Few would have underestimated the task Etihad boss James Hogan took on by adding Alitalia to the Gulf carrier's expanding fold of equity partners.
The Gulf carrier was already well-versed in taking on struggling carriers, having invested in Air Berlin, the former Jat Airways operation, Air Seychelles and, most recently, India's Jet Airways. But Alitalia represented an even bigger challenge – a notorious political football, bereft of investment, with a home market where international low-cost carriers had arguably advanced further than in any other European country.
Progress so far has been unspectacular. The Italian flag carrier has begun rolling out new routes, making efficiency gains, and revamping the product, unveiling a brand refresh. But losses continued in the first half, racking up to €130 million ($148 million) – not helped by fire disruption at the airline's Rome Fiumicino base and suspension of a profitable Venezuela route amid the South American nation's continued currency issues.
So when Silvano Cassano, picked a a year ago as chief executive to run the revamped Alitalia, last month surprisingly quit after less than a year in the role, Hogan and charismatic Alitalia chairman Luca Cordero di Montezemolo decided a public show of faith in the project was necessary. First staff, then the media, were briefed not only on progress to date, but on plans to accelerate action. But the main messages were twofold: there is no change in direction, and the carrier remains on track to make a profit in 2017.
"Some could think: 'Change the person, change the course of the company.' Let us say quite clearly that the plan will not change," said di Montezemolo, the former Ferrari chief who spoke about putting a "turbo" in Alitalia's development efforts. "It is continuing and we even want to speed it up," he says.
This is echoed by Hogan. "This business is in good hands. We are committed to the plan. We are as focused as partners as we have been since day one."
But both point to the scale of the task. "This is a company that in August last year was struggling to have the money to pay fuel for its aircraft," says di Montezemolo.
The Italian carrier has been a serial loss-maker. It racked up €1.7 billion in net losses in the first five years after relaunching as a private carrier in 2009. That relaunch had been meant to signal a new start, after a previous succession of annual losses. Alitalia combined with Air One, but was forced to retrench as part of clearance for the deal and has struggled to impose itself again amid tough market conditions and ever-expanding low-cost rivals.
It all adds up to a lost decade for the carrier. The 23.4 million passengers Alitalia carried in 2014 is half a million fewer than it did in 2005.
Just as Air Berlin, Jet Airways and another Etihad equity partner, Virgin Australia, provide the Abu Dhabi carrier with access to key markets in – respectively – Germany, India and Australia, so Alitalia connects the attractive Italian market. While Italy is a fragmented market, few others countries offer inbound and outbound business and leisure opportunities.
"With this market, with this country, Alitalia should be successful. I haven't changed my position from day one," says Hogan. "But I was clear from day one, it was a three-year rebuild. When you build a house, you lay the foundations. It doesn't come together in 30 days. We are building a house, which takes time, systems and processes.
"This is about profitability. We are not a bank. We have to get the business back in shape to improve sales, improve load factor, improve the quality of the revenue."
The new Alitalia has begun reshaping the network, with an unsurprising focus on Abu Dhabi and working with Etihad partners. This includes new Abu Dhabi flights from Venice and Milan, as well as resumption of Seoul operations and a summer service to Shanghai. The Italian carrier has also added codeshares with Etihad partners Jet and Air Seychelles. Its latest additions, confirmed during the press conference, will be Santiago in Chile and Mexico City next summer.
"In the past, Alitalia would operate three or four times a week," says Hogan. "It is now moving to daily – double-daily in some cases, domestically."
The carrier sees further international growth opportunities. Di Montezemolo says it is talking to its SkyTeam partner Delta about growth in North America, while talks continue over a targeted Beijing service.
"We need to accelerate the pace, grow with SkyTeam in the Americas, grow with us [Etihad] in the east," says Hogan.
While it strengthens at Rome, the carrier is determined to capitalise on the business-friendly Milan market. "We need to build our presence in Milan to take advantage of the north. Linate, that needs to become a fortress for Alitalia," Hogan says, urging the Italian government to implement the second phase of the Bersani law which covers the Milan airport system to enable it to increase its flying at Linate.
"At the same time, we need to build our long-haul capability out of Malpensa and we have committed as Etihad, with Alitalia, to build a major cargo operation out of Malpensa," says Hogan, noting talks on potential co-operation with Poste Italiane – which itself took part in Alitalia's recapitalisation last year.
For northern Italy, both Hogan and di Montezemolo point to the importance of Etihad partner Air Berlin. Alitalia and Air Berlin wasted no time in deepening their existing codeshare partnership last October.
"Air Berlin is the sixth-largest airline in Europe. We are looking at how to take advantage of that corridor [between Italy and German]," he says. "We don't want to surrender that business to Lufthansa or the low-cost carriers." Lufthansa previously operated a short-lived Milan-based unit, while EasyJet is already strong at Malpensa and Ryanair begins its first services from the airport in December.
October data from Flightglobal's schedules specialist Innovata shows EasyJet as the largest operator of Malpensa, accounting for around a third of all seats from the Milan airport. Alitalia is the second-largest operator at the airport in available seats, but the airline's 5% share is only fractionally ahead of Lufthansa's, and the latter's low-cost unit Germanwings holds a 3% share.
Alitalia does have the lion's share of capacity at Milan's slot-restricted downtown airport Linate, holding a 56% share of seats covering domestic and European services. Air Berlin also operates into Linate, holding a 4% share of capacity.
The Italian carrier is the second-largest carrier by capacity at another of its key northern Italian airports, Venice Marco Polo. EasyJet again has a strong position at Venice.
Alitalia's domestic strategy includes lifting capacity on key markets, notably linking Rome and the north to key destinations in the islands of the south.
Alitalia is also stepping up its product and services. "Over the next 12 months, there is going to be significant investment across the business, in excess of €280 million," says Alitalia finance chief Duncan Naysmith. "This includes the fleet retrofit programme, new systems, our lounges and our workplace."
Progress is being fast-tracked in the overhaul of the fleet. Alitalia's oldest aircraft are being grounded ahead of a complete refurbishment. Wi-fi connectivity will be available across the fleet, including the narrowbodies.
"We are just about to ground [to refurbish] two of the old [A330] aircraft with the old product to ensure as we go to the summer that the Alitalia proposition is best in class," says Hogan.
New or revamped lounges will be rolled out over the next year across Rome Fiumicino and the two Milan airports of Linate and Malpensa. "Over the next 12 months, you'll see look, feel, interior and service proposition of the lounges," he says.
Collaboration is also taking place with Rome Fiumicino operator Aeroporti di Roma, with several initiatives in infrastructure and personnel aimed at improving the experience for customers, and di Montezemolo is hopeful of an Alitalia-dedicated facility. "We are confident that by the end of 2016 we will have a terminal that is fully dedicated to Alitalia," he says.
Hogan also believes the carrier is benefiting from investment in technology to drive revenues. "We need to improve the quality of the revenue. We need to improve the load factor and we need to improve the average fare," says Hogan. "We didn't have the analytics in Alitalia 12 months ago. They are now in place at Alitalia, and what we are seeing is, the RASK in the third quarter of this year is starting to accelerate."
Alitalia's partnership with Air France – with which Etihad is also a codeshare parent – remains up for debate. Alitalia has called time on the existing joint venture deal – struck during happier times for Air France-KLM, and grimmer days for Alitalia – covering Franco-Italian routes. The pact, though, does not expire for another year yet. Hogan discussed it in meeting with Air France management in the last week.
"There is a negotiating team from Alitalia who are working through the agreement. What we are looking for is a fair and balanced agreement between both sides," he says.
Both Hogan and di Montezemolo are also calling for greater support from the government in promoting Italy as a tourism destination. "Tourism was a major commitment from the government to support us as we rebuild the network, to support the focus on Italy as a destination, and that still needs to be concluded," says Hogan.
"From a European perspective we feed as much business into Alitalia as it does into Etihad. So that gives us the chance in Asia and the Middle East to sell Italy as a destination: that is why tourism is important. If we are going to go out to these markets in Australasia, southeast Asia, we need the tourism organisations working with us to promote what is great with Italy."
He adds: "This is one of the toughest markets in aviation. A weak Alitalia cannot survive in that environment without the support of Italy Inc. That's what I see in other countries. I see the stakeholders in government, in regulators, in airports, in tourism, supporting the national carrier. And that's what we need to see in Italy."
Source: Cirium Dashboard