Competitors circle in the great Alitalia carve-up

By Bloomberg News, March 15 2018
Competitors circle in the great Alitalia carve-up

After a 71-year run, Italy’s bankrupt Alitalia may soon slide into the history books. Several international players are now looking to carve up the air travel market in Europe’s fourth-largest economy, with two Persian Gulf carriers leading the way.

Italian taxpayers have been pouring money into Alitalia for decades, but the bottom seemed to fall out when minority owner Etihad Airways capitulated to steep losses.

Back in 2014, the Abu Dhabi-based carrier took a 49 percent stake in Alitalia with plans to slash costs and focus on longer international routes from Rome and Milan, the competitive turf where low-cost airlines such as easyJet and Ryanair had made fewer incursions.

That plan faltered and Alitalia floundered. Etihad, which has made a point of investing in ailing airlines, decided to end the pain and cut its ties. Alitalia’s subsequent bankruptcy was followed by €900 million (US$1.2 billion) in government bridge loans to keep it aloft through later this year, but the prospect of additional assistance is uncertain given the political disarray tied to Italy’s recent elections.

Potential bidders are plotting various strategies for overhauling or dismantling the airline, salvaging the best bits of its network and fleet or seeking deep, permanent cuts. Alitalia’s bankruptcy administrators are working toward an April 30 deadline to assess offers. The company didn’t respond to an email seeking comment.

Filling the Alitalia gap

“If Alitalia goes away, most of what it’s flying will probably be back-filled by other airlines that can actually make money,” said Seth Kaplan, managing partner of trade journal Airline Weekly.

That was the experience in Hungary, where national carrier Malev liquidated in 2012 after years of financial struggle. Now, Wizz Air Holdings, EasyJet, Lufthansa and others dominate Hungarian skies.

Europe has seen other examples of 20th century flag carriers surviving for decades on state aid before finally succumbing to market forces. Belgium’s Sabena SA dissolved in 2001; Swissair went bankrupt the following year; Greece’s Olympic Airlines shut down in 2009; and Portugal sold its majority stake in national carrier TAP in 2015.

In the case of Alitalia, interested parties may include Lufthansa, which previously acquired parts of defunct carriers in Belgium, Austria and Switzerland; Air France-KLM Group, which used to own 25 percent of Alitalia; and private equity firm Cerberus Capital Management.

Air France would like to keep Alitalia as part of the global SkyTeam alliance, which includes Aeromexico and Delta Air Lines., without buying an equity stake, Chief Financial Officer Frederic Cagey told Bloomberg TV last month. A SkyTeam spokeswoman declined to comment.

Cerberus had prepared a bid for the entire airline and was pitching its proposal as a plan to keep the carrier intact, the Financial Times reported in October, citing people familiar with the talks. A Cerberus spokesman declined to comment.

Delta and EasyJet have also been cited as potential bidders in Italian news reports about the process. Atlanta-based Delta is monitoring the bankruptcy but won’t comment on “industry rumor,” spokeswoman Olivia Cullis said. Delta President Glen Hauenstein was Alitalia’s chief commercial and operating officer from 2003 to 2005.

Qatar bets big with Air Italy

Sensing an opportunity, Qatar Airways last year acquired 49 percent of AQA Holding, the newly formed parent of Italy’s second largest airline, Meridiana Fly. Last month, the carrier changed its name to Air Italy and announced an international expansion and fleet renewal plan.

The airline, which began in the 1960s as Sardinia-based Alisarda, will begin flying to Bangkok, Miami, and New York this year in addition to its domestic routes, followed by additional international destinations in 2019.

Next month, it will take delivery of the first of 20 Boeing 737 Max it’s ordered, five Airbus A330-200s leased from Qatar and then as many as 30 Boeing 787-8s starting in May 2019. The airline’s goal is a 50-aircraft fleet by 2022 and 10 million annual passengers.

16 Jan 2018

Total posts 103

It’s been many years in the making. But it’s a shame that employer and employees couldn’t come to an agreement to make it work and for the airline to continue. Now employees will lose their benefits, etc. i wonder if the government or unions will pay them out their entitlements...

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 526

IMHO, the larger reason for AZ's failure was it's historic inability to effectively manage two hubs (FCO and MXP/LIN) which are way too close to each other. Additionally, political interference and poorly applied Government financing have never helped.

The real shame here is the comparison between France and Italy. Both are incredibly popular tourist countries, both have a world-leading reputation for food, wine, fashion, art and business. And yet, we see Paris as the most visited tourist destination on Earth while Rome and Milan flounder many steps below.

Perhaps QR's acquisition of Meridiana's share majority will breathe new life into the Italian tourism market? Al Akbar's expansion plans for Air Italy present a whole new opportunity.

However, as has been previously seen over the years, never say 'die' (pardon the pun) where Alitalia concerned. Easter is coming .. and maybe a 'resurrection' is still in the cards?

Eli
Eli

30 Jul 2015

Total posts 97

Hmmm not sure which Italy you are referring to? :-) Italy is BUSY and is one of the most visited countries in the world.

The problem with Italy is NOT volume, it the Italians! ...and AZ's split hub since Romans insist on FCO being a hub and the Milanese need MXP since its the financial center.

The tourist market is thriving.

Most people arriving in Italy come via FCO and MXP, but for Milan, its a gateway and not destination - it usually warrants 2 nights for the sights. The business centers of #1 London (75 mil bed nights) and #2 Paris (44 mil bed nights) are in a different league. #4 Rome comes in at 26 mil, Barcelona 19 mil etc. You cannot compare Italy to France. Paris IS the primary destination, Italy has so much more for tourist to split their time. Amalfi Coast, Tuscany, Venice, Bologna....its spread out and so the bed nights go elsewhere.

Not saying France has nothing besides Paris, its just a different spread...and Paris is a Mega business hub, Milan and Rome are not.

AZ's demise is the regular Italian mafia way of business, which also keeps a lot of business out of the country, and mis management - government, massive corruption like you could not believe. It would leave you speechless!

I flew into Italy 14 times last year, I like it alot, but its corrupt AF!.

Qantas - Qantas Frequent Flyer

18 Oct 2012

Total posts 122

Spot on Eli ! Business ethics and any sort of common sense is completely missing in Italy I,m sorry to say . Its rife from the top down and will never change. Trying to run a business there is a nightmare.

24 Aug 2011

Total posts 777

It used to be said that the problems at Ansett were always insoluble because of poor management and intractable unions. Well Alitalia is Ansett on steroids. It cannot be saved in its current format and needs to be torn down and then see what rises from its ashes.

Qantas - Qantas Frequent Flyer

03 Sep 2014

Total posts 4

Too bad! One of my best business class experiences ever was on the Rome- Abu Dhabi 777 Flight.

White leather seats, beautiful wines and foods and amazing amenities kits! With such style, it's a shame they can't get their act together.

Joe
Joe

03 May 2013

Total posts 521

God bless Unions who protect staff not willing to do their jobs and who are way overstaffed.

06 Dec 2017

Total posts 112

badly run.i have never flown them so cannot comment but much like ansett and panam before it no matter how hard you try it is beyond salvation.even ex australia to rome when that existed it was a visiting friends and relatives that was their market in the old days,nowadays to italy everyone flies a middle eastern 3 or singapore airlines or cathay pacific now.

QF

11 Jul 2014

Total posts 505

Such a shame, same with Air Malta that we never hear about having issues but on saying that EasyJet second largest base is Milan.

Qantas - Qantas Frequent Flyer

13 Jan 2017

Total posts 74

Very interesting looking at the history and list of all the flag carriers that have collapsed since 2001 and in the process of going down (Alitalia and Air India) in the article above.


Notably also, given all the flack and vile thrown Alan's way, Qantas group is not just surviving, but showing a profit and thriving in a strongly competitive market (with competitors aided by owners with big pockets).


Hi Guest, join in the discussion on Competitors circle in the great Alitalia carve-up