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Travel charges will increase if
Air Malta raises fares
by Franco Aloisio
Operators in the tourism industry could be dealt another blow
in the coming months as the national carrier Air Malta considers
increasing its fares by five per cent in view of an escalating
fuel bill.
Over the past weeks, controversy broke out over the added induced
costs imposed over the tourism operators – such as the
introduction of VAT on travel agents’ gross
profits, and the increased contributions paid by travel agents
to the Malta Tourism Authority (MTA).
Operators were irked at the fact that these changes were imposed
overnight without consultation. Another added cost introduced
recently was the increase in the travel agents’ licences.
The latest news that Air Malta could raise its fares by five
per cent could further reduce the profitability of certain operators.
Industry sources told The Malta Business Weekly yesterday that
an increase in fares will automatically force travel agencies
to introduce a service charge for clients.
“If a ticket cost Lm100 today, agencies take a nine per
cent commission, that is Lm9. Now they have to pay 15 per cent
on this sum or Lm1.35. If fares are increased to say Lm105,
agencies will now start earning Lm9.45. Take off the 15 per
cent VAT and they are paying out Lm1.41. It has been recommended
that agencies now impose a service charge to make good for the
loss,” the sources said.
The sources added that airlines could add another burden if
they decided to reduce the commission paid to seven per cent.
Airlines are allowed to do so at any time they want. “If
commissions are reduced then turnover will drop as well, eating
further into our profits,” the sources added.
Air Malta had declared its intentions last year during the presentation
of its annual financial results. The surge in the price of oil
in the second and third quarters of 2000 badly affected Air
Malta’s profitability, although the company was still in
a position to recover these losses by rationalising its operations
and entering into new areas of business.
At present, the cost of a barrel of oil is $25 a barrel, around
$10 less than it was three months ago, when the world’s
economy was hit hard by the fuel price increase. Several fuel
production increases by the oil-producing countries (OPEC) have
lowered the prices, although a recent decision by OPEC states
that these countries will cut production by two million barrels.
This scenario affected Air Malta’s profitability. Last
year, Air Malta’s fuel bill went up from Lm7.5m to Lm15m,
wiping off Lm3m from the airline’s profitability.
Sources close to Air Malta have said that it is still not clear
whether the government will intervene and decide to prevent
the company from raising the air fares, following the recent
taxes imposed on the tourist industry.
The sources said if Air Malta wanted to cover its increasing
costs, such as the fuel bill and payroll, it had to increase
the fares. The five per cent increase, said the sources, would
not dramatically reduce the company’s competitiveness,
as several airlines have over the last months increased their
fares.
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