Nearly two years into Etihad's investment into Alitalia, the attempts to create a profitable operation at the Italian carrier continue to present challenges.
Speculation has been rife around Alitalia as it is expected to finalise an amended business plan shortly. A report in Italian daily Il Sole 24 Ore, citing informed sources, says a business plan to be put forward for approval later this month could put more emphasis on its long-haul operations and would could involve grounding 15-20 Airbus A320-family aircraft. The carrier operates around 70 Airbus narrowbodies. The report also suggests up to 2,000 job cuts. Alitalia has not responded to a FlightGlobal request for comment.
The loss-making Italian carrier has been restructuring since securing fresh investment led by minority stakeholder Etihad Airways. A return to profit is targeted for 2017. But while Alitalia successfully cut losses to just under €200 million ($227 million) in 2015 – the first full year of its restructuring – toughening market conditions have added pressure to its route to profitability.
Etihad group chief James Hogan has from the outset acknowledged the challenge of turning round the serially loss-making carrier. "It is not going to be easy, it is going to be tough," he said at a Rome press briefing in October 2014, confirming Etihad's plan to take a 49% stake in Alitalia. But he added that if he did not believe in Alitalia's commercial viability, he "wouldn't be here".
A year later Hogan and Alitalia chairman Luca Cordero di Montezemolo demonstrated a public show of faith in the project, after chief executive Silvano Cassano surprisingly quit less than a year into the role.
"With this market, with this country, Alitalia should be successful. I haven't changed my position from day one," said Hogan in October 2015. "But I was clear from day one, it was a three-year rebuild."
Whether that rebuild can still achieve a profit in three years is open to question amid the harsher market climate. "In year one, we hit the numbers," Hogan told Italian daily paper Il Corriere Della Sera in an interview last month. "This year with terrorism, with Brexit, but also with the opening-up of this market to low-cost airlines, average fares have been damaged. I believe this business can work, but it needs a revision to the industrial plan due to the economic crisis in Europe."
During that interview Hogan vented his frustrations at the Italian government's failure to deliver on several commitments, including boosted tourism efforts and opening-up of access at Milan Linate airport. This provides further indications that progress in the Alitalia transformation remains bumpy.
After its recapitalisation by Etihad and its Italian partners, Alitalia embarked on a revamp of its product and fleet – in particular overhauling its long-haul offering in a bid to improve revenues. This is in line with work Etihad has carried out at other equity partners, notably another struggling European operator, Air Berlin.
The suggestion in the Il Sole 24 Ore report that Alitalia is considering making cuts to its short-haul operations in favour of shifting focus to growing long-haul echoes the revamp at Air Berlin. As losses have persisted, the German carrier has been forced to into a major restructuring and last month disclosed plans to slash its fleet and network.
Direct comparison with Air Berlin is difficult because of the differing starting positions of both. Air Berlin's roots in a series of leisure-carrier acquisitions meant it was operating in multiple sectors, and one of the aims of its latest restructuring is to focus on network carrier operations. Alitalia, meanwhile, has focused on network carrier operations.
Both, though, have been expanding their long-haul networks. Alitalia, for example, this month begins flights to Havana, adding to the Mexico City and Santiago services launched this summer.
In the short-haul sector, both carriers continue to face heightened competitive pressure from European low-cost carriers, especially given capacity levels in the market this summer. Low-cost carriers, led by Ryanair and EasyJet, have long made inroads into the Italian short-haul market. Figures from the Italian regulator ENAC for 2015 show Ryanair extended its lead as the largest carrier of passengers on Italian routes.
FlightGlobal schedules data for November shows Ryanair – back in expansion mode armed with new aircraft deliveries – continuing to grow capacity on European routes from Italy. While Alitalia remains the second-largest carrier, it is notable that four of the six biggest carriers on Italian services to Europe are from the low-cost sector.
That Ryanair should continue to expand in Italy, though, should not have come as a surprise to anyone. "We have seen a lot of opportunities since Etihad started rationalising Alitalia, because clearly what they are interested in is the long-haul operations of Alitalia, [they are] not particularly interested in what Alitalia are doing on a short hop basis," Ryanair finance chief Neil Sorahan told FlightGlobal at the end of last year.
Last month, there was also speculation over Alitalia having met Lufthansa managers to discuss the German carrier taking a stake in its Italian counterpart – a suggestion dismissed by Alitalia. That speculation appears to have been driven by the requirement to fund long-haul expansion – with Il Sole 24 Ore suggesting Italian investors with Unicredit and Intesa Sanpaola are not available to invest further.
Source: Cirium Dashboard