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.

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