Following the demise of its joint venture with KLM, suitors for Italian flag carrier Alitalia are lining up. Mark Pilling/LONDON

While the official line from all the airlines is that "everybody is talking to everybody", the carriers most closely linked with a possible Alitalia tie-up are Air France and the SAir Group.

Air France, which lost out to KLM in 1997 as Alitalia's preferred partner, is interested in an alliance (Airline Business, September 2000, p44), and some see it as the best fit. "Air France makes more strategic sense for Alitalia [than SAir]," says Chris Avery, analyst at JPMorgan. The cultural affinity between the airlines is greater, he says, and Air France is in a better position to help Alitalia exploit its undeveloped domestic market. It could operate the airports of Milan Malpensa and Paris Charles de Gaulle in a dual hub system, and Alitalia could feed traffic to Paris from its Italian network.

For SAir the benefits seem less clear. Swissair's Zurich hub is only 160km (100 miles) from Milan, and the Swiss carrier gains a lot of traffic from northern Italy as passengers prefer to travel to Zurich rather than to Rome to make international connections. If SAir were to help Alitalia to re-build its Malpensa hub this would erode its own traffic base, said Avery.

SAir also has balance sheet constraints, due to its purchase of a 49.5% stake in Sabena, rising to 85% next year, and could probably only envisage a non-equity alliance, Avery adds. Air France is in a better position to enter an equity stake, and has fewer reservations than SAir, or KLM, about the outstanding matter of government holding company IRI having a 53% stake in Alitalia, and how this would be sold.

A link-up with Air France would give Alitalia a method of entry into the SkyTeam global alliance, and raises the prospect of closer ties with Delta Air Lines. On the other hand, SAir's wide code-sharing arrangements with American Airlines would offer the Italian carrier an alternative alliance deal with a USmajor.

Alitalia's results for the first six months of the year will only strengthen its resolve to find a partner to develop its fleet and bolster its network. Although revenues rose by 14% compared to the same period in 1999 to L4,915 billion ($2.18 billion), it made an operating loss of L346 billion.

It is attempting to contain what it calls "short-term" losses, by suspending services to Sydney, Nairobi, Addis Ababa and Bangkok, while boosting frequencies to Mumbai and Dubai. European and domestic routes will also be cut.

Source: Airline Business