Saving Alitalia

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If Alitalia is to have a chance of survival, the Italian government must learn lessons from its past mistakes and accept that some harsh commercial decisions will have to be taken, says Rigas Doganis, aviation consultant and former Olympic Airways chairman

Alitalia is reputed to be losing €1 million ($1.4 million) a day. Last December, the Italian government put 39.9% of its 49.9% shareholding up for sale, and 11 bidders initially emerged. Seven months and three chairmen later the auction had collapsed. Alitalia's latest chairman is studying yet another turnaround plan - is it the fifth or sixth in four years? - while the government talks of another attempt at privatisation. Is the government fiddling while Alitalia burns?

Turnaround plans are relatively easy to prepare. The difficulty is in effective implementation and execution. The lessons from recent attempts to turn­around state airlines in Europe and elsewhere are clear but not, apparently, to the Italian government.

The first is surely that very sick state-owned airlines must seriously downsize their operations to survive. The legacy networks established 60 years ago are frequently irrelevant to today's marketplace. Rescaling ambitions is a key prerequisite for a successful turnaround.

SN Brussels in 2002 absorbed only one-fifth of Sabena's staff, one-third of its passengers and half of its fleet, while operating a network with 20% fewer destinations in Europe and largely abandoning its long-haul network. And it succeeded. Swiss, also launched in 2002, initially missed the opportunity to rescale and tried to recreate the old Swissair. This was a recipe for failure. It had to be rescued by Lufthansa in 2006. Anyone saving Alitalia should start with the basic assumption that the airline must have a totally different mission and a reduced network. After all, the existing model has failed repeatedly despite successive injections of state aid and new capital.

Secondly, a revised network and mission requires the correct fleet. Alitalia has 12 or so different aircraft types including over 70 old gas-guzzling Boeing MD-82s whose economics have been battered by high fuel prices. Too many aircraft types also means higher costs. The fleet must be simplified and rationalised.

Thirdly, the airline and its employees must become profit-oriented. Otherwise the relaunch may turn into a relapse. This means dramatic changes in work practices, reduced staff numbers and the development of key performance indicators for managers in all areas. To win their support, employees must be convinced that the airline is on the verge of collapse and that the government is not going to pump any more money in! It is this realisation among Aer Lingus employees that enabled Willie Walsh to turn this airline around after 2002.

One must also re-ignite a service culture. This tends to disappear in most state-owned airlines close to collapse as it has done at Alitalia. But staff in a relaunched airline become customer-focused more readily if, like SN Brussels, it looks and feels like a new enterprise rather than an old business with the old brand revived.

Finally, to succeed a turnaround plan requires a motivational leader who is unafraid of banging heads together. He/she must rebuild trust and drive change while winning employee support. Iberia found Xavier de Irala, Aer Lingus had Willie Walsh, while SN Brussels Airlines brought in Peter Davies. Picking the right leader is critical. Inevitably, they should come from outside the failed airline and outside the state sector. Having got a leader, governments should keep their hands off. Several airline turn­arounds, such as that of Olympic Airways, have collapsed following constant government interference.

Conditions of sale
If these are the policies for turning around a sickly state-owned airline, then governments should not impose conditions when trying to sell their airlines, which make it impossible for buyers to effectively implement such policies. Yet this is exactly what the Romano Prodi government has done. It imposed conditions on the sale which, on the one hand, made Alitalia a very unattractive buy and, on the other, if accepted by a buyer, would have endangered the airline's future. These included maintaining certain staff levels, continued operation of some routes and traffic rights, preserving the identity of Alitalia, not selling certain Alitalia interests for three years, and so on. Such conditions, and there were others, were clearly not compatible with prospective purchasers' business plans.

The lesson for the Italian, Greek, or any other government wishing to sell off a sick state-owned airline is simple: do not impose conditions that make it difficult for a buyer to turn your airline around because then they will not buy. And, if no buyer can be found and your own government must turn the airline around, then learn from the experiences of others. This means taking difficult and unpopular decisions. If you fail to do this your airline will stagger from crisis to crisis making it even more difficult to sell in the future. Then the only option left will be to close it down and start again - or not!