Alitalia Is Expected To Run Out Of Cash Within A Month

Well, unfortunately it looks like Etihad’s investment in Alitalia isn’t working out quite as either party had hoped. A few years back Etihad bought a 49% stake in Alitalia, and there’s no doubt they improved their onboard product, in terms of business class seats, wifi, crew uniforms, dining, etc.

New-Alitalia-Uniforms

All of that is nice, but it doesn’t make an airline profitable. Since Etihad purchased a stake in Alitalia, the goal has been for Alitalia to break even by 2017. Instead Alitalia is expecting to make more than €600 million in operating losses this year. That’s average losss of €68,500 per hour. Ouch.

These losses aren’t sustainable, and in this case it looks like cash will be running out sooner rather than later. ItalyEurope24 is reporting that Alitalia is expected to run out of cash by the end of March, and will no longer be able to afford fuel or lease payments for their planes, pay their 12,000 employees, cover airport fees, etc.

Unlike in the past, Alitalia is also running out of options. Etihad already owns a 49% stake in Alitalia, which is the largest stake they’re allowed to hold. Furthermore, given the financial pressure Etihad is under, I can’t imagine they’ll continue to just throw money at Alitalia, given that Alitalia’s problems are getting worse, rather than better. Etihad has started to cut off airberlin, so I imagine the fate for Alitalia will be similar.

In fairness, Alitalia was in a similar situation just before Christmas last year, though they received a €180 million lifeline (which only lasts a few months, at the rate they’re losing money):

They avoided the collapse on December 22nd when the shareholder banks on the board, UniCredit and Intesa Sanpaolo, released the lines of credit that were already granted, worth €180 million. Facing strong pressing by Paolo Gentiloni’s government, the banks turned a blind eye to the fact that there’s no business plan to indicate how the company intends to turn things around and stop hemorrhaging losses.

alitalia-777

The airline just isn’t presenting any sort of a realistic goal, and hasn’t met any of their targets:

“Within three weeks,” Alitalia will have a plan that’s “strong and brave”, stated President Luca Cordero di Montezemolo on January 12th. More than six weeks have passed, but the plan still hasn’t shown up. Independent advisor Roland Berger gave a negative first evaluation of CEO Cramer Ball’s business plan draft. There were also failed results for the savings that the December 22nd board had asked Ball to launch within 60 days. They’ve only saved (for certain) €1.2 million, in maintenance, in comparison with their goal of reaching at least €160 million this year among all suppliers (from airplane leasing to handling), excluding employee costs.

Simply put, the airline is a complete disaster. Is there a chance they’ll be given yet another lifeline? Absolutely. Is it possible that the airline will be forced to ground planes and shut down many of their operations in a few weeks? I’d say so.

But even if Alitalia gets yet another lifeline, I don’t see how they’ll actually thrive long term. These are all short term boosts that might give them a few more months of life, but it doesn’t solve their bigger issue. Up until now Alitalia hasn’t met any of their stated goals since Etihad’s takeover, and the situation is getting worse, and not better.

Personally I wouldn’t feel especially confident about any Alitalia flights for travel after March operating as scheduled.

How do you guys see the Alitalia “situation” ending?

Comments

  1. Pretty sure Etihad will be like Swissair.

    Considering this report, I bet suppliers and airports will demand ash upfront before servicing. By the way, watch the Grounding of Swissair. It’s a fantastic Swiss movie (in German) about the Airlines fall. Etihad essentially replicated the Hunter Strategy by buying stakes in money losing Airlines.

  2. We Italians are world-famous for bending rules. Election time is near and there’s no way they’re going to let it fail. So Ben, I guess you’re still in time to try its new J class. 😉

  3. @Ben
    We have 2 non stop business tickets late May Rome to Boston using Air France points, do we just wait and see see what they do?

  4. What’s the reason for their terrible performance? US airlines seem to be basically printing money at this point. Italy would seem to be an attractive destination to many. How is the rest of the industry doing worldwide?

  5. From a purely emotional standpoint, I really hope Alitalia is able to figure out a way forward and not just fold.

  6. If they do start grounding planes, I think the smaller domestic/intra-euro routes would be the first to go? Or at least I hope so… because I have biz class award tickets JFK – FCO in late May. T_T

  7. No worries; the Italian government will no doubt find a way to throw more cash in the bottomless pit called Alitalia.

  8. What about the Delta/air France /Klm/Alitalia partnership? Alitalia is one for the important feeder in Europe for delta. No? Delta must be looking at options

  9. Yes, What does one do with ticket/miles at Alitalia? I have 2 tickets in the fall. Actually, only outbound as of now, because 2 weeks ago they cancelled my flight from FCO-ORD. Now its seasonal only to Oct 1. My outbound from LAX is still in limbo. These miles came over from AMEX. Arg! Should I book something on non AZ metal and pay the higher price?

  10. They have been losing money for decades…. I am genuinely unable to understand why they can’t fix their business when many other airlines have been successful in doing so. They have cut loads of routes (they even had flights to Sydney and Melbourne in the 90s), they have ditched the 747s, had loads of foreign investment, changed the people at the helm…. nope, always in the red. Mystery.

  11. Alitalia is a real legend amongst european carriers. It’s been sucking money for years now, had investments from countless places, had tons of route cuts (and a few layoffs, italian unions eh …) and has changed strategies countless times. I mean it’s so bad no airline even wants to buy it now. Even Willie Walsh who managed the incredible feat to put Iberia back in the green doesn’t want it. Something cruelly wrong with that airline.

  12. I booked a paid Alitalia business class flight through Delta on a code share in July. If Alitalia goes belly up does delta have to reroute me? Do I bear the risk of loss?

  13. In italy you cant fire an employee. Even if you catch that person on viedo stealing money out of a cash register, the employee can take the employer to court sue for firing and win money

  14. Flew Alitalia lasy summer inside Europe and across Italy. Simply fantastic!!!! From the great service, to impeccable FA uniforms, to very clean planes with fantastic leather seats and simple but great on-cboard snacks. I really hope they can find a way to keep it going.

  15. too many costs, too little profit? sounds simple, cut costs to a bone now, if the crewe, don,t agree, close it down, otherwise the Italian Gov will say they will loan the company monies, which will never be repaid, seems a shame, but you can not keep bailing out.

  16. Different countries choose different paths but I doubt any of the legacy American airlines would still be around without bankruptcy protection. Bankruptcy has its down sides but it allows airlines to start fresh and forces all interested parties to come to the table. Alitalia has several problems perhaps the biggest being too many employers for their current route map. But they cannot fire them/lay them off and they don’t have bankruptcy to facilitate the needed reorg.

    Also, unionized American workers have more motivation to come to the table when things get really bad. In the USA, the PBGC guarantees pensions but only to a limited extent and rarely protects big pensions fully. If the company or airline who gave you the pension/retiree health goes bankrupt, you lose a lot of the promised benefits. In Europe, the government more fully backstops pensions and provides health care so employees don’t have as much motivation to make sure the company they work for survives.

  17. I’d expect something like the airBerlin program where Lufthansa is “leasing” routes, planes, and crews from airBerlin to keep low-cost competitors out.

    DL/AF/KLM have an interest in not letting low-cost competitors on these routes.

  18. Give the long history of losing money here I can’t imagine that (even though they should) the Italians are going to let the company simply go belly up. Some minor cuts may be made and some surface changes to reduce losses but in the end this looks a lot like the Greek debt crisis. The political will to actually fix it or abandon it simply does not exist.

  19. They said the same thing when Malév, the hungarian national airline was struggling. “The government will never let is baby to fold. The government folded it and allowed Wizz to come in and take the majority of routes.

  20. I would look for one of two things to happen:

    1) Italian government, yet again, steps in to “save” them, contravening EU rules and not actually fixing anything.

    2) They’re allowed to fail (as should have happened years ago) and a new carrier fills the basic market role of providing long-haul service to and from Italy.

  21. Of course they should go under. They are bankrupt. What is the point in seeking yet more bailout funds/strategic partners/white knights . They have had every chance: Air France/KLM relationship, Etihad.
    They are a national embarrassment.

  22. Actually, I was hoping for a real answer as to what happens to people who have either purchased tickets (with cash or miles) or have miles in the program? Whats the typical scenario? Is an issued ticket still valid? Generally is it better to have and AZ issues ticket or a Skyteam/EY ticket?

  23. The simplest way for Alitalia to save itself is likely to be if they could find a way to be bought by Air India. Air India has lost around $10 billion to date with no end in sight and its existence has never seriously been questioned.

  24. The Italian government will probably come up with some sort of bailout, and the EU will look the other way (oh, the Commission may make a couple of barbed remarks, but that’ll be about it.) And a couple of years from now we’ll be here again.

  25. Italian national debt currently is about $2.4 Tln . Couple billions here or there wont make a lot of difference 🙂

  26. @CraigTPA – “the Commission may make a couple of barbed remarks”

    That’s about all the EU is good for. 🙂

  27. Well there goes the planned SFO-FCO route. We’ll never get a direct flight from San Francisco.

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