Since January, Alitalia, the worst airline ever, has been hard at work on restructuring plan #1,403 so it can save itself from doom. This took longer than expected, but the plan has now been approved by the Board of Directors. It does indeed sound a lot like the plan I wrote about in January. Chance of success? Not good.
In short, Alitalia will slash costs and then magically increase revenue by 30 percent. Seems totally likely, right? Just reading through the press release brings up so many obvious problems. Let’s walk through three big ones.
Gigantic Problem #1 – Unions Won’t Like This
In the second paragraph of the release, it becomes very clear what the first major issue will be.
The plan’s funding by the company’s shareholders is subject to Alitalia’s trade unions agreeing to a new collective works agreement and headcount-related measures.
Hahahahahaha. Right, so Alitalia is now going to take the plan to the government. After that, it’ll go to the unions and try to come to an agreement. Alitalia’s unions already agreed to some changes back when Etihad first bought in to the airline. That plan was touted as saving Alitalia, but obviously it didn’t work since now the airline needs another plan. If you think the unions will just gladly step aside, I’ve got a bridge to sell you.
Gigantic Problem #2 – Alitalia Can’t Compete with Low Cost Carriers
The release points out that low cost carriers fly 47 percent of air traffic in the Italian market. To combat this, Alitalia is going to try to turn its short haul operation into a low cost carrier. Look for buy-on-board food, more seats on aircraft, higher aircraft utilization, more ancillaries for sale, and “more attractive airfares.” Oh, and it’s going to cut its Airbus narrowbody fleet from 78 down to 58.
Some of this is obvious and should have been done long ago, but no matter what Alitalia does, there’s no way it’s going to be cost-competitive with a Ryanair or Wizz Air. It can try to drive out cost, but it won’t win. And by cutting the product down to match the low cost carriers, it’s hurting its ability to try to generate a revenue premium (if there’s one to be had at all).
The release says this is “a concerted drive towards increasing revenue while stripping out existing costs,” but really it looks like an attempt to strip out costs without much of a revenue plan at all.
Gigantic Problem #3 – This is a Terrible Time for Long Haul Growth
We’ve been talking here regularly about how the Transatlantic market is brutal right now. Low cost carriers are using new low cost airplanes to flood the market with capacity. The legacies aren’t stepping back, using their own new lower-cost brands as well. So it’s disconcerting, to say the least, that Alitalia’s plan for profit is to grow in this market.
The airline will re-evaluate its transatlantic options to try and fly more often on existing routes and to add new cities in the Americas.
Forget about the fact that for Alitalia to really ramp up its Transatlantic flying, there’s a good chance the joint venture with Delta/KLM/Air France will die. That’s a problem in its own right. There’s also the issue of hugely seasonal demand between Italy and the Americas. Europe to the Americas is always seasonal, but Italy is even more so since it has such a strong reliance on tourism.
All of these factors add up to mean bad news for Alitalia’s prospects.
With 20 fewer short haul airplanes, even increased utilization is going to result in fewer flights than today. For Alitalia to reach its goal of increasing revenue by 30 percent, it must be thinking about a ton of long haul capacity. It’s hard to imagine how this will be profitable long haul capacity, but it could get Alitalia to its goal of increasing revenues. That goal is, of course, useless if it’s not profitable.
The reality is that Alitalia is stuck. Low cost carriers are killing it on short haul flights. And on long haul flights, there’s too much capacity anyway, especially from Europe to the Americas. There’s no viable out for Alitalia, but instead of admitting that, it just keeps rearranging the deck chairs. The good news for Alitalia is that it’ll just keep chugging along. There’s too much national pride in Italy to let this airline die. And that is naturally good news for me and the blog.