased operating costs by €6.7 million

·         168,000 (+11%) more passengers

·         77.6% (+2.8% improvement in) seat load factor

Air Malta has today presented its Annual Report and Consolidated Financial Statements for year ended March 2018 during which it reported an operating profit of €1.2 million (2017: Loss €10.8 million). When non-recurring items are taken into account (including the payment of the early retirement schemes and the gain on the disposal of landing rights), the airline registered a profit of €15.7 million (2017: Loss €13.1 million).

These results were announced today during Air Malta’s Annual General Meeting. During the meeting the airline gave an overview of its financial figures for the year ended in March 2018 and an outlook for the coming year.

During the year under review Air Malta’s operating revenue increased by €5.3 million to €197.5 million mainly driven by 11% more passengers (2018: 1.7 million passengers, 2017: 1.5 million passengers), 8.5% more flights (2018: 14,126, 2017: 13,024) and a 2.8% improvement in seat load factor (2018: 77.6%, 2017: 74.8%). Total operating costs decreased by €6.5 million mainly attributed to a decrease in fuel, aircraft leases and maintenance costs.

During a press briefing announcing the results, Air Malta’s Chief Financial Officer, Omar Bonello attributed these positive performance to better aircraft utilisation, the implementation of a new sales strategy, the investments in IT technology, the signing of the all collective agreements aimed to give a strong base for increased productivity, flexibility and industrial peace stability, and the negotiation of more favourable terms with the airline’s suppliers.

Speaking at the briefing Minister for Tourism Konrad Mizzi noted the fact that the airline had registered a significant profit after 18 years demonstrating a story of perseverance, determination and commitment. He noted the positive achievements at Air Malta, such as the addition of 21 new routes, the increase in passenger numbers and revenue, and the increase in fleet. He congratulated all the team at Air Malta for their efforts whilst adding that this success is also attributed to all the employees working day to day at the airline.

Air Malta’s Chairman Dr Charles Mangion added that in spite of these positive results, Air Malta cannot rest on our laurels. “A lot more needs to be done to get the Company out of the woods and on firm sustainable ground. Our growth strategy is underway and is being executed in an extremely competitive environment and a continually changing aviation scenario. The main challenge remains for Air Malta is on how fast it can adapt successfully to change.”

Whilst addressing the conference CEO Capt. Clifford Chetcuti said, “We are seeing the results of the transition to a strategy of growth and credit must be given to all the efforts afforded by the whole team at Air Malta. Aviation is a highly competitive industry dictated by thin margins, high fixed costs and large capital investments. Despite all these business pressures, Air Malta has managed to face these challenges resulting in its being awarded the CAPA turn around airline of the year in 2018.” The airline’s CEO added, “This is not the time though to become complacent. Whilst there are challenges with fluctuating fuel prices and increased competitive pressures, we have shown that growth is still achievable.”

Paul Sies, Air Malta’s Chief Commercial Officer added, “During this financial year we increased capacity by 20%, achieving a growth of 11% more passengers. The new routes generated a +€12 million increase in revenue.” He said that during this financial year the airline implemented a new Revenue Management, new unbundled pricing with the launch of the Go Light, new sales strategies and developed and launched the new buy on board product. During the conference he announced that as from next month, Air Malta will be launching its new Business class service where passengers will be offered new gourmet menus presented in traditional Maltese ceramic crockery that showcase the islands’ heritage. During the conference Mr Sies announced the highlights of the airline’s schedule for this summer which include increased frequencies to/from Paris Charles De Gaulle, Hamburg, Kiev, London Heathrow, Lyon, Munich and Tunis. He also announced that after an absence of 12 years Air Malta is planning to resume flights to Egypt’s capital, Cairo and for the first time the airline will also offer scheduled services to/from Warsaw.

During the conference presentations were also given by Chief Information Officer, Alan Talbot, who spoke about the digital transformation at Air Malta, and Charlene Camilleri, who spoke about the Ancillary Revenue unit and how this unit is assisting the airline to increase revenue.  

Dr Charles Mangion, Chairman’s address

The Financial report for FY2017-2018 confirms that operationally Air Malta has for the first time in the last 18 years made a reasonable yet important profit of over €1 million.  This result presents a net improvement of €12 million over the previous financial year.

This positive result was brought about by an increase in revenue of over €7 million generated by an increase in passenger traffic of circa 11%.

Moreover, this was complimented by a decrease in costs for the year of about €7 million – the latter being generated by a decrease in fuel cost, aircraft maintenance and rentals.

In spite of these positive results, we cannot rest on our laurels. A lot more needs to be done to get the Company out of the woods and on firm sustainable ground.

Our growth strategy is underway and is being executed in an extremely competitive environment and a continually changing aviation scenario. The main challenge remains for Air Malta is on how fast it can adapt successfully to change.

During 2017 and 2018, a number of long established airlines went into administration – an underlying common element characterised this reality, namely, the ever increasing pressures on fare price on one hand and the increase in cost on the other.

This reality is being and will continue to be faced by Air Malta in foreseeable and more distant future.

It is an acknowledged fact that air travel will continue to grow extra potentially in the next 20 years and this will be dominated largely by low cost travel, that is to say, fare revenue will continue to be very competitive, whilst cost - both fixed and variable - continue to increase. Moreover, and at the same time in contradiction to this reality regular clients and prospective passengers continue to expect better and more on time service from airlines especially legacy airlines like Air Malta. Thus, our challenge morphs into how to square this successfully and for the long term.

The restructuring process and beyond

Following the restructuring process of 2012 - 2016, which in spite of the change in Government in 2013, continued unhindered in its process, it transpired that, in spite of the injection of around €200 million in direct cash and the sale of assets, the Airline failed to reach the stated objectives.

Certain fixed costs were reduced due to ERS and other schemes but the restructuring process proper, that is to say on how to turnaround the legacy Airline into an agile Airline, capable of adjusting in an agile and effective manner to change, failed to materialise.

In 2017 a change in strategy had to be implemented.  The Company embarked on a growth strategy – the Company had to re-establish itself as a leader in connectivity with the mainland and beyond and also that it has to again embark on its primary objective of increasing the passenger intake into Malta.

This is being restated because we will be soon celebrating the 45th  year of Air Malta’s first flight,  and I think we have to reaffirm Air Malta’s primary objective,  namely, that of acting as a catalyst to the economic growth of Malta and Gozo, by building solid connectivity with mainland Europe and beyond, not for touristic purposes only, but also to facilitate other economic sectors so vitally important to a sustained economic growth of the Island – obviously this objective need to be executed in an efficient business-like manner.

I believe that Air Malta has been loyal to its objective in spite of the challenges. However, in the national interest, one has to reiterate these objectives so that all of us within the Company, Management and Employees understand fully their obligations towards the people of Malta, that throughout the years have sustained their jobs. The €130 million capital injection by the Government in the restructuring process was paid by each and every Maltese tax payer. The Maltese people have every right to be acknowledged for this in my opinion.

With this in mind, the Company embarked on growth - 21 new routes were introduced, frequencies to established destinations increased by 30% - the result was a double digit increase in volumes and increased revenue.  Obviously, price competitiveness played its part.  The increase in passenger traffic remains a primary objective and this has to be complemented by revenue management and efficient cost management process.

Nevertheless, whilst embarking on this trajectory, we had to maintain the Brand Air Malta which over 45 years has developed a positive goodwill all over Europe and beyond, therefore, no compromise was made with safety and proper aircraft maintenance.

During summer 2018 we experienced some shortcomings in our operations.  These technical short comings were further exacerbated by “recommendations” followed by the cockpit community.    In order to address this, we are in the process of implementing an integrated OPS Centre which is being strongly bolstered by IT interventions in order to render both the scheduling process and the crew rostering free from human intervention. For this reason, we opted at a substantial cost for the Lufthansa Lido option, which is a leader within industry.  Air Malta is investing in excess of €5 million in IT and our CO will manifest our IT programme in his presentation.

At the same time, we have engaged over the last 12 months with the Pilots representatives in order to smooth out certain interpretational disagreements in the CLA which were conducive to mutual misunderstanding.  The discussions have been concluded and we now hope to have the agreed interpretations of the CLA integrated in a formal legal contract.

I made reference to these challenges because the future we have facing us is not easy;

Price competitiveness is getting fiercer.

For this reason, whilst we make our fare price more competitive, we also introduce the ancillaries programme which enable the passenger in economy to build his or her own package. This fits perfectly within the customer centric philosophy adopted by the Company.  Our business class is being revamped in a radical manner because our business customers deserve a first class experience. 

At the same time our service in economy will continue to be professional and passenger centric.

Connectivity

With regards to connectivity the next 24 months will be a consolidation process. The new routes that have been introduced during 2017 and 2018 will be further strengthened and rationalised in the interest of the Company without prejudicing connectivity and seat availability.   Moreover, new routes like Egypt will be added and we have also introduced charters to Poland. The charter programme once successful will evolve into a schedule service.   This process is cost saving for the Airline because one has to bear in mind that opening of routes is expensive and somewhat a risky process, even if backed by the best business plans.  It is a long term investment.

Since we are talking of cost efficiency, it is to be noted that we have introduced some cost cutting measures.  The Board has communicated to the Chief Officers that in their budget they have to incorporate a 7% cut in variable cost. 

A new fuel policy is being implemented and will eventually bring us a considerable saving.  A revised employee deployment policy which is under way is intended to enhance productivity.  Maintenance and procurement processes are being reviewed as well. Moreover, the Company has plans that certain cost centres, once developed, will be transformed into a revenue centre.

Our IT investment is intended to increase both revenue and numbers and as already indicated our Ancillaries Programme will be extended further in order to accommodate passengers but also create new revenue streams.  All this is being planned for the next 24 months - Not an easy programme, I assure you.

Last and not least is our financing structure.  This is being evaluated because we feel that in order to increase growth and connectivity and fleet replacement, long term financing is needed.

Carriage of goods

Another opportunity for the Company is the carriage of goods with dedicated cargo freighter being leased or engaged by the Company.  Africa is the continent which is likely to develop more rapidly the next decade. It embraces a young and numerous population and transport of goods within the continent and from Europe to Africa is forecasted to grow.  We are planning for this Economic growth as well.

Complimenting these initiatives, I would like to mention also the Training Academy, which is being planned by KM, thus offering new career opportunities.  It will be a comprehensive Academy collaborating with other resources within the Island and beyond.

Conclusion

The Board of Directors and the Management are committed to make Air Malta work. Our efforts have already borne some fruit but there is much more to be done.   We have the full support of our Shareholder and for this I thank the Minister for the attention he continually manifest towards Air Malta, and his commitment, as well as that of the Prime Minister.

Nevertheless, however, the well-intended efforts of the Management and the Shareholder, ie the Government, we need the commitment of our employees, be they cockpit, cabin crew or Administration and Engineering.  They can make or break the Company but as already stated, they have an obligation towards the people of Malta that have supported them during these 45 years.  We cannot abdicate from such responsibility.  The majority of the employees do understand this and are committed.  I appeal to their Union Representatives to take into account the well-being of the Company whenever they put forwards their claims.

Air Malta has been here 45 years, I assume that we all wish Air Malta to be here stronger and bigger 45 years from now.

I would like to thank the Board of Directors, Management and Employees and their respective Unions for their commitment and last but not least the Maltese and Gozitans that feel proud, like I do of Air Malta.


Address by Capt. Cliff Chetcuti, CEO Air Malta plc

Good morning.

The presentations we’ve just seen confirm the path the Airline has embarked on is starting to pay dividends. We are seeing the results of the transition to a strategy of growth and credit must be given to all the efforts afforded by the whole team at Air Malta.

Aviation is a highly competitive industry dictated by thin margins, high fixed costs and large capital investments. Despite all these business pressures, Air Malta has managed to face these challenges resulting in its being awarded the CAPA turn around airline of the year in 2018.

This is not the time though to become complacent. Whilst there are challenges with fluctuating fuel prices and increased competitive pressures, we have shown that growth is still achievable.

During the past year and a half, we have worked successfully by starting operations to 21 new routes and increased the number of aircraft from eight to ten. This is only the beginning to the new horizons Air Malta has set its sights on.

Air Malta plays a pivotal role in the economic growth of the Maltese Islands. We must therefore turn our focus to improving the customer experience in order to generate more inbound travel and sustainable growth. Travelers look for user friendly online interaction, on-time operations, value for money in all classes and connectivity to a variety of destinations.

The next phase will see us consolidate the airline’s operation as the expansion we just went through highlighted areas where we can become more streamlined and efficient.

In this regard, over the last months we targeted our on-time performance as an area where we can better meet our customers’ needs. We will shortly introduce our ‘On The DOT’ (Destination on Time), initiative which further communicates Air Malta’s focus to customer service through timely performance.

We have invested heavily in new IT systems to improve our scheduling and flight planning solutions and in the coming weeks we will be inaugurating our new Integrated Operations Centre.

This state- of-the-art facility will house five core operational departments and a number of support units that will control over 18,000 flights that the airline operates every year.

In addition, a new Customer Relationship Management system, Salesforce was introduced to better respond to existing and potential customers in a timely and efficient manner.

Last year we improved our economy class on-board menu choice with the launch of more ‘buy on board’ options.  As from April, Business class customers will experience specially designed gourmet menus which will offer artisan Maltese cuisine presented in traditional ceramic crockery that showcases our Maltese heritage.

Another crucial element customers look for in air travel is comfort. The addition of two new Airbus A320 NEOs to our fleet this summer, outlines another area where we will demonstrate our commitment to our customers’ needs. To further improve the Air Malta customer experience, we have outlined a five-year plan to replace all of the existing fleet with brand new A320 NEOs.

We have set our vision to become the ‘Airline of the Mediterranean’. Together with the management team and the Board of Directors we are also studying and evaluating the possibility of expanding the fleet further.

Initially, we will be looking at destinations in the Scandinavian and Eastern European regions. Thereafter we will be exploring sub-Saharan regions we can tap into. Longer term we will evaluate the feasibility of long-haul flights to India and the USA, operating new aircraft types that offer extended range operations.

This route strategy is not only good news for our local customers and travel partners, but it also provides opportunities for the local tourism industry, the economic growth of the country and more travel options for thousands of tourists and business travelers that will be able to commute to Malta from a wider range of cities.

Our vision, ‘Bringing People together, Connecting the Mediterranean and Beyond’ embodies how Malta is kept at the core of Air Malta’s growth strategy.

This year we are celebrating our 45th anniversary. We have been instrumental in the development of the Maltese Tourism Industry and have always been at the forefront in promoting travel among the Maltese community. This is a historical moment for The National Carrier and a journey which was not short of success thanks to the commitment and loyalty of past and present employees.

I wish to take the opportunity to thank the Minister for Tourism, Dr. Konrad Mizzi for his continuous support, the Chairman Dr. Charles Mangion, the Board of Directors, the management team and all the employees for their tireless efforts to ensure a successful future for the airline.

The employees of Air Malta should be proud of the significant milestone they have worked towards over the last 45 years. It is through teamwork, loyalty and a sense of pride in the brand, that this airline will grow from strength to strength.

Last but not least I wish to thank our loyal customers and business partners for their continued patronage to Air Malta. This collaboration, loyalty and consistent support enables us to build on the successes already achieved. 

Thank you.

 

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