Ringing In the New Year In the Best Way: An Alitalia Restructuring

Happy New Year, everyone! It’s that time of year where people try to change for the better. We make resolutions, try to improve ourselves, and work so that the next time the calendar changes, we’re in a better place. For some of us, that happens… but not for the worst airline ever, Alitalia. See, 2017 was supposed to be the year of Alitalia’s return to profitability under the Etihad restructuring plan. Will that happen? Hahahahahaha. No. Instead, we have Alitalia restructuring plan #3,405. I love this airline.

You may remember that Alitalia’s restructuring Alitalia Worst Airline Everplan from two years ago when Etihad stepped in was fairly straightforward. The airline planned to cut short-haul flying (and ditch some narrowbodies), expand long-haul flying (and add widebodies), cozy up further with SkyTeam and Etihad/airberlin partners, and go more upscale. That plan did not work.

Despite making some progress in 2015, 2016 looks like bad news all around. Reports say that Alitalia is losing half a million euros a day, and that might be conservative. Where did the plan go wrong? Well, Etihad Aviation Group’s CEO James Hogan blames pretty much everyone else. In a wide-ranging interview he did with Corriere Della Sera back in October, Hogan said Etihad knows very well how to restructure an airline, so with Alitalia it must be everyone else’s fault. That includes:

  • European Union: “One of the key issues for us was to be able to use Linate and build a much stronger base in Linate and change the Bersani law, so that we could use more flights to fly further than Europe. Now unfortunately that’s caught up in the European process, and it’s also caught up in internal lobbying between Malpensa and Linate.”
  • Italian Government: “And we asked the government to put forward a fund to build a stronger tourist industry in Italy…. It didn’t happen in 2015 or in 2016.”
  • Unions: “I am disappointed with the trade unions too. When I did this deal I was very clear with them, I needed three years of industrial peace to rebuild this business. We are just 18 months into it and in a dispute that was about something that cost the same as a cup of coffee they called a strike.”
  • Terrorism, Brexit, and Low Cost Airlines: “This year with terrorism, with Brexit, but also with the opening up of this market to low cost airlines average fares have been damaged.”
  • Regional airports: “The chariman and CEO of Alitalia have been very clear to regional airports by saying provide us with the same conditions [given to Ryanair] and let Alitalia compete.
  • Air France/Delta: “There are other elements that we have inherited from the past such as the pre-existing agreement with Air France and Delta which restricts the network development of Alitalia.”

Whew. And to that, I can only wonder… how is any of this surprising? Alitalia has long been dysfunctional, but much of that comes from simply doing business in Italy. I see nothing out of the ordinary here, and it was all entirely predictable. But now that the plan to reach profitability has fallen off the rails, what will Alitalia do? Enter new CEO Cramer Ball and his restructuring plan.

This plan is more of a “plug the leak” kind of plan than a visionary go-forward type of plan. Alitalia is in a cash crunch, and it needs to show some sort of progress to attract money for another bail-out. It needs to do that quickly.

This new plan sounds a whole lot like the old plan, according to reports that elaborate on what has been publicly announced. Short-haul will get reworked again with more narrowbodies going away. (Though, strangely, Alitalia just announced a slew of new short-haul routes.) Cost cuts are needed, so you can probably expect some backing-away from the upscale strategy, at least on short-haul flying. Alitalia will beef up long-haul flying again, but that may require renegotiating or backing out of its joint venture with Delta/Air France. And of course, job cuts are coming.

How do you think this is going to be received? Not well, of course. You think the unions are going to like more job and cost cuts? Of course not. And do you think the government is going to really be an ally and not a roadblock? Yeah, right. If Alitalia does somehow pull this together, then Etihad will apparently lend the airline money to keep it going. Etihad can’t put any more equity in since it’s already at the foreign ownership limit. Of course, Etihad has been rethinking its entire investment strategy anyway, so it makes you wonder if this grand experiment is coming to an end.

If so, don’t fret. Sure, Alitalia might have to find a new owner, but like a (fashionably-dressed) cockroach, it’ll never really die. There have been rumors about Lufthansa being interested in bringing the airline into the fold. That would be hilarious and bad, but it would keep Alitalia flying. And really, that’s what matters most. Because you can’t be the worst airline ever if you don’t exist.

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