Kevin O'Toole/ROME

It was something of a homecoming for Dominico Cempella when he was asked to take up the reins at Alitalia in March 1996. Having started out as a check-in agent at Rome Airport 40 years ago, he was now returning as chief executive charged with leading Alitalia out of the wilderness.

Cempella admits to some emotion at his return. "I was born in this company and I love it," he says, with an enthusiasm to which his employees have warmed.

Today, the airline is a good deal easier to love than the penniless and strike-torn basket case which Cempella took on 18 months ago. The airline, with its state aid now in place, has just posted a profit for the first six months of the year - more or less its first in 11 years. The group is also being courted as an alliance partner by KLM, Air France and others around the world. Operations are due to start shortly at Milan's new Malpensa Airport, arguably giving Italy its first real chance of developing a genuine connecting hub to compete in one of Europe's richest regions. The transformation will be complete if, as Cempella hopes, Alitalia can shake off the last bastions of state ownership and privatise within the next two or three years.

It was a very different airline when Cempella arrived back to head it 18 months ago. Then, by his own admission, Alitalia was in a mess - with no capital, huge debts, poor service levels and suffering from a year of union unrest.


Decline and fall

The airline's decline, and near fall, is the classic tale of one of Europe's state-owned flag carriers, but with a mix of Roman politics which occasionally reads like a palace intrigue from an earlier era in the city's history.

Like most of its counterparts, Alitalia had overextended in the late 1980s, with a dramatic expansion of its fleet and a fight for market share which left the carrier bleeding money, with massive debts. In late 1992, a new but ultimately short-lived Italian Government brought in a new top management team from outside the airline industry. They set about replacing the old-style airline people with a new band of international managers from backgrounds as diverse as computers and pharmaceuticals.

Cempella, who had risen to head the airline's passenger division, was already packing his bags before the change took place. His spell away from aviation was not long, however, as he eventually returned to head Aeroporti di Roma, the newly independent Rome airport authority, which he had led years before when it was still within the Alitalia group.

The new management proposed a prudent-enough plan of cost-cutting and streamlining, with the long-term aim of securing much-needed fresh capital from a mix of state and private investors. The unions had other ideas. A series of confrontations put paid to any major reform, not helped by a lack of support for the management by what was soon a new Government.

As the political wheels turned once more, heads again rolled at Alitalia. Cempella was invited back and cut a swathe through the management team, within a day bringing back many of the airline people ousted in the previous coup. "I wanted a team of people who were born and bred in the company who love this company," he says.

the new deal

Cempella's revised plan was similar in many ways to that of his predecessors, but with the subtle difference that the employees appear to have trusted him as one of their own. He stresses that the aim was to work with the staff in reshaping the company. "We are no longer seeking confrontation with the unions. We're looking for mutual ground," he says.

The group was in desperate need of new capital from parent state-holding company IRI, but that was strictly linked to restructuring. "Alitalia was the only carrier in Europe which didn't have any real plan for cost reduction," says Cempella. It also had a 15% gap in efficiency to close with its major European competitors. A deal was quickly struck with all but one of the unions, backed by the promise of a stake of 20-30% in the group, and direct representation on the airline's board.

"This was a radical innovation for a country like Italy, but we insisted that people should be able to shape their own destiny," says Cempella. It is the first time that such an employee share-ownership deal has been struck in Italy, and when it finally goes into effect by the end of this year, he believes it could provide a blueprint for change across Italian industry.

In return, the unions have agreed to the restructuring plan, including a level of job and cost cuts. Cempella says, however, that the need went beyond just shaving costs. "We need a dramatic change in the cost structure - to change the rules of the game," he says.

With the restructuring plan in place, the IRI cash has flowed into the group, helping to wipe out debt. Some L2,000 billion ($1.1 billion) is already received and another L750 billion will come over the next two years under a deal with the European Commission. Its approval, granted in July, has attached the usual restrictions on capacity growth and pricing. Cempella says, however, that Alitalia's new focus is on raising performance, not grabbing market share.

At the heart of the drive is the setting-up of Alitalia Team. Despite being portrayed as a "low-cost" operation, Cempella says that the experiment's real benefit lies in pioneering new ways of working within the company. "It is not primarily a low-cost airline, but a high-efficiency one," he says. Alitalia Team already accounts for about 40% of the airline's operations and "-now that we know that it works", Cempella sees its influence spreading. The target is to see the operation take over the whole of the group, perhaps within five years if growth permits.

Another major plank of the Cempella plan is coming into view with the opening of a re-invented Malpensa Airport. Until now, Alitalia has operated an uneasy balance between its base in Rome and the economic powerhouse of northern Italy, centred on Milan's constrained and congested Linate Airport. From June 1998, the carrier will begin to transfer international services to the new Malpensa.

An initial aim is to claw back some of the traffic now seeping out of one of Europe's richest regions into neighbouring Munich and Zurich. Part of that, backed by levels of service, which Cempella agrees have been badly lacking over the fraught past couple of years. Cargo infrastructure too has been lacking, with 70% of Italian air freight going via hubs outside Italy.

In the longer term, Cempella talks about redefining the balance between Rome and Milan. Malpensa offers Italy its first real chance as a competitive connecting hub. It also offers solid growth potential. Milan's two airports now handle about 12 million passengers a year. The new developments at Malpensa alone are expected to deliver at least double that.



Alliance prospects

Cempella believes that these prospects have already helped raise Alitalia's desirability as an alliance partner. Talks are now taking place with Air France, KLM and others in Europe, with further discussions with potential partners in the Far East and the USA. Cempella suggests that a decision on a European link will have to be made by the end of this year.

KLM is tipped as the front-runner, and Cempella admits that detailed studies have taken place "over several months" looking at integration of international networks and also Malpensa's position within them. The choice also influences strategy on fleet development and the selection of a transatlantic partner - KLM, or example, would bring a ready-made Northwest Airlines alliance - although Cempella says that Alitalia could continue with its "non-exclusive" pact with Continental Airlines.

What Cempella is certain of is that Alitalia can now join an alliance as an equal partner, and not in desperation.

The final act of the Cempella revolution hinges on the long-elusive goal of seeing Alitalia safely through to privatisation. IRI has been told by Government to sell off its holdings within three years. The sale may help free Alitalia from some of the constraints attached to the state-aid injection from IRI. That would still have to be negotiated, but Alitalia is optimistic.

"There is no future for Alitalia if we continue to be a state-run company. This is a conviction shared by management and employees," he says, adding that the preferred aim is for a flotation rather than a trade sale to an airline partner. The group's revival has attracted attention from the Italian stock market, where around 15%of Alitalia's shares are now traded. Over the past 18 months, the price has risen more than tenfold.

Cempella is under no illusions that Alitalia still has much to achieve, little time to waste and no room for complacency. Provided his "personal-management style" continues to work its magic, and the political winds remain in his favour, he may just be able to pull it off.

Source: Flight International