Is Alitalia On The Brink of Collapse (Again)?

UPDATE: 23 MARCH 2019 – This is an update from a post last month. We now have confirmation that EasyJet has pulled out of negotiations.

Some would say this is the golden age of flying. Airlines are investing in new planes, better seats and prices have decreased across the board. I remember when a normal price from the US to Europe was $1000. Now, you can find deals to Europe during peak summer travel in the $300-400 range on a 787 Dreamliner.

However, not all airlines are feeling the love these days. One such airline that is holding on for dear life is Alitalia.

Alitalia has been on the verge of liquidation since the beginning of 2017. At the time, Alitalia was losing A LOT of money so they announced a restructuring plan but the employees voted against the plan because they were not interested in pay cuts or lay-offs. <—we will return to this point later in this blog.

So let’s take a look at what has transpired for Alitalia since early 2017…
– Etihad Airways, who owned 49% of the struggling airline, withdrew their support
– Italian government, TEMPORARILY, loaned Alitalia money while they tried to find investors
– Alitalia couldn’t find investors so Italian government continued to spend a obscene amount of money to bail them out
– Delta Airlines submitted a binding offer
– Italy’s national railroad submitted a binding offer
– EasyJet (a European, low-cost airline) offered non-binding expression of interest

ALITALIA IS IN A BIND

Challenge #1: The Italian Government does not want its flag carrier airline to dissolve into the abyss or see jobs lost but continuing to throw money into a failing program is not a recipe for success.

Challenge #2: Per EU rules, Alitalia can only be loaned money on a short-term basis by the government. Unfortunately, the loan period is two years (and counting) and Alitalia can’t pay back what it has borrowed without a buyout.

Challenge #3: Interestingly, there have been strikes by staff and air traffic controllers in protest over the airline not being sold off quickly enough and giving everyone job security. In fact, today, Alitalia cancelled 95 domestic and international flights because of the strikes.

INTERESTING NOTE: Alitalia staff don’t want to agree to restructure because that could mean pay cuts and/or lay-offs. However, the staff want to strike because they are not being sold fast enough (with guaranteed job security)???

This equation does not look good and leaves little margin for negotiation.

Obviously, Delta and EasyJet would have different objectives for their partnership with Alitalia but given the dire financial straights that Alitalia is in right now, I am willing to wager that Delta comes out ahead.

UPDATE: 23 MARCH 2019, EASYJET PULLS OUT

Well, we have confirmation that EasyJet has pulled out. EasyJet CEO Johan Ludgren said that purchasing Alitalia simply made no business sense. He added that going into a partnership with Delta and the national railroad also did not make sense as EasyJet had no plans of going into long-haul travel anytime soon.

FINAL STAMP (Updated)

This, without a doubt, will an interesting play for Delta because there are two major airlines in Italy…Alitalia and Air Italy. Alitalia is the largest carrier and Air Italy is the 2nd largest carrier.

That seems innocent unless you know the dynamics at play. Qatar Airways (a Middle Eastern carrier) owns a 49% stake in Air Italy and Delta has been the biggest critic of the ME3 (3 Middle Eastern carriers – Emirates, Qatar, Etihad).

If Alitalia goes under, Air Italy would become the flag carrier. If Air Italy becomes the flag carrier, Qatar Airways could potentially fly 5th freedom routes from Italy to the US. This would create more competition for US carriers and Delta definitely does not want competition.

Am I confident that the airline will remain in business long term? Not really. To be honest…I just hope nothing happens in the next month because I have a confirmed Alitalia Business class flight in the next 30 days.

In my opinion, however, if there is one airline that can turn Alitalia around, it’s Delta. Delta’s good at stuff like this. However, I assume that Alitalia is in an uncomfortable position knowing that if Delta formally withdraws …how do they say it in Italy? Ciao Alitalia!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s