A MAGAZINE FOR AIRLINE EXECUTIVES 2009 Issue No. 2

Planning departments follow industry best practices to compete

Global carriers take various steps to remain in the black

Air Malta makes big changes across entire organizations

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A Conversation With … Dave Barger, President And Chief Executive Officer, JetBlue Airways, Page 14.

T a k i n g y o u r a i r l i n e t o n e w h e i g h t s

Happy Jetting

© 2009 Sabre Inc. All rights reserved. wearelistening@sabre.com

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Lynne Clark | Ascend Staff

Small Airline,Big Future

Air Malta recognized the need for change … big change. To ensure long-term success, the carrier placed every aspect of its organization under the microscope — from flight operations to human resources and everywhere in between — and began implementing change that would secure its future.

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By Shawn Mechelke | Ascend Contributor

Air Malta wants the world to know it’s almost always summertime in the Maltese Islands, and the airline is more

prepared than ever to fly travelers to its main destination — a tiny Mediterranean archipel-ago that boasts of superbly sunny weather, expansive beaches and 7,000 years of intriguing history.

Consisting of the three islands of Malta, Gozo and Comino, the island chain lies virtually in the middle of the Mediterranean, with Malta 93 kilometers south of Sicily and 288 kilome-ters north of Africa. Best of all, Malta is more or less a two-and-a-half-hour flight from most major European urban centers including London, Rome, Paris, Geneva, Madrid and Athens.

Founded in 1973, Air Malta discovered at the age of 30 that it needed a facelift. The car-rier, Malta’s national airline based in Luqa, faced increased competition, needed a revamped infrastructure, and encountered rising fuel prices and an overdependence on seasonal package holiday traffic. On the positive side, however, it had taken advantage of the post Sept. 11 slump in aircraft orders and had leased a brand new fleet of Airbus A319 and A320 aircraft, finally moving away from a hybrid fleet of aircraft.

After meeting with employees’ unions and signing a rescue pact agreement, Air Malta began a recovery process that continues today. Every aspect of its business has been under the microscope including flight operations, commercial operations, technology and human resources.

“In 2003, Air Malta was losing money from its core operation — the transportation of passengers and cargo to and from Malta,” said Joe Cappello, Air Malta chief executive officer. “The situation was not sustainable, and we embarked on an ambitious project to return the airline to profitability within three years.”

The carrier’s diligent restructuring began with a meeting with employees’ unions.

“We agreed to a moratorium on wages for the term of the agreement as well as greatly enhanced flexibility and, in turn, we agreed to not make anyone redundant,” said Cappello. “Management also committed to substantial cost savings in areas other than human resourc-es. Together, management and the unions hon-ored the agreement, and Air Malta managed to save €30 million in costs.

“We began focusing on our core opera-tion and divested ourselves from other invest-ments and subsidiary companies like hotels, which were no longer necessary as the Island’s tourism infrastructure had become sophisticated enough not to need the airline’s investment in this sector,” Cappello said. “We also outsourced our cabin cleaning, IT and in-flight entertainment operations. In addition, we launched a new portal and booking engine and invested heavily in international marketing.

“All these initiatives have contributed toward making Air Malta a stronger organization

capable of facing today’s challenges,” he said. “We’re not out of the woods yet as we still need to reduce our costs and increase revenue and return the airline to sustainable profitability.”

PreparedForShortTripsOne of the areas in which the company

agreed to restructure was flight operations. The result is a refocused route network strat-egy that maximizes the Islands’ proximity and caters to short holiday vacationers.

“Previously, Air Malta flew to as many points as possible once or twice per week in response to charter and tour operator oppor-tunities,” said Brock Friesen, chief commercial officer for Air Malta. “This worked well for long-stay vacationers until the late 1990s when it became apparent that the summer vacation market was no longer growing. Moreover, it became apparent that the airline could not sustain itself mainly on summer peak travels and new sources of year-round traffic were needed.”

By 2006, Air Malta’s executives took note of the boom in the number of Europeans taking short holidays. They realized that the airline had a unique niche within two-and-a-half hours of its base hub at Malta International Airport.

“With increased spending power and decreased air fares, people started taking more than one short holiday each year, in addition to their summer vacations,” Friesen said. “This booming segment travels year round, gener-ally avoiding summer peaks. Capturing this segment requires frequent flights at convenient times. Hence, our network has fewer points, but more daily and double daily services to rich markets.

“The focus on two-and-a-half-hour seg-ments or less is driven by cost,” Friesen said. “Short-holiday travelers are only willing to pay so much for their airfare and are indifferent whether the flight is one or three hours. At prevailing fare levels and current oil prices, few routes are sustainable if they are over a two-and-one-half-hour flight to Malta.”

Aspartofitsaggressiverestructuringinitiative,AirMaltaexecutivesandunionmembersworkedtogethertosave€30millionincosts.Indoingso,unionsagreedtoamoratoriumonwagesand,inturn,managementvowedtosignificantcostsavingsinareasotherthanhumanresources.

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Photo courtesy of Air Malta

The reasoning has led to a growth strategy focused on nearby large urban populations with more flights to existing points served such as Zurich and Munich and opening new destinations such as Paris.

“We are also interested in growing our network from Catania, Italy, where we already serve London, Geneva and Munich in addition to Malta,” Friesen said.

PreparedTechnologicallyThe drive to reduce costs while enhancing

passenger experience has led Air Malta to make significant strides in technology systems. The carrier has worked with Sabre Airline Solutions® on a number of upgrades including state-of-the-art network planning, flight scheduling and revenue management systems as well as new Web check-in and e-ticketing solutions to enhance customer service.

Other technological advancements include a more robust, user-friendly Internet presence. Since 2007, bookings through airmalta.com have grown tenfold, from 3 percent to almost 30 per-cent. The carrier hopes to increase Internet sales to 60 percent in two years.

“This year, the Internet channel is boom-ing,” said Cappello. “Average fares on the Internet now equal those of the system overall, indicating that the channel attracts more than just bargain seekers. Interestingly, we are selling more and more connecting flights on our partners via the Internet, and we are increasing the display of alternative routes.

“Research shows that customers love transparency and self service, and we have worked hard to lead in both,” he said. “In fact, the European Union has been complementary of our Internet booking engine and has given us a clean ‘bill of health’ in a recent audit of all ticket and airline Web sites selling flights within Europe.”

That’s not to say Air Malta is ignoring the more traditional travel agent channel. Cappello said the carrier is aggressively pursuing European travel agents and expects the channel, together with the Internet, to more than fully offset declin-ing tour operator traffic, previously the airline’s primary distribution channel.

“Tour operators have been hurt badly by low-cost carriers and the Internet,” Cappello said. “However, they remain especially important not only in emerging markets, but also in established markets. We are investing heavily in automation to make it easier for them to book on Air Malta at attractive prices while curbing the waste that goes with manual processes that have undermined our revenue management.”

ExpandingTogetherCurrently, Air Malta has codeshare

agreements with 10 airlines, thus extending its point-to-point reach to that of a global carrier. Partners include bmi, Brussels Airlines, Lufthansa, Lufthansa Italia, Swiss International Air Lines and Turkish Airlines.

“Our partners connect Malta to virtually every country in the world, offering seamless ser-vice through check-in, airport lounge facilities and

baggage transfer,” said Friesen. “More than 60 percent of our operated services are now code-shared, and more are expected. The connectivity we have gives travelers multiple flight options each day from virtually everywhere in Malta. For example, we sell more tickets from Stockholm via Munich, Zurich and Frankfurt than we ever did operating two nonstop flights per week from Malta. Travelers want to fly on the days and at the times they want to fly … not just on the days that we fly.”

PreparedForTheFutureAir Malta has made numerous strategic

changes — such as simplifying its fleet, working in harmony with employees, codesharing with several global carriers, outsourcing certain areas of its operation, investing in advanced information technology — to weather tough times and secure the carrier’s future and that of its employees.

Air Malta’s effective leadership combined with its top-notch employees and continuing methodical adjustments across its organization has positioned the carrier to remain Malta’s main carrier, presenting the most extensive options for air transportation to and from the Islands. a

Lynne Clark can be contacted at wearelistening@sabre.com.

By Shawn Mechelke | Ascend Contributor

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Sixyearsago,whenitbeganlosingmoneyfromitscorebusinessoftransportingpassengersandcargo,AirMaltaexecutivesimplementedastrategicrecoveryplanwiththegoalofreturningtheairlinetoprofitabilitywithinthreeyears.

Photo courtesy of Air Malta