It’s been well over a year since Etihad pulled the plug on its failed Alitalia experiment. That left Alitalia — officially known here as the worst airline ever — without a lifeline as it hemorrhaged what precious cash it had left. The airline was living on borrowed time with cash infusions from the state, and there were big plans to sell it off to the highest bidder. That process has taken far longer than anyone hoped, but we’re now one step closer thanks to real bids that have come in, including a surprising one, reportedly, from Delta.
Last April, I expressed an interest in buying Alitalia for a penny, as long as you all agreed to absorb the debt. There were 32 others who were interested as well, but those have mostly fallen by the wayside. Since that time, the sale was put on hold as Italy struggled to build a coalition government to rule. Then the state started talking more about further nationalizing the airline. Delays kept piling up.
While this silliness has been going on, every other airline in the country has been eating Alitalia’s lunch. In 2017, Ryanair was the biggest airline in Italy with more than 36 million passengers (up 11 percent). Meanwhile Alitalia shrunk 5 percent down to just shy of 22 million passengers. That was followed by easyJet with more than 16 million passengers (like Ryanair, up 11 percent).
As you can imagine, this means Alitalia’s short-haul business is evaporating. Probably its best strength right now is its dominant position at close-in Linate airport in Milan, but that’s a fortress position that could easily be replaced if another airline had the chance to come in.
The long-haul isn’t much better. Air Italy — backed by Qatar because that airline apparently likes the Etihad “lose a ton of money” strategy — has reoriented away from its niche leisure long-haul market to become an airline that wants to sit on top of Alitalia with flights like Milan to New York. Other airlines are starting to dig deeper into Italy too, such as American announcing it would fly from Philly to Bologna next year.
So what is Alitalia’s purpose? It doesn’t have one, but the government mistakenly thinks it needs to exist because of national pride and… well, no other reason. With that backdrop, it’s no surprise that of the original 32 bidders, only 3 remain. (I should note my offer to pay a penny as long as the debt is wiped down still stands, but it isn’t counted in these numbers.)
Let’s start with the government. It has decided to use the state rail company to push forward a plan. There was some talk previously about synergy between planes and trains, but that’s just another scheme cooked up by politicians who don’t understand the airline industry. This route would undoubtedly end in another bankruptcy. It’s just a matter of how long it takes.
Then there’s easyJet. Looking at those numbers above, you can understand why easyJet might be interested. It looks at Alitalia the way it looked at airberlin. It could pick at the carcass and build up its Italian operation, creating a great base of operations at Linate. This acquisition would also make a much more formidable competitor to Ryanair. The long-haul piece of the business probably doesn’t really interest easyJet.
Lastly there’s Delta. Delta is a well-run company, so it should be running away screaming. But Delta does love its equity stakes. This is different in that most airlines in which Delta invests are at least solvent with a chance of future success. Something tells me that Delta made about the same offer I did. I would be surprised if anything happened with Delta here at all.
Of course, there could be a collaboration where Delta and easyJet agree to split pieces and focus on the parts they want. But then there’s that national pride issue again. I just don’t see the government being willing to do the right thing here.
Were I a betting man, I’d put my money on the rail company. Why? Because it makes no sense and wouldn’t help the airline survive in the long run. That being said, it would be the biggest win for national pride. In the meantime, Ryanair and easyJet will continue to gobble up the short-haul traffic while Air Italy will fight Alitalia to see who can lose more money as they bash each other’s heads in. Words cannot express how much I love following this airline.
