Interview | Sunday, 03 January 2010

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Air Malta’s top gun

Air Malta’s CEO Joe Cappello is the man at the helm of the embattled national airline, but he claims he is confident that a turnaround is possible, though sacrifices must be made and flexibility is key

After 35 years of service as the national airline, Air Malta enters 2010 with plenty of baggage to carry. With the economic situation causing turmoil to the whole airline industry, and with Air Malta being no exception (losses are estimated at €25 million in 2009, with chairman Lawrence Zammit reportedly toying with resignation), Air Malta’s destiny currently lies in the hands of its CEO Joe Cappello, who has vowed to lead the airline towards a turnaround.
Conscious of the situation- to the extent that he describes it as “bumping along at the bottom”- Cappello explains that “at this point in time, the phrase that I think best describes the current situation of the airline (in terms of passenger figures) is that we are bumping along at the bottom of the curve and we have not yet taken off.”
However, he stresses that “it doesn’t seem that we are falling behind as before.” This can be seen in Air Malta’s relatively positive performance this year, confirmed in the latest figures published by the Association of European Airlines (AEA) for January-October 2009. These figures show that during this period ,Air Malta saw a decrease of 2.9% in passengers compared to the average 6.9% decrease in cross-border Europe traffic registered by the 33 European Airlines members of the Association. In October alone, Air Malta registered an increase of 5.1% in passenger traffic.
Cappello insists that the potential to make a turnaround exists- However, to achieve this, “one must be realistic and understand that the effort must be a concerted one.”
Having worked with the company for 33 years, acting as CEO for the past four, Cappello enjoys the respect of everyone at Air Malta, but he treads on a fine line as he faces the daunting prospect of changing a mentality within the 1,380 strong workforce.
While he explains that the times have been difficult for all airlines since 2001, following the shock of the 9/11 terror attacks on the US, Cappello explains that 2008 was a particulary bad year, as the price of oil... causing extreme pressure on the airline’s fuel cost.
“The impact was to the tune of €30 million, while the global economic recession caused the British Sterling to plummet in value against the Euro, and demand for travel from its core markets were also decreasing as a result of the economic situation.”
The bridge between 2008 and 2009 spelt disaster for the airline, however while the overall demand for seats was down by 2% last summer, a glimmer of hope was tangible as October registered an increase of 5% in demand for seats.
Cappello anchors his optimism to the upbeat spirits shown at the recent World Tourism Fair in London, where major operators were not sensing the doom and gloom for 2010.
With a baggage laden with losses, 2010 spells out a major challenge for Air Malta, especially where cash flow and securing revenue from its core business, (that of flying airplanes.) In a world that is changing not only economically but even in travel trends, Air Malta, like any other airline, is finding it extremely difficult to make any projection. Late bookings have become the norm, and gone are the days when the airline would project the summer months with bookings that would start to pour in from Boxing Day right up to the end of January.
“This industry has completely changed and we have to change with it,” Cappello stressed, while adding that another trend that is changing is the duration of stay. “People don’t take long holidays anymore, but shorter ones or perhaps repeated stays, and this is a challenge for us as to the frequencies of flights.”
Air Malta is no exception to the reality of the recession, not to mention the tough competitive market it operates in. Big airlines such as Swissair, Sabena and Alitalia have all gone bust but, Air Malta seems to battle its way through. With a fleet of 12 Airbus aircraft and a workforce that has over the last five years been reduced by a good 500 to stand with a compliment of 1,380, the payroll still represents the airlines’ biggest fixed cost.
The workforce is represented by four unions, the GWU, the pilots union, the cabin crew union and the engineers union, and while negotiations have been concluded with the last three for a revised collective agreement, the GWU remains a massive hurdle to surpass.
“We have been in negotiations with the GWU for the past two years and it is high time that we conclude these negotiations in the best interests of both sides,” Cappello said.
He explained that the company has managed to negotiate a fair deal with the pilots, cabin crew and engineers unions. The first two have a substantial part of their remuneration expressed as a variable cost, that changes with the number of flights they operate. The engineers have agreed to a high level of flexibility, and with a variable working week and rosters that change in line with workload.
“Pilots and cabin crew are paid more during the peak and it is also an incentive for them to work more in order to earn more. This flexibility was crucial for the airline and I am satisfied that these important categories have understood the benefits of such a mechanism.”
But introducing flexibility to the general workforce is poised to be a major concern for the airline’s management.
“We are here to protect jobs and not jeopardise them,” Cappello explains, while adding that the way forward is that the General Workers Union understands that times have really changed and that flexibility is key to overcome the situation.
While addressing the payroll, Air Malta has successfully managed to outsource and renegotiate many important contracts that were a hindrance to the airline’s operability.
Cappello explains that Air Malta has renegotiated all its overseas ground handling operations, and managed to save a total of €2.3 million, while other savings were made by outsourcing all its IT infrastructure, aircraft cleaning and revenue accounting, as well as its call centre.
“Outsourcing meant reducing fixed expenses and, in most cases, saving even further as where work was low, we paid much less or none,” he explained.
Meanwhile, the company has employed specialist university graduates to assist the company in an advanced research programme to increase revenues through efficient revenue management strategies.
The strategy is also intended to establish the pricing of individual seats, which takes into consideration the date of travel and demand on any given destination. “We are proud of what has been achieved on the revenue front. Notwithstanding the economic recession and the GBP/EUR rate of exchange downturn, the airline has managed to report a much lesser decline in revenue than reported by other leading European airlines. Air Malta never had high fares and this general perception, is perhaps one of the things that is unfair to us.
“Fares reflect the normal market rules, and today they are far cheaper than before because of competition and because the tour operator is no longer the dominant product distribution medium. Internet has changed the distribution of travel products, with more passengers packaging their own holidays and adapting them to their budgets,” Cappello said, while explaining that a few years ago, the tour operators used to buy up 70% of the available seats, putting pressure on fares through mark-ups. Air Malta used to offer these low-fare seats to tour operators because they bought thousands of seats and invested heavily in destination marketing through their own sales and marketing mediums.
Today with the tour operator no longer being the main distribution force, Air Malta is making these low fares available to the individual travellers through its own portal: Air Malta has recently achieved its one millionth booking in a space of two years.
“However, we have a different pricing model from low cost airlines. These airlines make the passenger pay for ancillary services, while Air Malta includes them in the fare,” Cappello says, adding that low cost airlines are a “fact of life” which Air Malta had anticipated their advent on the Maltese market.
“It was never a question of if, but when,” he said while adding that the low cost phenomenon evolves around the concept of seat sales.
The pricing modules used by low-cost airlines have practically become the norm for all airlines. There are various differences between the two models. Air Malta is not a ‘point-to-point’ carrier like low-cost airlines, but an interline network operator. Air Malta has in fact signed a number of code-sharing agreements with other major airlines that anchor it within a global network.
“This gives us the advantage of giving an incredibly higher value-added service to the passenger by releasing him from the stress of having to reclaim baggage at every airport, to check-in at every airport because the ticket bought from us will automatically include a complete trip across the globe,” Cappello explained.
Air Malta carries cargo, while low-cost airlines don’t; and since British Airways pulled out of Malta, the national airline is the life-line for local manufacturing, especially for the IT semi-conductor and pharmaceutical industries.
“When we talk about low cost airlines we must understand that with Malta in the European Union, any low-cost operator can come to Malta and set up operations, however what one must look into is what they want to gain with the Malta route. It’s all about pounds, shillings and pence…”
Cappello stresses that while low-cost airlines receive a subsidy for the passengers they carry, Air Malta does not. “We give all to the country’s economy. We have never been a burden on Malta, and most of all, Air Malta never took from the economy…” he insists.
He adds, however, that while low-cost airlines receive a subsidy, Air Malta “so far” has never asked for financial intervention, even though he didn’t exclude the possibility.
The times ahead are definitely challenging for Air Malta, and while the country struggles to reposition itself as a key holiday destination, Cappello appeals for a “concerted effort” from all sides to help keep the ship afloat.
“We must work harder with the Malta Tourism Authority to better our marketing strategies, improve our working practices and most of all continue to look at Air Malta as a strategic pillar for the Maltese economy.”
Cappello concludes that notwithstanding the present difficulties, Air Malta has a proud 35-year history, and “definitely must be given a future.”

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