Skift Q&A: Air Malta CEO Says Small Airlines Need to Fly Together
Peter Davies, the Air Malta CEO, speaking at SITA's Airline IT Summit outside Brussels on June 20. Davies says the airline business is "fabulous" but "tough" and he thinks small airlines can band together in new types of alliances. / SITA
Davies’ advocacy of small airlines banding together under a single operational management to trim costs is an interesting one as traditional airline alliances are giving some ground to new kinds of groupings. His idea, though, would face regulatory challenges.
Founded in 1974, state-owned Air Malta flies to about three dozen destinations in Europe, and has been beset by losses amidst charges of perennial mismanagement and nepotism. The airline is in the midst of restructuring, trimming operations and employees.
Leading the repositioning is Air Malta CEO Peter Davies, who’s been on the job for more than two years. Skift caught up with Davies at a SITA conference on the outskirts of Brussels recently, right after he addressed the conference on the “Potential for Collaboration.”
Skift: In your speech you talked about the nature of partnerships. What was the context for that because you seemed kind of bitter about some of your partnerships with airports perhaps?
Peter Davies: Not bitter. I think a lot of airlines will talk about the … situation airlines have as a root cause for why perhaps we can’t lower our costs as much as possible. And, to a certain extent that’s true. However, I think there are other ways in which we can be proactive and perhaps more spontaneous on how we can move forward and how we can as airlines seek ways and means to reduce our costs. If you take a lot of small airlines, particularly flag carriers, which are regarded perhaps as weak because they don’t make enough money or whatever, then they have a disproportionate amount of fixed overhead simply because often you need a certain base in which you need to fly airplanes, whether it is one airplane or 100 airplanes. What I was advocating is that perhaps there is a different way in which you can reduce those costs, dilute those costs, by a band of companies coming together, which allows the brand perhaps to be protected, but all the operational costs taken to one side and run almost as if another airline.
Skift: And do you see that happening?
Peter Davies: I do, ya, James (Hogan, Etihad Airways CEO) has started that to a certain extent in terms of his minority equity. He’s doing that for connectivity. He wants to feed traffic into the Etihad business and he would argue that his day job is obviously running Etihad, but he obviously sees other opportunities. And, I don’t disagree with that. However, I think you can probably take that one step further and look at a group of airlines, not an alliance in the classic sense, OneWorld or SkyTeam. I’m not talking about that. I’m talking about a collaborative sense of ownership, which allows a strong management team to run a number of brands through a centralized point.
Skift: And, this that an option for a smaller airline like Air Malta?
Peter Davies: Well, Air Malta is a different situation as much as there is a purpose to Air Malta in as much as 35% of Malta’s GDP is reliant on tourists. There is always a need to fly. And, therefore our job, in that instance, which is why it is important from the brand’s perspective, is to sell Malta. The values of Air Malta have to represent our country. And, therefore we have a job, we are an ambassador, the guide, the broker. We have to attract people to fly to the country so we do a job is not simply running an airline safely. Eighty percent of our traffic comes in from overseas. We have to bear that in mind. But, in general, yes there are opportunities for more airlines.
Skift: In that regard, I see you have a new YouTube video with all the candles and lights.
Peter Davies: That’s again part of the ethos we are trying to create is that we are an extension obviously to the country and we have a specific role in trying to generate a sense of interest by creative marketing opportunities. And, there is a lot more coming.
Peter Davies: I think obviously we have to reduce our costs to the lowest possible level, but we’ll never get down to Ryanair. We have to recognize that because they are two different beasts. So there is always going to be a price diference, and that price difference has to be justified through the levels of service we provide our passengers, our customers. We have to make sure that those values of Malta, the fact that we are guide, ambassador and broker, there is a demonstrable difference. The values of Air Malta are Malta. The values of Ryanair are Ryanair. There is a big difference between the two. So therefore we have to give cause and reason, and satisfaction for people to want to go on an Air Malta flight rather than a Ryanair flight. And, yes of course, for many people it is a choice about price, but for many it is not. There is a product differentiation and we have to create that. And, therefore we have to be better at what we do than our immediate competition.
Skift: And what is the main way you point that out to passengers in terms of the differentiation?
Peter Davies: It is the sense of touch, the feel, the ambiance, how our cabin crew motivates and talks.They are all Maltese, they speak Maltese, they know their country inside-out so they can talk about their experiences. They are proud, they feel honored to be able to talk about that particular country.
Skift: Going beyond the technology, it’s the human touch.
Peter Davies: It’s the softer issues. And, often, and these conferences are great, but what I was trying to do was to introduce the fact that there are softer issues in management and take a broader perspective on the airline business.
Skift: Speaking of Easyjet and Ryanair, is Fastjet on your radar? What do you think of that development in terms of Africa?
Peter Davies: Well, I think east-west has always been issue for the continent, and certainly Fastjet seems to be concentrating on that. There was a time, as you probably know, you had to go from East to West, you had to go north or south to Johannesburg. So obviously they are creating an opportunity. There is a lot of people who have a need to fly. We’re looking at as an airline, sub-Sahara, Malta’s in a great strategic geographical position between the Far East and Africa, so I think there are great opportunities. But I think anything that can help and encourage people to move from A to B, then that has to be encouraged. Hopefully, they’ll (Fastjet) survive. They seem to have gotten off to a reasonably good start. They got some issues.
Skift: And, are there specific new markets or partnerships that you are looking at?
Peter Davies: Our first concentration is getting to profitability.
Skift: Right, first things first.
Peter Davies: And, we’ve come from minus 40 million euros to minus 13 this year, operational level. Obviously we are working on network developments. We are talking to other airlines. We can’t act by ourselves. We are are not in a position to join an alliance, and I think that’s right for us for the moment. But, I think having strategic partners in the airline business and being able to seek ways in which we can dilute some of our costs while at the same time encouraging different growth that satisfies the country in terms of its strategic objectives and vision, and where the airline can be of significance is an important step forward, and we are beginning to work on that. But, it’s first things first.
Skift: And what been the key factor in the turnaround toward profitability?
Peter Davies: Simply, well, it’s not simply, 30% of it has been rewiring and replumbing. Broken processes, antiquated systems, a change of the way in which we operate. We’ve reduced the headcount quite substantially. That represents probably about%. The other 60% comes has to come from what I call a cultural revolution. We have to change the hearts and minds of people to a state-owned organization.
Skift: Are you talking about employees?
Peter Davies: Ya, employees with a mentality that it’s a job for life. We are a state-owned airline that’s suffered from that and we are in the process of changing that. And, that doesn’t happen in five minutes, that’s a continuous program. And you are always traveling and never arriving in that sense. We have a lot of work to do, but that’s certainly significant in terms of being able to take some of the costs out. But, a word of caution: Quick wins and low-hanging fruit do not necessarily build stamina. And what we have to do as an airline is build stamina. We are in the process of doing that. We are not there yet. We have a lot more to do, but it’s making people understand that’s a requirement. We don’t do something for nothing.
Skift: Right. When was the last time you broke bread with the tourism minister in Malta? He had some very harsh things to say a few weeks ago about Air Malta’s management.
Peter Davies: I don’t know if that was attributed to him. That was more press than speculation. I had a cup of coffee with him on Tuesday (June 18). It’s a new government. We just had an election so obviously they are finding their feet in terms of what they see going forward. We have a relationship. Everyone understands that we need to make a profit. You can’t do anything unless you make a profit. That’s what we are concentrating on.
Skift: Just one more question. I don’t want to take too much of your time. How do you see the airline industry and Air Malta, in particular, being transformed over the next five years?
Peter Davies: The airline industry is going through an economic cycle. We are probably on a slight uptick. Everyone will be happy again, we’ll have thousands of more airplanes, and everyone wil be hunky-dory. And, if four years’ time, the same thing will happen again. So, I’m not quite sure we will learn from that. There is a huge amount of growth in this industry. It grows on average 5% per annum. We put lots of capacity in. It is a fabulous business to be in. It is great fun.
Skift: You don’t hear a lot of airline people saying very often that it’s a fabulous business to be in.
Peter Davies: It is a fabulous business to be in, but it is a tough business to be in. I think we have to be realistic about what it is we are trying to achieve and profitability has to be first and foremost. It is at what expense and what cost. Hopefully, I didn’t come across from a bitter perspective. I came across from as an airline CEO who has to manage a set of expenses to which I have no real possibility of reducing because I have no choice. Whereas the customers we are carrying have lots of choice. It’s a paradox.
Skift: A lot of that is with airports in particular?
Peter Davies: Airports and air navigation service providers. It’s a whole raft of different people.
Skift: It’s a one-way street.
Peter Davies: It’s a one-way street, and that’s fine providing everyone understands what we are trying to achieve. It’s all well and good having the potential for collaboration to create success together, but these guys don’t want us making losses continually because it’s not good for them. But we seem to manage to do that.
Skift: I hear you.
Peter Davies: It’s amazing.