I have some bad news. I’m afraid it might be time to shut down the blog after 8 years. At least, that was suggested to me yesterday upon learning that the Alitalia CEO job is now available. Clearly that’s the job I’ve always lusted after. Or not. In reality, I’d probably just rip my hair out screaming, because the new CEO of Alitalia will just be responsible for implementing the strategy that Etihad has put together. What is that strategy? Glad you asked.
Etihad will purchase 49 percent of Alitalia. It will also snag 75 percent of the airline’s frequent flier program and it will buy 5 slot pairs at London’s Heathrow Airport. (Those will be leased back to Alitalia… for now.) Alitalia had to lay off people (who may apparently be offered jobs elsewhere in the Etihad empire), get a bunch more investment from existing shareholders, and secure a ton of debt relief in order seal this deal. With all that done, Etihad says Alitalia will be turned around in 3 years.
If that seems too good to be true, I invite you to watch the 1h15m press conference laying out the strategy. (Come for the PowerPoint slides, stay for the heated Q&A.)
As I see it, this deal means Alitalia will become a member of the Etihad drone army. As Etihad puts it, the airline is building a “spine” that stretches from Europe to Asia. And in the middle of that spine is Abu Dhabi.
The Alitalia restructuring actually has several pieces.
- Short haul will shrink. Narrowbody capacity will decrease 13 percent and a lot of short haul point-to-point flying will be cut. I’d be looking for low cost carrier overlap (which is pretty much everywhere now).
- Long haul will grow. Widebody capacity will grow 32 percent. And a lot of that is going to be put into Abu Dhabi from a bunch of Italian cities.
- Outside of Abu Dhabi, service will be consolidated around Rome and the two Milan airport (Malpensa and Linate).
- A bunch of money will be put into refreshing the brand and improving the product starting next year. As Etihad CEO James Hogan put it, Alitalia should be “the sexiest airline in Europe.” I suppose that means Alitalia will become Virgin Alitalia (not to be confused with Alitalia America)
As a strategy, this does makes sense. Why keep flying a bunch of narrowbodies around on loss-making routes against ultra low cost carriers that will eat your lunch? You shouldn’t. Instead, put a bunch of widebodies (fresh from Etihad) on routes that feed Abu Dhabi and the global hub.
Etihad has about 100 airplanes right now plus 200 on order. That’s a lot of airplanes to fly in and out of Abu Dhabi, and Etihad knows that. That’s why it wants to put some in every equity partner hub. Some can go under the Alitalia brand which will be better equipped to support flights from secondary Italian cities to Abu Dhabi. And then those passengers will help support more routes out of Abu Dhabi for Etihad. They have to keep feeding the beast at any cost.
Some can also go over the Atlantic, reaching into new markets that Etihad can’t serve today. You might remember the uproar when Emirates started flying Dubai – Milan- New York. Well, guess who can easily serve Abu Dhabi – Milan – New York? Alitalia and its good buddy Etihad.
What’s really interesting here, however, is that Alitalia is still part of the joint venture over the Atlantic with Delta and Air France/KLM. It is also a part of SkyTeam. And Etihad CEO James Hogan said that will remain very important. I wonder how Delta feels about that? I’m going to say… unsettled, at best. This is going to be one thorny relationship.
There you have it. This is all going to make Alitalia profitable by 2017, and everyone can hold hands, smiling. Do you buy it?
I don’t.
We all know that the most classic of all blunders is getting involved in a land war in Asia. But nearly as well known is… never count on Alitalia to successfully complete a turnaround. Hogan mentioned that there’s a lot of pride at Alitalia, and that’s part of the problem. Alitalia is not known for making sound business decisions, and that culture has a way of overpowering anyone from the outside who tries to come in and fix it. (Just ask Air France.)
I get why Etihad is trying this. But I just have to laugh at the idea that in three years, Alitalia will become a well-oiled machine. Just ask Air Berlin how that’s worked out. Smaller airlines, like Air Seychelles, are easier to turn around. But Alitalia is a big Italian company with all kinds of inertia pushing in the wrong direction. After all…
Don’t get me wrong, I’d love to eat my words and see a new, shining star in European aviation. I just can’t see that happening at all.
