Alitalia is considering setting up a southern Italian regional operation which observers believe may be a defensive action against similar plans by British Airways.

Alitalia is carrying out a feasibility study, to be completed in June, into setting up a regional operation connecting southern Italy with other destinations in the Mediterranean. The company emphasises that Alitalia is only "providing expertise" at this stage in a joint project with an Italian development agency, Sviluppo Italia. Industry sources say Alitalia may use the ATR 42 regional jets it is replacing at its Alitalia Express regional subsidiary for any future operation. A call centre and a maintenance and overhaul operation in the south, which would create 1,600 jobs, are under consideration.

Alitalia's possible moves appear to resemble BA's troubled plans to bolster its position in Italy. BA is said to be planning to set up a franchise operation, registered in Palermo - where a maintenance centre, subsidised by regional government, would also be based. This would provide feeder services into Rome to link with the international connections of BA and the oneworld alliance.

The original plan, scuppered partly by a lack of finance, envisaged Australian regional carrier NJS launching the operation, which, by buying a stake in Irish regional airline CityJet, could have allowed for sourcing an air operator's certificate while circumventing European Union ownership rules. Industry sources say BA aims initially to fly regional jets between Palermo and Rome and Milan. In the longer term, BA was said to be considering options, including competing on the growing Rome-Milan market and trunk routes such as Rome to Paris; developing Rome as a rival domestic or international hub to Alitalia's Milan Malpensa; and possibly using Turin as a mini-hub.

Industry sources say BA wants to take advantage of the state-aid related capacity and price restrictions imposed on Alitalia, the Italian carrier's preoccupation with internal reorganisation and its alliance with KLM - Alitalia and KLM are merging sales operations over the next two months - and a refocusing of operations at Malpensa. The expansion of Rome Fiumicino, the liberalisation of Italy's air services and ground handling, and strong political support for the project in the jobless depressed south, have also encouraged BA, say industry sources.

An Italian contribution of L7,000 million ($3.9 million) to the BA franchise project is said to have been raised by Italian merchant bank, Gallo. It is unclear, however, how BA intends to realise its foray into the Italian market.

Alitalia's and BA's designs on Rome and southern Italy have not escaped others. A new regional airline, Si Fly, based in Palermo but using Rome as its hub, has begun with two leased ATR 42-300s.

Alitalia remains in good financial shape, announcing a preliminary net consolidated profit of about L400 billion last year, L35.6 billion less than in 1997. It is thought unlikely, however, that the next stage in the privatisation of the carrier will take place this year. The deadline is also slipping for a tie-up with KLM partner Northwest. This had been due to start in February.

Source: Airline Business