Alitalia Has A (Ridiculous) New Business Plan… Will It Keep Them Alive?

Well this should get interesting. In late February I wrote about how Alitalia is on the verge of running out of cash. Without a new investment or business plan, they were expected to run out of cash by the end of March. This shouldn’t come as much of a surprise, given that they’ve been on life support for quite a while, but always had investors come through last minute.

It has been a few years since Etihad bought a 49% stake in Alitalia, hoping to turn them around. The plan was that Alitalia would break even by 2017, but instead they’re expected to lose more than €600 million this year.

With that in mind, something’s gotta give. Etihad already has the biggest stake in Alitalia that they’re legally allowed to. The Italian government won’t bail them out. And any bank that’s willing to pour more money into Alitalia is just plain dumb.

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Well, it looks like Alitalia has come up with a new business plan, which they claim the board should approve by the end of the week. So, what does this new business plan entail? If my understanding is correct:

  • Alitalia is currently run by a former Etihad executive, and the banks willing to give them more money want him replaced with an Italian
  • Alitalia will take 20 shorthaul aircraft out of service, and will lay off a further 2,000 people; if these cuts don’t get approved, the banks won’t provide additional funding
  • Alitalia will grow their revenue by 40%

That’s right, Alitalia is going to park 20 planes and grow their revenue by 40%… as one does. Again, the further financing is contingent upon the layoffs and parking of planes being approved, so it’ll be interesting to see how the unions react (not that they have much negotiating power here).

There’s no denying this is a super crappy situation. However, it’s not like Alitalia’s struggles are temporary. This has been going on for a very long time, and they’re keeping an unsustainable company on life support here. Is the best course of action to just let them liquidate? Or to set another completely unrealistic goal? Or…?

We’re talking about banks investing their money here, so it blows my mind that they think they’ll get an ROI…

Comments

  1. I’m not sure if it’s in relation to this new business plan but a 2.5hr AMS-FCO return I was planning, in economy, has jumped from €230 to €600 overnight! Compared to everyone else at €170-250.

  2. I think the racial requirement for leadership is what’s *definitely* going to make this work.

    There must be more to it but their offering has never been competitive or compelling and surely a staff cull is going to make for low morale which in turn makes for poor service which in turn doesn’t really allow them charge 40% more or get their staff to work 40% more for less money.

    Could they be thinking that all that’s been wrong is they haven’t been Italian enough in their branding?

  3. @Otto: Maybe due to a surge in demand caused by those who want to fly AZ one last time before it definitely goes out of business? LOL

  4. Got alitalia inter europe ticket, no status, economy. They don’t charge check in luggage and seat selection during booking. Most airlines, legacy and low cost, make millions from “add on” charges like checked luggage fee,seat selection etc. I guess Alitalia feels they don’t need this money.

  5. @Endre
    If you haven’t taken your flight yet, I suggest you check carefully because if it’s “Light” as opposed to “Classic Economy” they may well charge you at the airport ( and €40 rather than 20).
    I am in the same situation: it wasn’t clear from the Alitalia booking page if luggage is included for Sky Team Platinum, in my case AF. Turns out it’s not but after a keystone cops style runaround from Alitalia ( ” you’ll have to ask Air France about the luggage”), I gave up and booked on KLM.
    I want to support them but they make it awfully hard.

  6. So that explains the cheap rates they are advertising from USA to Italy lately 🙂
    I’d they need emergency cash they should sell status to new customers 🙂

  7. Guys, relax.
    I’m an Italian tax payer and I’ve lost count of how many times I’ve “bailed out” AZ.
    Happened before. Will happen again.
    There’ll be some hussling and tussling between management and unions but at the end of the day they’ll agree on some layoffs, but nowhere near the 2000 that were hinted.

  8. Ah the interesting world of continental European business…

    Replace the former Etihad executive with an Italian…La dolce vita!

  9. The banks which are supposed to lend money to Alitalia are Intesa SanPaolo and Unicredit, the 2 biggest banks in Italy with massive political implication and infiltration. Alitalia has survived so long because of political reasons (nobody in the parliament wants to be responsible for 12,000 job losses and leaving the country without a carrier), so they force the banks to keep the airline alive. Of course the banks know they will not have any ROI, but in exchange for saving Alitalia, they will benefit from favorable policies which they need in other situations and which the parliament will approve for them. Beside, most of the debts of Alitalia are towards other Italian suppliers, which won’t see a dime if Alitalia goes bankrupt. Therefore, the economic circle will keep spinning, for everybody’s benefit. For non-italian it might sound hard to understand, but unfortunately it makes quite sense here.

  10. The only partnership open to them is with their employees, If they could partner with their employees and lower their extremely high Labor costs and give them potential profit sharing, etc. they could possibly go forward and the employees would retain their jobs, absent that, I see no way forward for them.

  11. The former Etihad executive running Alitalia might be the reason why their spending habits have been incredibly ludicrous. Why ground and not lease out their 20 aircrafts, I wonder? Sell/lease their landing and takeoff slots, and flying rights.. They need to really downsize before they capsize

  12. Lucky, in 2015 you wrote about their canon improvement program, to be completed in 2017. Did they follow through?

  13. @Leonardo +1

    I don’t think the plan is “ridiculous.” Parking 20 planes (assuming they eliminate unprofitable routes), and laying off 2000 employees is a huge cost avoidance for a small airline.

  14. @paulo. Thank you for your comment. On my reservation, it clearly states that I’m entitled for 1 carry on and 1 checked in luggage up to 23kg. Additional checked in luggage is US$60
    I have Economy fare. You are correct, Light fare doesn’t include checked luggage.

  15. After the first news of this, I checked fares, LHR-LIN/LHR-MXP. They were higher than usual!
    I don’t know if you all know the European market, but you can fly this sector for £30 on LCCs, and on BA it is also very cheap about £150 in Y and £300 in J, return.
    I flew Alitalia in J last year for a little more than the BA fare at the time, IIRC £370.
    Seems very fishy to me. I think they want to go bankrupt.
    (The Alitalia new product, post Etihad takeover, is way better than BA, especially in J, but this time they wanted nearly 3x the BA fare!!).

  16. To the people who are concerned if their luggage is still included in the ticket, check your e-tickets (not reservation) and see what amount is stated there whatever is on there is what you can take, airlines can’t just start charging you for luggage all of a sudden.

  17. The reason they still get funding is that no one wants to lose 12000 jobs it is make or break time for that general part of Europe and they are going to throw as much money as the Italian Treasury will agree

  18. Right…so the banks will own the company.. We all saw how well banks did owning things in the Great Recession in 2008

  19. Booked a flight 2 days ago from Reggio Calabria to Rome for June 5. Cancelled by them today. They have discontinued all flights from Reggio Calabria to Rome.

  20. They should consider selling miles at a really low valuation, but with caveat that only redeemable at some point in the future . . . then they should cancel their miles program, restructure and shrug their shoulders . . . voila, free money!

  21. Alitalia has never made a single penny of profit since the day it rolled down the runway and took off ! Just like all the rest of high profile state entities it has been run by incompetent , inefficient and inexperienced friends and relatives of politicians ….. It never needed a business plan because the gov’t was always there to pour taxpayers money !
    Maybe Etihad probably needed a chunky tax write off to stake in AZ , don’t see any other sound reason ! Already with one foot in the grave a few years ago one of CEO still managed to walk away with hefty $$$$$ bonus !

  22. In my opinion, this is all a plan to resize the employee base. The quantity (and quality) of staff has always been the biggest ballast for AZ, and also local authorities in Italy don’t subsidize low-revenues flights (like Reggio Calabria, recently closed) like they should, for the sake of service. This means that either AZ grounds the plane and loses potential long range flight customers, or keeps the plane flying and loses money.
    I did appreciate the cabin improvement and lounge revamping of last year, but the problem is always the same: employees. They are all rather old, and enjoy wages and privileges which belong to a time now gone by. And they know they are untouchable, so they behave like everyone knows. The only way to be profitable is to downsize as much as possible, and then grow like a more modern airline, with a lower personnel/flights ratio than before. The main problem is that the airline is still structured like 20 years ago, when local routes were big milk cows. And changing in Italy is never easy, nor quick.

  23. I guess now you’ll all understand why the previous Pope (John Paul II) always kissed the ground after landing with Alitalia :-p

  24. Or they could do a repeat of end of last year’s “business plan”, launch a mistake fare, then surreptitiously cancel the tickets and try like hell to still keep the money paid! Took several back-and-forth with the credit card to get my money back!

  25. I have BUS flights FCO-ICN in May and June and getting worried now… Not sure if Etihad would take over the obligation given a) that they do not fly to Rome and b) that they do not sell Alitalia Tickets FCO-ICN on their website (otherwise would have booked it that way)…

    The protest of the Union and strike on April 5th does not make me confident either and I guess that shows in general booking numbers, worsening the situation. How long are they having money now?

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