Alitalia Renationalization in a Nutshell

The beleaguered Italian flag carrier obtained a new lease on life thanks to the Italian government. Alitalia has struggled due to labor issues, inefficient policies, and competition. Although the government is branding the renationalization as a “rebirth”, the airline is likely to modify some aspects of its operations, while keeping the core of its current system. This will likely not bode well for the airline, and the government may have just picked up a major headache. 

What does the Alitalia Renationalizations Mean Right Now?

The airline, thanks to government intervention, will remain flying. The COVID19 crisis has made the airline’s woes much more serious, however, the airline will slowly start to ramp up its operations as Europe and Italy begin to open. Alitalia will keep flying while it implements the government’s proposed cuts. The airline, going forward, will have a smaller fleet. They will also reduce their workforce by hiring freezes and voluntary retirements. These are the currently announced cuts.

I expect the airline to further cut its operations. I suspect that some of their money-losing flights will be cut long term. Among these, flights to JFK and possibly South America might be gone post-COVID. The airline has an odd long-haul fleet operation, with 777s and A330s. I think it would be best for the airline to stick to the A330. The smaller aircraft would allow them to continue international flights while reducing capacity. Using only A330s would provide for fleet consistency and easier crew training. I suspect that the airline will also trim its European capacity, but to what extent and where remains to be seen. 

New Alliance (and Why I Think this is a Bad Idea)

Alitalia’s new administrators have floated the possibility of the airline joining a new alliance. They are currently a part of SkyTeam, however, they have been snubbed by the main SkyTeam players (Delta and Air France/KLM). The administrators have said they are interested in joining a new alliance, Star Alliance, and they hope that joining Star would make them a more valuable player. This makes a lot of sense from a Lufthansa perspective. They had a prior foray into the Italian market known as Lufthansa Italia which failed. Having Alitalia join Star Alliance, and Lufthansa not actually take an equity stake, would mean that the airline now has greater access to the Italian market. 

I think this is a bad idea overall. Although I acknowledge that SkyTeam has snubbed Alitalia, I don’t think to join a new alliance is the best decision at this time. Leaving one alliance and joining another involves costs that I believe would be too high to justify the reward. If Alitalia wants to switch its partnership strategy, it can leave SkyTeam in the short term. Afterward, they can negotiate codeshare partnerships with other carriers, such as Lufthansa and United. In a long term scenario, they could join Star Alliance once they are on better financial footing. 

What about an External Investor?

I don’t think this is a probable scenario. Etihad was a strong foreign investor in Alitalia, however, they have since exited their stake. Qatar Airways was invested in Air Italy for a while, but that investment also floundered. The question is, is there anyone who is willing to invest in Alitalia? It has extensive entrenched issues as well as frequent labor issues. Privatizing the carrier, without providing security to both the investors and the labor unions would lead to constant infighting and the probable re-intervention of the Italian government. It is also not in the best interest of the government to keep its stake in money-losing Alitalia. This puts the airline in a tough situation. Without an easy way out, Alitalia might be flying blind for the time being. 

Landing Thoughts

Alitalia is an Italian icon. I am glad the Italian government intervened and prevented its collapse. However, I don’t think this is a good long term strategy for the airline and the government. The liability of the stake on both parties will come to haunt them in the future. What is the best scenario for Alitalia? Maybe an angel investor with experience with labor unions that can navigate the Italian system. Did someone say Lufthansa? Overall, the airline will keep flying for now with a reduced footprint in the near future. 

What do you think? How will renationalization impact Alitalia? Will they join Star Alliance or stay in Skyteam?

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