Staying alive: Alitalia given $443 million government loan
The fact that Alitalia is losing out on market share in its own home market is evident by data provided by ENAC – out of the 42 airports operating in Italy, Alitalia has the biggest share in only five of them. Furthermore, low-cost carriers have slowly started to dominate the skies above the South European country: in 2004, 6.2% of total travelers flew in or out of Italy with a no-frills airline. Just 10 years later, in 2014, the number was 45.8%, while in 2018, the market share grew to 51.3%.
However, low-cost carriers on domestic routes are not the only troublemakers in Italy. Many mainline carriers have also heavily increased their presence in the country, including such groups as International Airlines Group (IAG) or Lufthansa Group. Lufthansa (the airline) alone grew by 8.4% in the country from 2017 to 2018, while British Airways, the seventh biggest airline in the country by passenger numbers, increased its presence by 7.5%. During the same period, Alitalia only grew by 1%.
But the Italian flag carrier’s presence remains fairly firm regarding transferred passengers. After all, Alitalia flew 21.7 million customers in 2018. At the same time, this possesses a huge risk for Italy and its connectivity, as highlighted by Aeroporti di Roma, the holding company that operates both airports in Rome, whose “business performance is also affected by situations concerning the main Italian carrier (Alitalia)” and other airlines operating in the airport. If it were to go down, replacing a network consisting of 94 destinations would not be an easy job, given the scale of Alitalia, despite the economic hardships.
In October 2019, it was also reported that Ferrovie Dello Stato Italiane, a national railway company and Atlantia, a toll-road operator in Italy, committed to being the saviors of Alitalia. The two companies were also looking for a third party – an experienced airline, which is seemingly a difficult task.
The potential investor list still includes several high profile players in the aviation industry, like the Lufthansa Group and Delta Air Lines. But several factors could hinder a potential deal with either of the two. Firstly, the Chief Executive Officer of Lufthansa, Carsten Spohr, publicly stated that the German airline group would be interested in a stake only if Alitalia were to go through a restructuring process, including job cuts – a big no no from the carrier’s unions, as evident by the refusal in 2017. Another potential hurdle would be the stamp of approval from the European Commission, as Lufthansa already owns a few airlines in Italy’s neighboring countries, namely Austria and Switzerland.
Delta Air Lines was already rumored to be looking for a way out of the rescue plan. Reported by Corriere Della Sera in October 2019, the Atlanta-based airline is reportedly stomping its foot down and saying that it will not increase the initial offer of $112 million (€100 million), as Delta is not interested in a bidding war. Thus, the list of potential investors shortens to basically nothing. On the other hand, the market between Italy and North America is growing rapidly, showcasing a 15% increase in passenger numbers between 2017 and 2018, thus it would be a great opportunity for Delta to jump in early and get ahead of its competitors; something it has done just recently by acquiring a 20% stake in LATAM.
Another option would be the nationalization of the carrier. But the previous Italian government has ruled out the option, as it wanted a “market solution” to keep Alitalia running. However, the solution would encounter the same two issues mentioned previously – the inability to cut costs due to its unions, which are also pressing for a solution to Alitalia’s financial crisis. Future prospects, whatever they might be, are still grim – the current operational environment in the industry, the fact that Alitalia boasts a fairy old fleet, averaging an age of 12.7 years, with no potential orders or new deliveries in sight and union struggles casts a shadow of doubt whether the continuous loans will help save Alitalia.
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