Italian airlines keep feeling the pressure

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Meridiana fly's recent merger deal with Air Italy sees a ­further step in the consolidation of Italian airlines. The combination aims at establishing a strong ­Sardinian operation and targets a financial turnaround - Meridiana Fly's first half losses widened to €69 million ($95 million). Joint revenues will top €800 million.

David Jarach, air transport marketing professor at Milan's SDA Bocconi School of Management, and managing partner at consultancy Diciottofebbraio, says Meridiana Fly has seen its grip on key markets eroded over recent years and the deal will help boost Air Italy financial liquidity.

"So they decided to marry. But the strategic fit is still uncertain, as a marriage between two weak players does not necessarily make a strong player," he observes.

It also marks the latest stage of consolidation among Italian carriers. Meridiana fly was itself ­created by the 2010 Meridiana-Eurofly tie-up, Alitalia merged Air One and several local airlines have failed over recent years.

Already under pressure from high fuel prices and eurozone economic fears, Italian operators have faced rapid expansion by European low-cost carriers, increasingly turning their attentions to north-south domestic routes. "EasyJet and Ryanair, in the face of additional taxes in Germany and the UK, are trying to bring more capacity to Spain and Italy," notes Jarach. Ryanair is already the second largest domestic operator in Italy by capacity and the biggest on European flights to Italy.

Jarach adds the strong presence of EasyJet at Milan Malpensa airport also contributed to Lufthansa's move earlier this year to cull its Malpensa-based Lufthansa Italia unit. This was the first such fully owned overseas start-up carrier when launched in early 2009 to tap the Milan market after. It retains a strong presence in the region through its Air Dolomiti unit.

Italian carriers also face intensified competition from high-speed rail development. Jarach notes this has already contributed to long-time number one Italian domestic route Milan Linate-Rome Fuimicino being usurped by the Rome-Catania link. "This means a radical change for Alitalia, as its traditional cash-cow route is shrinking," he says.