Author: George Mangion
Published on Business Today 26 November 2020

The announcement of a change in the minister of tourism last week brought a sigh of relief from the sector given that Clayton Bartolo can bring a fresh outlook to the insurmountable problem of the tourism sector.

Another important change in the recent cabinet reshuffle was the transfer of responsibility for Air Malta from the economics ministry to the minister of finance. The importance of the tourism industry to Malta’s economy is a well-known fact and the large multiplier effect across the entire economy will probably be better understood in these trying times when the tourism sector is almost at a complete standstill.

It is widely accepted that Air Malta has played a crucial role in the social and economic development of its home state since its inception so this article will briefly comment on the drastic changes that hit tourism in general and the airline industry in particular.

The new tourism minister will face a tough task unravelling the dire situation which he inherited upon appointment. One wonders why things have gone sour with the pilots’ association such that the government had threatened to fire all pilots who resisted drastic job cuts. We shall discuss this later. The commercial atmosphere hitting the industry can be summarized by the prediction of the International Air Transportation Association (IATA) which expects traffic to go down by 66 per cent for 2020 as a whole.

It believes the traffic won’t return to its 2019 level before 2024 – an estimation based on the expectation of a vaccine becoming available in mid-2021. Other large legacy airlines have hit the dust and had to sack a large number of workers while registering massive losses. 

For example, the Dutch government was forced to grant a multi-billion euro bailout for struggling airline KLM after pilots agreed on a five-year pay cut deal.  At first, the unions would not play ball and risked suspension of state aid but sense prevailed and the government said it was now ready to sign off on the €3.4 billion state aid injection.

KLM chief Elbers admitted that the coronavirus pandemic meant the airline was “asking a lot from all colleagues”. KLM is not an isolated example since Air France-KLM posted a net loss of €1.7 billion for the third quarter, compared with a €363 million profit over the same period last year while Lufthansa posted a third-quarter net loss of €2.0 billion. Lufthansa’s board says it aims to find agreements to “limit the number of redundancies required” initially 30,000 down to 28,000 using short-time working and pay cuts.

Europe had a fair share of notable airline collapses. The UK has seen Monarch, Thomas Cook and recently Flybe, all significant names in their own segments. Air Berlin and Germania have disappeared in Germany, and France saw Aigle Azur and XL Airways meeting the same fate.  This background gives a pointer of how negotiations with unions by the government to cut Air Malta‘s payroll had ended in disaster.

Undoubtedly, one can never understate the importance of Air Malta as a national airline to buttress tourism and Hon Bartolo will need nerves of steel to calm down existing staff discontent after most of them were reduced to work on €1200 a month. As a quick guide, Airmalta lost about €30 million in ticket refunds, while another €100 million will be direct losses from extra COVID-19 costs.  This is a massive burden to an airline using only three of its ten leased aircraft.

Malta’s cash crisis goes beyond the advent of COVID-19.  In these trying times all airlines are in the same boat but with the difference that Air Malta does not sit on billions in cash as do some of its competitors.  Many argued that if the cost reductions needed cannot be agreed to, it is laudable for the management and government to downsize the airline to whatever size necessary and the economy minister took the unprecedented step to make 108 pilots from its staff of 134 redundant, after the Airline Pilots Association (ALPA) refused to take a radical pay cut of €1,200 a month.

ALPA demands a level playing field – management salaries must also be cut proportionately to ensure fairness across the board and insists that management should lead by example.  In another stance, ALPA argued that an early retirement scheme would be a high cost amounting to an average payout of €700,000 for every pilot.  Pilots were refusing to accede to the pay cuts, claiming their salaries had already been cut by 30% due to reduced flying hours affecting their performance-based pay.

Pilots’ average gross salaries are €140,000 for captains and €80,000 for first officers. In practice, one finds that the real salaries paid are lower as per the collective agreement.  In fact, newly appointed junior first officers are paid €24,000 while first officers start at €34,000 and captains’ take-home pay starts at €66,000 and can reach €109,000. 

These scales exclude performance-based payments for hours spent flying, layover allowances, and denied days of duty.  As can be expected the government stood its ground, saying the union’s demands were unreasonable given the effects of the COVID-19 pandemic on air travel.

The plot thickens when one reads between the lines.  Back in 2016, pilots were given a signed guarantee by the Labour government that they would be kept on the state payroll with the same take-home pay, in the absence of a voluntary retirement scheme to ‘right-size’ the airline.  Locked in this contractual cul-de-sac, the government acceded to re-employ 69 pilots in a public sector job at the equivalent take-home pay of 2018.  Many in the commercial circles called this madness.

At a time when the country is facing a €1,220 million annual deficit, it is easy to conclude that taxpayers’ money is being used to honour a promise made by a rogue minister to pilots – in the form of a side letter to a collective agreement – to provide pilots with belt and braces protection against career uncertainty.

One notices that other major tourism operators were hit. To start with, Malta International Airport (MIA) faced a temporary ban of all inbound commercial flights to and from Malta from March 21, 2020. It suffered a 64.5% decline in passenger movements at the commencement of the March lockdown. Earlier this year, MIA had unveiled a €100 million investment in a major terminal expansion project which was then suspended in April in view of COVID-19.

Nostalgically, we recall how in 2009, Air Malta was given state aid amounting to over €220 million with the approval of Brussels. Again, this year Government has filed a formal state aid application with the European Commission in order to provide Air Malta with a second tranche.

The chances are this will be approved within a reasonable amount. In conclusion, one augurs that the drive and stamina of the new tourism minister will succeed to turn around the fate of the tourism sector once the availability of a COVID vaccine will be fully tested and approved.

Author: George Mangion
Published on Business Today 26 November 2020
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