How do you solve a problem like Alitalia? Italy’s perennially lossmaking national airline has been a thorn in the side of governments for decades.
Now, with the carrier renationalised as a result of the Covid-19 crisis and injected with €3bn on top of existing state loans, Italy is working on yet another relaunch of an airline that has not posted a year of net profit since the start of the millennium.
Prime minister Giuseppe Conte last week described Alitalia as “a project, a newco” and that the government’s plan would be focused on preserving the connectivity of the airline’s international and domestic network.
“We must try to protect this space in the market because it is important [for Italy] to have a carrier,” he said, but offered few other details.
Founded by the government at the end of the second world war, the carrier thrived for four decades as the public purse paid for an expansion of its fleet, staff and routes until its first crisis emerged in the 1990s. Labour unions helped torpedo merger talks with Air France in 1993 and KLM in 2002. In 2008, with the airline facing bankruptcy, the government privatised it — and its problems.
But with the aviation industry tentatively resuming flights, Italy has to decide whether to appoint an insider to lead the overhaul, or try to make a clean break with the past and bring in a new in a face. An announcement is expected in coming weeks, according to a person familiar with the matter.
Although no formal strategy has been unveiled, Alitalia is expected to be handed a monopoly for air transport between Sicily and mainland Italy, as well as other minor islands. More controversially, some Italian media reports have suggested the government may even seek to impose Alitalia’s employment contract framework on all other carriers operating in Italy — a move that lawyers say would be immediately challenged.
A revamped Alitalia is also expected to be smaller, with its fleet falling from 113 planes to between 92 and 105. International routes will also be a focus rather than the fiercely competitive European short-haul market.
Profitability, however, is likely to remain a distant goal.
Alitalia, which does not publish consolidated financial statements, last year reported a -14.1 per cent operating profit margin, according to Milano Finanza, an Italian business publication.
Andrea Giuricin, a transport economist, warns that attempting to relaunch the airline during industry’s gravest crisis in decades will be challenging.
“It will be difficult to come out of the current situation with the government’s strategy, this year the market environment is a lot more complicated due to the Covid-19 pandemic,” said Mr Giuricin.
His verdict is blunt: Alitalia is too small to survive in the long term without being swallowed by a larger company. “The current standalone vision isn’t sustainable and the risk is increasing the losses in the future,” he added.
According to the Italian airline transport agency, ENAC, Alitalia last year flew 9.9m international passengers to and from Italy, out of a total of 127m. Ryanair flew 28.6m people, while easyJet transported 14.7m.
Alitalia’s planes transport fewer people per flight and spend less time airborne compared to its competitors. The company also has too many ground staff, according to Mr Giuricin.
Libero Milone, the former chairman and chief executive of Deloitte in Italy who has worked as a consultant for some of the world’s largest airlines, and was in charge of auditing Alitalia in the past, is more optimistic. The crisis has created a rare opening for its strategy to be overhauled, he argues.
Mr Milone said a focus on what he calls “destination Italy”, or leveraging the vast global appeal of Italy to efficiently connect Alitalia into the broader value chain of tourism, including trains, hotels and promotion of the country should be at the heart of a new strategy.
“Because of this great crisis Alitalia now has a unique opportunity, a clean slate that can be reformed to work for the benefit of the entire country,” he said. “Italians have over the years become disillusioned with Alitalia, but now there is a chance to make people proud of the company again.”
A poll conducted by SWG last December found that 55 per cent of Italians disagreed with putting more taxpayers’ money into Alitalia, which had 10,700 staff last year.
But breaking with Alitalia’s past has so far defeated all who have tried. Ministers acknowledge that some jobs will have to be lost, but the airline’s heavily unionised workforce has resisted previous restructurings.
Others point towards the likely challenge Rome will face from Brussels and other airlines if the government is seen to be providing unfair assistance.
“The new rules are unfair and risk triggering divestments from [other airlines] in Italy,” said Matteo Castioni, the chief of AICALF, the new Italian low-cost airlines lobby.
During a video conference call with the transport minister last week, Ryanair chief executive Micheal O’Leary said the government’s plans fail to guarantee a level playing field and fair competition on the market, according to two attendees.
“We don’t want to limit healthy competition but rather guarantee equal rules and rights for everybody,” Italian transport minister Paola De Micheli said after the meeting.
EU rules currently allow governments to inject money into airlines that are facing losses because of the Covid-19 outbreak — as Germany has done with Lufthansa.
But Alitalia’s crisis began long before the pandemic and ending it will be an unenviable challenge for the executive Rome asks to try.
“The Italian government is gripping on to an obsolete vision of air transport that no longer exists,” Mr Giuricin said. “It is an illusion that the government’s latest €3bn can turn the company around unless they also change the competition rules”.