Staying alive: Alitalia given $443 million government loan
Seemingly, the Italian government is still hopeful to properly bid farewell to Alitalia, as it would head to a new, not yet found owner. Signing papers to grant another loan, pending the approval of the European Commission (EC), to the tune of the classic Bee Gees’ song, the Italian Council of Ministers granted a whopping $443 million (€400 million) loan on December 2, 2019. The troubled Italian carrier has been bankrupt since 2017 when it entered the legal proceedings after its unions had voted no to a restructuring process of the airline.
“The negative vote has determined the inability to implement the relaunch and restructuring of the Company,” stated the press release, issued on May 2, 2017, announcing the administration process to keep Alitalia afloat.
Yet the whole process reminds of a scene out of “The Office”, where the Scranton branch attempts to practice First Aid to the same Bee Gees’ tune, Staying Alive. Multiple deadlines and potential investors later, the Italian airline is still on the brink of collapse. The latest deadline for a new owner is set to May 31, 2020, providing a glimmer of hope for Alitalia to survive the winter and potentially start the summer with a new investor on its side, finally ending a potential three-year struggle to lay down proper foundations for it future.
For Italy, maintaining connectivity through Alitalia is crucial. Tourism accounts for 13% of the country’s Gross Domestic Product (GDP), according to data presented by The Italian Government Tourist Board (ENIT). Rome Fiumicino (FCO) is one of the biggest airports in Europe, as it welcomed 42.89 million passengers in 2018. In total, 184 million people arrived to Italy via air in 2018. In addition, Eurostat data indicates that the country is the fourth largest intra-European travel market.
Alitalia, meanwhile, accounted for 38.8% of passengers carried through Rome’s FCO and is the second airline in terms of domestic and international traffic; the first and third airlines are Ryanair and easyJet, respectively. This already highlights two things: the importance of the wellbeing of the airline to Italy and one of the many reasons why the airline is struggling to keep itself afloat – low-cost carrier presence.
Vital Alitalia connections
Firstly, the Italian airline ensures regional connectivity within the country where 64 million people traveled on domestic scheduled and non-scheduled flights, states the 2018 traffic report published by the Italian Civil Aviation Authority (ENAC). Domestically, Alitalia, together with its regional subsidiary Alitalia CityLiner, is the biggest airline – the group carried 12.1 million passengers in 2017, the latest available data by ENAC indicates.
Such connections like Catania (CTA) – Fiumicino (FCO), Palermo (PMO) – Fiumicino (FCO), Milan-Linate (LIN) – Fiumicino (FCO) are the most popular domestic destinations within Italy, attracting more than 1 million passengers per year. The CTA – FCO route, which is the most popular intra-Italy route, is a battlefield between Alitalia and Ryanair. Alitalia offers nine daily connections, while Ryanair offers three connections. The former serves the route with an Airbus A320, the latter uses a Boeing 737.
If a passenger were to book a one-way trip on January 10, 2020, the Irish low-cost carrier’s prices cap out at $65 (€59), while Alitalia’s most expensive connection is $123 for a basic economy ticket. The cheapest options are an Alitalia flight at 8:20 PM for $43 and Ryanair’s departure just 10 minutes earlier for a more expensive price of $55 (€50). However, the low-cost carrier has much less pressure on yields due to its business model, even if Alitalia does not offer a Business class on this flight. In addition, on average, the Italian airline’s A320 fleet is much older (average age of 12.9 years) versus Ryanair’s younger fleet of 737s (average age of 8.9 years) according to planespotters.net data. The difference of four years can include a very expensive D Check, which also drives up the total unit cost for the airline. In essence, Ryanair can afford to offer these cheaper prices, while Alitalia has to crank up its fares in order to make up its costs, potentially driving customers to choose the cheaper option.
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