‘Malta already dependent on Ryanair’ – Air Malta CEO
Is Ryanair’s new base in Malta a foreboding of future dependence on the low fares giant, or is this an offer the industry just can’t refuse?
James Debono Travellers can revel in Ryanair’s new base in Malta and the opening up of new routes to escape from a small island. But after three decades of dominance by the national airline, is the low-fares giant’s extended sojourn going to be a bitter pill to swallow for the tourism industry?
With its aggressive approach to negotiating lower landing fees, key to keeping its prices down and attract more incoming tourism, Ryanair knows it can call the shots whenever it needs to.
Ryanair after all does have its own history of bullishness in the way it exacts concessions from airports: playing airports off against each other, and threatening to withdraw services and deploy the aircraft elsewhere, if the airport does not make further concessions.
In April 2006, a failure to reach agreement on a new commercial contract resulted in Ryanair announcing it would withdraw service on the Dublin-Cardiff route at short notice. The airport management rebutted Ryanair’s assertion that airport charges were unreasonably high, claiming that the Cardiff charges were already below Ryanair’s average.
The airline has also used its leverage to challenge government policies. In 2009 it cut 100 jobs and reduced five routes from its Shannon base in Ireland, in protest against a €10 travel tax imposed by the government. It said it was left “with no alternative”.
So can it happen here?
Unsurprisingly, Air Malta’s chief executive, Joe Cappello, is already warning against a rapid expansion of Ryanair. “Malta is already dependent on Ryanair,” Cappello says, warning that the increased seat capacity the airline will get is about to give it “a much stronger negotiating power” in future discussions with the government.
He refers to the experience of other foreign airports which passed through a rapid Ryanair growth, “but eventually lost it all when the airline pressed for more discounts and subsidies.”
This is after all what makes the airline successful – it’s no frills service, coupled with an aggressively low cost base, making it an irresistible option for budget travellers who feel a strong need of escaping the tiny landmass that is Malta.
The chief executive of the Malta International Airport however disagrees. Julian Jaeger excludes that Malta is becoming dependent on Ryanair, specifically by pointing out that Air Malta handles “a good 56% of traffic at MIA”.
“MIA has consistently stressed the importance of the strong presence of a national carrier… Equally, MIA is in close cooperation with legacy airlines to maintain a steady balance of traffic all across the board which includes low cost airlines, charter and traditional airlines.”
But what gives the edge – and the reason – for Ryanair to set up base here? The product itself, Malta, is the attraction for its market. But to slash those prices, Ryanair and several other LCCs benefit from a €1.2 million ‘subsidy’ on landing fees. It is part of a route support scheme grant, permissible under EU law, to allow more airlines to fly on underserved routes and smaller airports.
This is what irks Air Malta. Cappello insists on the need for a “level playing field” where all airlines, including low-cost, compete with similar opportunities “without having preferential access to market support schemes or incentives targeted to a particular airline.”
Cappello warns such preferential schemes result in “market distortions” which can lead to full schedule service airlines, charter carriers and tour operators trimming their existing capacity or closing down routes.
He finds some form of agreement with the president of the Malta Hotels and Restaurant Association, George Micallef, who also warns that Malta cannot risk becoming too dependent on one airline.
But Micallef says the issue boils down to “retaining the right balance”. He points out that the government has wisely offered the same financial support given to Ryanair to all airlines taking on underserved routes, “thereby avoiding the risk of passenger displacement from existing airlines, especially Air Malta”.
He also defends the ‘financing’ of the LCC routes. “Ultimately we have to look at the cost of this financial support given to LCCs as a wise investment and not a subsidy, as the return to the national coffers for every passenger that visits Malta is huge compared to the per capita cost outlay.”
Philip Fenech, the GRTU’s president of its tourism and hospitality division, gives the figures on Malta’s “happy mix” between Air Malta, LCCs and other legacy airlines.
He says that in 2009, LCCs had 22% of market share, while legacy airlines and charter flights had 10% and 12% respectively. Air Malta’s was 56%. MIA chief Julian Jaeger says Ryanair’s six new routes will increase its seat capacity by 5%.
“We are not putting all our eggs in one basket,” Fenech says. “Ryanair and anyone else will not be in a position to dictate if we keep this mix.”
Significantly, business operators are seeing in Ryanair’s new base a ray of hope in the bleak climate brought about by the international recession this year. Fenech says he is “excited” at the prospect of 72 non-stop routes feeding into Malta by all airlines, especially at this time. “Although the number of potential tourists is declining because of the drop in disposable income in many European countries, by opening new routes we are widening our fishing nets in a way that we could end up netting fish which would never come in our way.”
Some new routes, he says, like Krakow and Marseille are experimental and must be nurtured. Diversifying the tourist market by exploiting different routes and tourist niches is “the only guarantee of stability and security” for the tourist and retail industry.
Micallef agrees: in places where Malta is relatively unknown, Ryanair’s marketing can strengthen the island’s image and make up for the losses from the traditional tour operator business, on which Malta is still highly dependent but which is also on the decline.
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