Can this plan really save Alitalia?

Firstly, a confession. I have a seriously soft spot for Alitalia. I would really like the airline to succeed. It has been close to extinction for many years now and Etihad’s purchase of part of the airline, and the fact that it is clearly pulling the strings, gives it the best – and only – chance of getting back on its feet. There was great anticipation in Italy for the announcement this week of how Etihad plans to achieve this herculean task. It has to be said that the announcement fails to excite.

The announcement began with remarks which suggest those responsible are not aware of the size of the task. It is all very well to talk about “returning the airline to profitability” and achieving that by 2017 and breaking even in 2016 but this ignores one rather important point. The airline was founded in 1948 and has made a profit in just one year since then. It is not a question of simply putting a few things right so the airline can be made profitable again – it never has been profitable so almost everything needs to be put right!

The announcement covered route strategy (a bit of tweaking but nothing major), a new brand identity, improving some services and cost control.

I certainly agree that new branding is needed. The current identity harks back to the glamorous Italy of the 1960′s. Italy has so much more to offer. It is also important that staff feel they are working for a newly reinvigorated airline and careful re-branding can achieve this.

New Business Lounges at the main Italian airports are also a good idea. Alitalia has seriously lagged its competitors in services offered to premium passengers. This alone will not solve the problems though.

Everything hinges on what is meant by the innocuous-sounding term “cost control”. Will this be a few euros saved here and there or will it be a top-to-bottom re-working of the organisation?

Etihad’s efforts to save Air Berlin have not worked so far. It is clear they seriously underestimated the problem and avoided the core restructuring that was – and still is – needed to make sense of the company. Will they make the same mistake at Alitalia?

Italy desperately needs some successful international companies to show the world that the country is far from dead. Europe also needs some strong airlines. It would be good to see a new Alitalia succeeding. Maybe the report for public consumption is just a shadow of the real plan but, if it is not, I fear this could be one long, and painful, disappointment.

Sharp minds at Alitalia

Alitalia are in deep trouble. They have struggled to complete a €300m capital increase with one of their major shareholders, Air France/KLM, very reluctant to get involved. It looks highly likely that Brussels will want to investigate whether some of their new, government-linked shareholders were engaging in a form of back-door government aid by agreeing to the new capital. The airline has been burning through money at such a rate that it is anyone’s guess as to how long the new €300m will last.

The company’s bosses seem unconcerned. Their response to Air France/KLM’s lack of enthusiasm has been to say that they will now consider airlines’ in the Far East as possible partners – as if this is some sort of beauty parade where Alitalia can choose the prettiest contestant. Underneath the bluff, it looks as if a degree of panic is setting in. Stories keep appearing in the Italian press with links to possible new investors – the stories have presumably been planted by Alitalia and are normally followed by a vigorous denial from the airline concerned. Even Aeroflot has been forced to state that the rumours of their involvement are false and there is “no way” they would become involved. Etihad was long-rumoured to be a possible saviour but their public response has been that they “are not a bank” – though this does not seem to have stopped Alitalia sending a senior manager to the Gulf in the last few days on what looks suspiciously like a last-ditch begging mission.

So, an airline deep in the mire with absolutely no friends in the market – and then Ryanair turn up on on the doorstep and offer a deal to co-operate on longhaul flights. Ryanair would fly passengers into Rome, where it has a large presence, and Alitalia would taken them overseas. Maybe not ideal, but surely better than nothing. Even if Ryanair did not put any actual cash into the deal, it would at least convince investors and the authorities that the airline was making an effort to turn things round.

Alitalia’s response to the offer was to turn it down without thought because, “We already have our own strategy”

And we know exactly where their strategy has led them in the past.

Air France/KLM have been increasingly outspoken about the somewhat arrogant approach of Alitalia management and their reluctance to produce figures and serious ideas. The unions, for their part, have threatened “war” if there are any redundancies at all.

Despite everything, I have a rather soft spot for Alitalia. It would certainly not give me any pleasure to see them disappear. Sadly, with management and unions equally reluctant or unable to face reality, the airline’s days look numbered.

 

Is it the end for Alitalia or…

It had been known that Alitalia was in urgent need of funds before the end of the year if it was to survive but the move of a fuel company to stop all further supplies if payment was not made within a few days was rather a surprise. Alitalia had already been passing the begging bowl around its shareholders but they had displayed a remarkable reluctance to get their hands out of their pockets. In the case of Air France/KLM this was at least partly because they really do not have any cash spare. Etihad were rumoured to be the white knight waiting in the shadows but, if that was the case, they were playing a remarkably good waiting game.

Then, in true Italian style, it was announced that the Italian Post Office would make an investment in the airline. Once again, the airline had been saved at the last minute.

Well, let’s just say saved until the next crisis.

Other shareholders still have to stump up their share of the cash and the Post Office deal looks such a blatant example of illegal state aid that Brussels is bound to investigate. The important thing is that the Post Office deal keeps the airline afloat for a few more weeks but, during that time, something serious has to happen.

If the airline was in such a dreadful state at the end of the peak summer period, what will it be like after the loss-making winter? A bit of cost-cutting will not work.

The airline has a little while to find an ultimate solution. The most obvious one is for Etihad to purchase a sizeable share but it is hard to see if they are really interested and waiting for the price to drop still further, or if they genuinely do not want to get involved.

If no other radical plan is found, the wheels are going to come off. Brussels could well block the Post Office deal and, even if it does not, the airline will probably have run out of cash again.

Even in the worst crises of the past, I have always expected that Alitalia would somehow survive. The Italians would find a way. But those days are over. If the Italians can say goodbye to Berlusconi, they can do the same to Alitalia. There are few sacred cows any longer.

Alitalia going nowhere

Amid all the despair at Italy’s election results, it rather went unnoticed that Alitalia posted heavily increased losses for last year (from €69 million up to €280 million) and the Chief Executive suddenly resigned.

Of course, Alitalia has been lurching from crisis to crisis for years but the last restructuring programme was very much a last chance. A new shareholding comprising of the “great and good” Italian insititutions and leading companies was cajoled by Berlusconi to take a 70% share leaving Air France/KLM with the rest. The “new Alitalia” did have some success  in reducing losses and avoiding the crippling strikes the airline was famous for. Unfortunately, it did not make any effort to go beyond that so on-board standards are now acceptable but, in most cases, at the lower end of the scale. No one is ever likely to actively choose to fly Alitalia because of great service.

In the old days, the airline had a profitable monopoly of domestic routes and was able to work in a duopoly with other carriers in the rest of Europe. Maybe because of that rather comfortable position, the airline did not bother too much with longhaul routes. Now that is coming back to haunt them.

Iberia is in a fairly similar position but IAG will persevere with it because it still has a very valuable position Latin and South America. Longhaul is what keeps European scheduled airlines going and those who succeed are doing so on the back of long-established colonial and trading connections. Despite Mussolini’s best efforts, Italy’s efforts at colonisation were a failure.

There are all sorts of rumours that Air France/KLM will now buy the rest of the shares in the airline (a lock-in clause on the Italian investors has just expired) but they do not have any money. Another possibility is that Etihad might get involved with some arrangement to lend Air France/KLM the money so it could be involved in the background whilst keeping Alitalia a European-owned airline. But you have to ask what Alitalia has to offer.

It has a poor reputation. It’s domestic routes are under siege from budget airlines. Ditto its European network. And it has a very limited longhaul network.

It is hard to see anything worth buying.

Time to pinch yourself

Here’s a headline that’s frankly a surprise:

Alitalia makes a profit of €15 million in the third quarter of 2009

Having been a basket-case for the last decade or more, perhaps things are finally going right for this airline. Rome-based WAPA (World Aeronautical Press Agency) also reports that improvements in load factor, punctuality and regularity of flights are the main contributory factors to Alitalia‘s turnaround. Let’s hope that improved civility and attentiveness of its cabin attendants and groundstaff may have had a part to play in this too. (Though let’s face it, they have some ground to make up – we linked to this horror story in early September but it’s so toe-curlingly awful I’m repeating the link today in case you missed it earlier.)