Delta, easyJet, and the Italian Government Show Interest in the Worst Airline Ever

Alitalia, Worst Airline Ever

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.

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20 comments on “Delta, easyJet, and the Italian Government Show Interest in the Worst Airline Ever

  1. So maybe Delta wants to learn how *not* to run an airline? I learned a lot about how not to treat team members from some of my past supervisors, and it made me a far better person. On the other hand, it also gave me migraines..

    1. Having lived in Italy for a few years I can say that this is because voting is mandatory in Italy. There’s no enforcement so not everyone goes, meaning that it’s not really mandatory (that sentence pretty much sums up Italy right there), but technically there can be civil penalties for not voting. Even though a lot of people call the government’s bluff and don’t bother, you still end up with a higher percentage of people voting than in the US.

    2. When peoples’ life quality/living standard is very dependent on the government, they vote. When the government is more peripheral to their life in a more free market – like America – not as much.

  2. Is there really that much value for other airlines to acquire part/all of Alitalia, instead of just letting it wither on the vine?

    I get that some of the slots in gate restricted airports have value, as does potentially removing a competitor whose losses will likely otherwise be subsidized by the Italian government for decades to come, but I’m still not seeing that much value from an out and out purchase here. What I am missing or not missing?

    1. Kilroy – I think for easyJet, there is clear value in scooping up all the Linate slots at once. If it goes out to auction or some other mechanism, then easyJet won’t fare as well. For Delta, it’s probably more about keeping Alitalia aligned with it and AF/KLM. Better than having someone else be aligned with it, if you assume that the government won’t do the right thing and let the airline fail.

    2. Yes.

      If I may speak as a corporate restructuralist, I would look and see what assets Alitalia holds: first and foremost, they own gates and landing rights at various airports throughout the world. If I were another airline, that gives me the ability to transfer ownership of the gate from Alitalia to my airline, and perhaps open up a new market.

  3. Nothing new here. And National Pride/Ego is certainly not unique to the Italians. It was the *REAL* reason we here bailed out GM a decade ago. I never bought into any of that gibberish about “too big to fail” or “catastrophic consequences to the economy”. We bailed them out purely for iconic imagery and political pandering reasons. Period. Just like how Italy continues to keep that beyond insolvent Alitalia alive.

    1. Whatever the “REAL” reason was (and your political spin on it), the end result from the GM bailout was a financially successful, technically advanced company that produces an excellent product. Comparing GM to Alitalia is ludicrous to say the least.

      1. REALLY? I think that GM has been churning out nothing but turds for the last five decades. But that’s not really germane to this discussion or even this site. The point is that both companies are/were saved purely for reasons of hubris, pride, and national ego. GM, like Alitalia, was a financial albatross and financially insolvent company that had been, for years, running itself into the ground. GM deserved to die and be liquidated as does Alitalia.

  4. I have this mental image of Alitalia headquarters where they just spend all day everyday flinging dishes of pasta at each other to pass the time productively…

    1. Ha; I know you meant that in jest but out of curiosity, I decided to investigate if there is any value in Alitalia’s fleet (most of which is leased I believe). Even if they did own the fleet outright, can’t imagine this adds a ton to the value.

      Airbus A319 21 11.3 years On 140 airlines operating this type of aircraft Alitalia ranks 58
      Airbus A320 38 11.8 years On 256 airlines operating this type of aircraft Alitalia ranks 154
      Airbus A321 12 21.2 years On 117 airlines operating this type of aircraft Alitalia ranks 113
      Airbus A330 14 9.4 years On 128 airlines operating this type of aircraft Alitalia ranks 67
      Boeing 777 12 15 years On 72 airlines operating this type of aircraft Alitalia ranks 54

  5. Since you seem to follow Italian aviation a lot, how well do you think is Air Italy doing so far? Does it have a better future, or does its long-term prospects look bleak too?

    1. MK03 – I can’t imagine Air Italy is doing well. After all, it has to deal with Alitalia as competition, and it has to deal with all the other forces that are hitting Alitalia too. It’s trying to go upmarket, similar to what Etihad tried to do with Alitalia, but I don’t see that working in what is still a very leisure-oriented market. At this point, it just seems like a convenient place for Qatar to dump airplanes that it no longer wants.

  6. The thinking behind the purchase by Italian Railways and the support for it is that Alitalia can feed passengers onto trains and eliminate domestic flights, thereby reducing costs and letting it concentrate on the profitable international routes

  7. I could support the idea that Alitalia is quite rubbish but my personal experience is you should avoid another italian airline it’s Blue Panorama – a charter from Italy. In long distance flights they use 767 aged about 30 without…. individual ventilation. Quite often due technical problems that are delayed.

    Once my tour operator offered me a long distance flight with Blue Panorama I changed my tour operator. Advise the same to you.

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