Relaunched Alitalia flies into battle

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Two years after its privatisation was launched and after months of wrangling with unions, a revamped, privately-owned national carrier based on Alitalia assets and including Air One will finally take to the skies in 2009.

Entrepreneur group Compagnia Aerea Italiana, headed by Piaggio chairman Roberto Colaninno, formally completed the acquisition of Alitalia assets in December from special administration, and of privately-owned Air One. It plans a 13 January launch for the new carrier.

Starting with an initial capitalisation of €1 billion ($1.3 billion), the new Alitalia has been separated from the debts of the past and will use Air One aircraft to modernise its fleet. The new owners see break even by 2010 and have sidestepped the political minefield of choosing between Rome and Milan as its hub by highlighting neither and pointing to its presence at five other Italian cities. But from this winter it will serve almost twice as many destinations from Rome than Milan, 66 compared to 35, including 13 of its 16 intercontinental flights.

This includes the prized Rome-Milan Linate route, where the two carriers currently dominate and where antitrust rules were suspended as part of Italy's amended special administration rules. Italy's antitrust authority has set a three-year requirement for at least 10% of fares to match the predecessors' current cheapest fares and within the next year will set a deadline for ending any monopoly positions.

CAI's task is to rebuild the carrier's market share, eroded over recent years by carriers including Air One itself, easyJet and Ryanair (see tables). Alitalia's domestic share has fallen from over 50% in 2005 to under 30%. Even combining with Italy's second largest domestic operator Air One only returns it to 2005 levels.

Lost market share

Oliviero Baccelli, deputy director of Bocconi University's Centre of Regional Transport and Tourism Economy in Milan, explains: "The strength of Alitalia is it is still the leader at some important airports, particularly at Linate and Rome Fiumicino. There are also still many business travellers who like to travel with Alitalia. Air One was a big competitor, with many overlapping routes. This should increase the load factor because they will reduce the number of flights, particularly from northern Italy to Rome.

"The weakness for Alitalia is part of the market has been conceded to other players, such as easyJet at Milan Malpensa and Lufthansa. EasyJet and Lufthansa Italia are two competitors that are growing and they could create big problems on specific routes."

He also notes the emergence of a strong domestic competitor in the shape of the high speed railway, which has just launched between Milan and Bologna.

CAI will also shortly choose an international strategic partner which could take up to a 25% stake. Air France-KLM and Lufthansa have long been courted. The two have existing partnerships with Alitalia and Air One respectively, leaving a gap for whichever is not selected.

For its part Lufthansa has sent a clear signal it intends to be a player in Italy with or without Alitalia by launching its own Lufthansa Italia branded flights from Malpensa this February. It already operates feeder traffic from several northern Italian cities to Munich through regional carrier Air Dolomiti. But the Milan flights will operate under a newly formed Italian airline, providing flights to eight European cities, rather than Air Dolomiti as originally planned.

The carrier says the move does not preclude it becoming a partner for Alitalia and stresses Italy "is one of the most important markets for us" - its third largest market generating 5 million passengers annually. "Lufthansa as a brand is very well established in Italy. For us it's not really a problem to grow the market with Lufthansa," the carrier says. "We are not ruling anything out."

Meanwhile, budget carriers easyJet and Ryanair continue to expand in Italy. A string of new Italian routes, including bases at Trapani, Alghero and Cagliari, will further bolster Italy as the Irish carrier's second largest market. EasyJet, meanwhile, continues to develop its presence, notably at Milan Malpensa where it now has around 30 routes.

Baccelli does not see an easy consolidation path for other Italian carriers, led by Meridiana and budget operators WindJet and Myair. "It would be a logical piece of consolidation, but they are completely different business models," he says. "It could happen that Meridiana will try to find an international partner, but not a national partner as their businesses are too different."

Lufthansa has signalled its Italian intent with or without Alitalia