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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17 Responses to Ringing In the New Year In the Best Way: An Alitalia Restructuring

  1. Nick says:

    We can officially blame the Middle Eastern carriers for this one lol

  2. David says:

    CF – perhaps you might like to suggest what you think should be done to fix Alitalia ? You have a lot of airline industry knowledge and to condemn Alitalia effectively as deserving of bankruptcy is unfair. For all its faults, it’s still a large airline that manages to carry lots of people on short and long haul flights – Italy is a major economy with very high levels of in bound tourism and needs something other than just Ryanair, particularly for non-EU flights.

    • Kilroy says:

      I will second this request. It is very easy to pick on Alitalia, and maybe there really is “nothing that can be done,” but I would love to read Brett’s ideas as to what he would do if he were CEO of Alitalia (besides shoot himself in the face on day 1 to put him out of his misery).

    • David – I don’t think there is a way to fix Alitalia. The government has too much interest in meddling and the unions don’t see reason to reform. What should happen is there should be further consolidation in Europe. Alitalia should disappear. It already wouldn’t be missed much on short-haul flying with low cost carriers already having made huge inroads. But whatever room there is for a legacy carrier, it should just be done by one of the big 3 European groups. Certainly Lufthansa would be thrilled to step in as it already has a strong interest in Northern Italy. Now, do I think this will happen? No way. The Italians have too much pride in their national airline. Something that keeps the Alitalia brand alive might be more palatable to them, but it would be unlikely that one of the big 3 would be interested in doing that, because it’ll come with all the baggage that’s causing Etihad so much heartburn today.

    • enplaned says:

      “For all its faults, it’s still a large airline that manages to carry lots of people on short and long haul flights – Italy is a major economy with very high levels of in bound tourism and needs something other than just Ryanair, particularly for non-EU flights.”

      Perhaps you could say why “manages to carry a lot of people on short and long haul flights” is in any way a reason to keep an airline alive? Braniff, Pan Am, Eastern, Sabena, Swissair, TWA, Ansett Australia, etc, were all large airlines that carried a lot of people on short and long-haul flights, they just didn’t do so profitably, and so went out of business. Perhaps you can say why Alitalia is so special to deserve to avoid the same fate, other than the fact that the Italians, for some reason, appear to view it as a symbol of national virility and therefore, do whatever is necessary to keep it limping along.

      Kill Alitalia, and within a very short period of time, every single flight worth flying will be replaced, backfilled by airlines from the rest of Europe and beyond that are not as badly run as Alitalia. The vacuum created by the destruction of Ansett Australia was replaced by a combination of more Qantas flying and the quick growth of Virgin Australia (previously Virgin Blue) and Qantas’s JetStar subsidiary.

      Keeping a weak player like Alitalia alive simply blocks the development of newer better business models and means Italians have to continue to fly Alitalia despite strike interruptions and constant drama over its survival.

  3. SingBlue says:

    A move into Lufthansa would be interesting, given LH’s excellent industrial relations over the past few years.

    Oh, wait…

  4. CP says:

    No year-end flying summary? :(

  5. Miss Informed says:

    If my rapidly fading memory serves, this isn’t the first occurrence of a “new” Alitalia. Maybe it’s time to finally embrace the mystique of Italy as revealed by Federico Fellini. First, change the airline’s name to Linea Aerea Fellini (LAF). Main hub: Cabiria. Motto: La Dolce Vita in Aria. Give the customer-facing staff training in slapstick humor. In-flight entertainment includes plenty of clowns and frequent raspberries. #1 Flight crew named Ginger and Fred. Reservations system called Amarcord. Bargain flights starting at 8-1/2 Euros.

    Wish I could remember where I heard the line “A weekend in Rome will convince you Fellini makes documentaries.”

  6. Kilroy says:

    > Sure, Alitalia might have to find a new owner, but like a (fashionably-dressed) cockroach, it’ll never really die.

    This is one of the best turns of phrase I have read on this blog, and really captures the CF attitude well.

  7. andylastella says:

    Sounds like Mr. Hogan missed a few steps in the pre-investment due diligence!!

  8. Itami says:

    It’ll be interesting to see how this plays out across the North Atlantic. I agree with some of the other analyses out there that mentioned that the departed AFKL deal probably funneled a lot of short haul traffic to CDG/AMS that could’ve gone over AZ’s network, but the DL partnership and the tourist dollars it brings is arguably the one bright spot in AZ’s current outlook.

    EY could try and steer them into some sort of partnership with B6 or AS, but their network coverage and marketing resources wouldn’t be close to what they have on the US side now with DL.

  9. SEAN says:

    AZ – the gift that keeps on giving. They had every excuse at the ready why things went south & started blaming the usual boogiemen – unions, the EU & on & on without addressing there own problems.

  10. fred says:

    Currently most long haul traffic from nothern Italy is leeched by foreign carriers. Since the 2008 abandonment of Malpensa by Alitalia the carrier has made Rome its only hub. Pity no one in northern Italy will make their flight longer by flying through Rome rather than make it shorter by stopping in Paris, London etc.. In Italy short-haul traffic is now being take over by Easyjet and Ryanair, and Alitalia will never be able to compete cost-wise.

    Saving Alitalia the first time cost 10000 jobs in the Malpensa area; this to save an Airline that has been on the verge of bankruptcy twice again. Prospects for the future are non existing unless the role of Linate is redefined and Alitalia can concentrate on taking over northern Italy’s long-haul flights from Malpensa. They simply cannot compete as a regional carrier and Italy need someone who will bring tourists to the country directly and not via stopovers in competing destinations.

  11. SingBlue says:

    Did anyone ever work out what Alitalia means? I’ve heard two: “Always Late In Take-off, Always Late In Arrival”, and “Airplane Landed In Tokyo And Luggage In Alaska”.

    Only flew them twice. Both short-haul between London and Rome. Second trip was to see if they were as bad as the first time – they were actually worse. (And I fully subscribe to the first acronym).

  12. David sf eastbay says:

    Since most of Italy ‘hangs’ below Europe, AZ/EY needs to concentrate on AZ/Rome as more of a connecting point between Northern/Central Europe/North America and points south i.e. Africa/Middle East/Eurasia. As was pointed out not many people in Europe would want to fly south to Rome to connect over the Atlantic or vice versa, so they need to go by Italy’s physical location to build up their strength in the market place.

  13. Bendigo says:

    Alitalia is an awful airline. Always has been. Their only redeeming quality is their exemplary safety record. AZ will never take off so long as Italy’s greedy unions have a hand into how the company is run. Further, the country’s airport system is illogical. The Milan region should be the logical place to hub, as this is heart of the country’s economy, but MXP is not set up to be a hub and many view it as too far from Milan (though it really is only about 30-40 minutes away by public transit) and LIN can’t be expanded into a long haul airport. FCO is also not set up properly for transit and its a VFR destination, not a business one that can sustain a big airline hub. There are no natural markets ex-Italy that would give AZ a competitive advantage. Basically anything AZ does, everyone else can do better and low cost carriers have already eaten its lunch. Alitalia will end up looking like Brussels Airlines. A small, niche airline, if it survives at all and if it doesn’t, it will drag EY into the abyss with it.

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