Alitalia Regains Its Crown As Losses Mount

I know you were expecting a follow up post to Tuesday’s discussion about Farelogix, but that’s going to have to wait. Very soon after my post went live, Sabre sent me a note to say that “Much of what was ‘mocked up’ by Farelogix is already being done today by Sabre.” I’m talking to them tomorrow. So look for that post (or posts) next week. Instead, today we’re going to talk about one of my favorite topics that has been neglected for too long….

For years, Alitalia was my favorite topic on the blog because of the complete incompetence of management. Time and time again, the airline found itself in terrible shape and nobody could doAlitalia Worst Airline Ever anything about it. But then the government stepped in and merged it with Air One forming a big Italian airline that was supposed to be profitable and stable. Though that whole “profit” thing never really worked out very well, the drama subsided and Alitalia became boring. That appears to be changing and I’m excited. The airline can once again resume its rightful place at the Worst Airline Ever. Hooray!

So, what’s been going on since the last time I wrote about the airline more than two years ago? Ah, well, more of the same garbage.

Alitalia just reported its results for the full year 2012 and it posted a loss of about $366 million for a net margin of just shy of -8 percent. Ok, ok, so about a third of that was an extraordinary item related to fleet renewal but it’s still terrible, and it’s way worse than the roughly $90 million loss the year before. But hey, the airline says it broke even in the fourth quarter. Hmm.

You’d think with a breakeven fourth quarter, things would be looking up, right? I’m going to say no, especially since CEO Andrea Ragnetti was just canned. Oh wait, I’m sorry. Ragnetti and the company “have mutually agreed to terminate their relationship.” In other words, he would like to spend more time with his family, go fishing, or, um, enjoy his retirement years despite the fact that he’s only in his early 50s.

Meanwhile, the airline is looking for someone to step into the hot seat. This person must be calm under pressure and be able to get everyone to support him no matter what he does. Wait, I know… Silvio Berlusconi! Hmm, looks like he’s busy with politics again, so they’ll have to keep looking. How Italians have somehow come to support this man again, I have no idea. But, well, this is Italy. And we’re getting off topic.

Things just don’t look good for Alitalia as it stands today. The airline was able to improve its load factor last year but only to 74.6 percent. It looks to me like the airline has too much capacity out there, but I assume national pride is getting in the way of doing the right thing. Meanwhile, that national pride has eroded enough to actually hurt Alitalia’s competitive position through loosening protectionism.

The Italians had previously only allowed Alitalia to fly the lucrative Milan/Linate to Rome/Fiumicino route with other airlines having to use Milan/Malpensa. Fares were high and flights were plenty. It was as if only one airline was allowed to fly between Boston and New York/LaGuardia with all others forced to use JFK. But that changed late last year when easyJet was finally given access. That was a big blow to Alitalia. After all, the easiest way for it to compete is when it doesn’t have any competitors.

Where does Alitalia go from here? Well I can’t imagine the airline going out of business. In fact, I wouldn’t hesitate to fly Alitalia at all. I hear the new business class is actually quite nice. But the airline is still going to need some help.

All signs point to an eventual takeover by partner Air France/KLM. This is a marriage that makes the American/US Airways courtship seem positively short. The airlines have flirted for years, but acquisition efforts have been blocked by those too proud to allow the French to own Italy’s national airline. If I were Italian, I’d be happy somebody else wanted to take the stinker off my hands.

Will the Italians finally realize that an acquisition by Air France/KLM is probably its best hope? I have no clue. But until then, I’ll gladly keep watching what is still my favorite airline to mock.

28 Responses to Alitalia Regains Its Crown As Losses Mount

  1. David says:

    Air France – KLM is currently having significant problems of its own. Do they have the capacity to take on the issues of Alitalia as well ?

    • Even if they could, and did take over, wouldnt Alitalia just end up like Iberia (a red headed step child)?

      I would think AF/KLM would funnel the profit from a few routes up to corporate, then remove a ton of capacity, lay off staff, and only expand on AF/KLM metal (some of which is necessary anyway for profit/survival).

      • Sanjeev M says:

        Yes, AF/KL has problems but not as many problems. The FCO “hub” will stay, but more and more regional Italian routes will be fed to CDG. FCO should focus on North Africa which is higher yielding than intra Europe.

        Although given AZ’s mismanagement, does it matter who actually owns it? Is it a lost cause?

        AZ like IB is signficantly screwed on the Asian side. They need to pursue the codeshare and partnership with Etihad more. EK is absolutely dominating in Italy, and now TK is even serving regional cities like Genoa.

    • CF says:

      David – Oh yeah, Air France is having its own problems but then again, so are most European airlines. I tend to think that consolidation over there would only help Air France’s troubles.

  2. I read a lot of whining on airline blogs about the “race to the bottom” when it comes to service (which, interestingly usually seems to center around in-flight entertainment, but I digress …). Part of the reason for this is the financial health, or lack thereof, of the industry as a whole. It’s easier for an airline (or any other business for that matter) to invest in its products and services when it’s profitable and not merely fighting to survive. This is why the recent round of U.S. airline mergers has been so important. At least now, our major airlines have a fighting chance to be consistently profitable and invest in improvements.

    • An aside: It sounds like the Alitalia / Air France / KLM timeline is as nearly long as the proposed Union Pacific / Rock Island merger that languished at the Interstate Commerce Commission for over ten years before it was dismissed; followed closely by the Rock’s bankrutcy (which ultimately ended in its liquidation, although 65% of what was the Rock Island is still in service with the Union Pacific by way of its merger with the Southern Pacific). Maybe Alitalia should be liquidated. There might be less angst that way.

  3. Jared says:

    Yay! I was wondering when we were going to get a new Alitalia post. It’s been far too long.

  4. Jorg says:

    I think Alitalia is facing two major problems:
    a) The general impression in northern Europe is that they fly old planes at times you don’t want to fly to destinations you don’t want to go at high costs
    b) The Italians are quite nationalistic and their government is a clear example

    Now the elections are over, it’s unclear to me what the new government’s decision will be. Berlusconi would have never agreed to sell Alitalia to the French. Bersani is a left-center leader (please note, Mr. Obama in Europe would be a pretty right-wing politician), so probably his main concern will be preventing loss of jobs. Selling nationalized companies isn’t normally expected from left-center politicians.

    With Mr. Monti we would have probably seen negotiations starting any time. The only reason he didn’t do it while he could, was the strong opposition he faced during his reign.

    The combination Air France / KLM / Alitalia would probably be even stronger (eventually) than the Lufthansa group: the Germans mainly focus on one cultural group: Germanic (yes, that includes Belgium). Sure, they have subsidiaries in Turkey and Italy, but they are pretty small.

    AF/KLM is already used to dealing with two different cultures and I’m sure they could integrate the Italians into the group. It’ll cost jobs, Alitalia would be downsized, but at the end it’s probably even better for the Italians: more connections through the world. Inside Europe, Alitalia has a pretty nice route network, outside the old continent they lack behind seriously.

    Imagine this:
    KLM: North Europe, Central America, North America, Asia
    AF: South Europe, Africa, North America, South America, Asia
    AZ: East Europe, South Europe, Gulf Area

    Sounds like a plan to me! Now we’ll just have to wait and see what Mr. Bersani is up to…

    • tharanga says:

      “Selling nationalized companies isn?t normally expected from left-center politicians.”

      This is not necessarily the case here. Bersani was in the previous left-center government of Prodi, and that combination did more to open Italian markets to competition than Berlusconi ever did. The bigger question is, can anything like a workable coalition be put together? the decisions may end up being less about what Bersani wants, and more about what is needed to keep a weird coalition together.

    • Chris says:

      KL is quite strong in some part of Africa, and AF could probably not take over those operations from a cultural and an O/D point of view.

  5. Italy isn’t in the greatest place to be a hub for flights within all of Europe, so AZ should revamp itself by looking at a globe and with FCO as the center, branch out in hub fashion as was already said to Africa/ Middle East /Turkey/Spain/Southern Europe/etc and keep only flight within Italy to feed that revamped hub service and service between major cities in Italy.

    • Chris says:

      Works only from a geographical point of view !
      Holiday travel in Europe is north to south, not south central to south west or south east.
      Business travel goes where the economic ties are (remember it is not one single market like the US might be) : Turkey has strong relationship with Germany, not Italy, there is no (or very small) economic relations between Spain and Italy, Middle East is more connected to financial powerhouses like London, Francfort or Paris …

  6. You mean it is possible for Air India to be the Second Worst Airline in the World?

    • tharanga says:

      can we get cranky to fly Air india longhaul, and write us a trip report? I’m hearing that their in-flight service can sometimes be pretty good, so there may be some good to go with the bad and ugly.

    • CF says:

      Jeremy/tharanga – I’ve actually heard that Air India’s long haul is pretty nice on the 777-300s. Maybe with an objective view, Air India would be worse than Alitalia, but I just have a very special place for Alitalia. It’s just the gift that keeps on giving.

  7. Eric says:

    Retiring at 50ish sounds about right in Italian culture LOL (note: not hating, I am Sicilian-American and dual citizen) IMHO Alitalia has structural and cultural issues that go back to it’s founding in 1946. It has been a nest of political patronage and has seen CEO’s come and go with the same frequency of coalition governments.

    The resulting lack of consistent managerial leadership…coupled with an out-dated ‘Fly the Flag’ mentality based on pride rather than profit are factors that help earn the dubious Cranky award. I think the worst thing hampering AI’s long term viability is the nature of the Italian economy. In relative terms, Italy has lagged the Eurozone in GDP for decades; has serious a infrastructure deficiency
    in the south, few multinational corporations and relies on high-end…highly cyclical, industrial exports. Tourism, once again, cyclical, is a key component to the economy.

    These factors…coupled with protectionist domestic policy..have damned the airline to Dante Alighieri’s First Ring of Hell (linbo). We will see if the new coalition has an apatite for selling the company to the French, British, Germans(doubtful but you never know) or a Gulf carrier. The back up plan is yet another bail out (sub to EU approval) and politically connected management team to ‘fix’ Alitalia for the 382nd time.

  8. Andy says:

    Alitalia exists to make the other airlines feel superior.

  9. Ogi says:

    I just flew them JFK-FCO. While the aircraft is new which is refreshing, everything else is a bit sub-par. Too many flight attendants simply disappear after they’ve done their work, the meal was rather underwhelming, in-flight entertainment is by far the worse I’ve experienced of European airlines (and exactly the same both ways, which sucks if there are only two or three movies you’d opt for).

    However, my bafflement comes from the fact that their airport staff is completely unaware of anything and general sense of lack of care for the passenger…

    There were tons of seats in PE and business class and they did not quickly find a way to tell me what the upgrade price is (while the website has pretty simple pricing and a note that this is dealt with at check-in or the gate).

    I had a slight hiccup during check in – the ESTA system (as they claim) wouldn’t issue my boarding pass as their automatic system entered the wrong country code (I’m traveling on a non-US passport). The lady managed to fix it, but not before she scared the crap out of me with her worried face and “i’m doing everything right but it’s not working” attitude…

    Finally, during the flight back, behind me was an annoying passenger who demanded I put my seat up as she couldn’t watch TV, which I flatly refused. But the kicker was when the flight attendant came in with the meals and simply pressed the button that abruptly jerked my seat up. The (Italian) lady next to me was outraged by the passenger behind me & the flight attendant. It wasn’t a huge deal, but it wasn’t pleasant either.

    However, I’d still give them a C – it was a quick flight,the seats weren’t horrible, DL SkyMiles posted promptly, and we were on time.

  10. Flight attendants asking to put the seat up during meal times is SOP on many airlines. I have seen them do it themselves, sometimes waking up people.

    • Ogi says:

      That’s okay – as I said, it wasn’t a huge deal (although there was perfectly enough space and he didn’t do it to anyone else), it’s the manner…

  11. ICUDoc says:

    I last flew Alitalia JFK-FCO last year. I was in Business and my companion was booked in Coach. When I got to airport and checked in I was met by derisive comments in Italian because we had booked via Delta on code-share. When I told them in Italian that I understood them and did not appreciate being called those names they were totally unapologetic. There were over 40 empty business class seats and I tried to find out how much to upgrade my companion – but could not get them down from $6000 each way!!!

    When we got on plane – she sat with me planning to sit until we took off – they shooed her away and told her that she would not be allowed to come up and talk to me for the entire flight. And I had paid full fare for my ticket in business!! They were rude and nasty.

    Midway through the flight a woman passed out right in back of my companion, and she came and got me (I am an ICU Physician). I took care of the woman for the next two hours and basically tended her the whole way to Rome (we were already passed the point of no return and the next landing spot was either Iceland or Scotland). The crew was a bit nicer and let her sit in my seat, and even served her business class breakfast. We went up the cockpit to talk to the pilot and ground control and they let us sit there while we flew over Sardinia and Corsica. The Purser gave me a voucher for Eur 150 credit on a future Alitalia Flight, and I asked about the possibility of an upgrade for my companion on her way home – he gave me an email address – took all my info – and thanked me for the help in flight.

    I emailed Alitalia – including the CEO and wrote snail mail letters and never got a return. Alitalia treated my companion like crap on her way back, not allowing her to check her bags through to JFK from Naples to FCO and then they lost her luggage, forcing me to go to FCO and talk my way behind security without a ticket into Baggage lost and found in order to find her bag, then to find that it had been rifled through and things had been stolen despite TSA locks.

    Multiple letters, phone calls, emails later, ended up in nothing. Delta, to their credit, felt so bad that we were derided for having booked on Delta that THEY gave us credits on Delta – but Alitalia gave us nothing, and would not even honor the voucher given to me by the chief purser!!

    I would not fly Alitalia if my life depended on it ever again!!!

    • wow, that is wretched on so many levels.

      just curious, what did they actually SAY in italian that was derisive about purchasing via their skyteam partner (and much bigger and far more successful brother) DL?

      not surprised DL treated you better than they did, DL pretty much runs skyteam. with alliance “partners” like alitalia, who needs competitors? sheesh!

  12. antonio says:

    I am quite surprised, being Italian and an Alitalia’s Fan, looking at the superficial way you are posting your comments.
    Alitalia has one of the youngest fleet in Europe. Has by far the best Business Class in the world (Magnifica class), has won for the third time in a row the Award as Best menu on board (regional menus, accompanied by excellent wines from the same regions), is one of the most punctual airlines in Europe, is the most regular airline in Europe; in comparison with many other carriers has had no major strikes in its last 4 years record (look at what all the other major airlines normally do……); the number of employees is one of the smallest vs the comparable carriers; The loss of about 366 million is much smaller than many other european carriers; In the end, I would not be so drastic with your prejudiced considerations. If any other airline would have faced in its own market the economic crisis that Italy is having, would have probably closed.

  13. Axelsarkis says:

    I must say that I recently flew AZ and it wasn’t terrible by any means. Very average, but now-a-days that’s all I want in Y.

  14. Pingback: [BLOCKED BY STBV] Air France/KLM Rejects an Alitalia Acquisition While the Vultures Circle | The Cranky Flier

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