Alitalia Bankruptcy Coming, Who Will Dominate The Italian Sky In The Future?
In the past few decades, Alitalia has been relying on government subsidies to survive. In 2014, Etihad invested to acquire of 49% of Alitalia and plans to cut costs and concentrate on the development of international routes out of Rome and Milan to boost its profitability that are less concerned by low-cost airlines such as Easy Jet and Ryanair.
However, the acquisition ended with Etihad Airways’ suspension of investment and Alitalia has decided to file for bankruptcy. Afterwards, the Italian government provided a 900 million euro short-term bridge loan for Alitalia to help them maintain operations til the end of 2018. Due to the political instability in Italy’s recent general election, it is unclear whether or not Alitalia can obtain additional subsidies.
The players that may acquire Alitalia are investigating on various strategies to make Alitalia a face-lift and trying to split the Airline to keep those best-performing route network and fleet, or achieve deep-rooted permanent cuts. April 30 is the deadline for bids.
In 2017, Qatar Airways took the opportunity to acquire 49% of AQA Holdings, the parent company of Italy's second-largest airline Meridiana Fly. In February, Meridian Airlines changed its name to Air Italy and announced plans to expand international routes and update its fleet.
According to the expansion plan, Air Italy will fly to Bangkok, Miami and New York from this year in addition to domestic air routes, and will add new international destinations in 2019. In April, Air Italy will receive the first of the 20 Boeing 737MAXs it has ordered, five Airbus A330-200s leased from Qatar Airways, and from May 2019, Air Italy will start receiving Boeing 787-9 aircraft. The total number will eventually reach 30. Air Italy’s goal is to establish a fleet of 50 aircraft by 2022 and serve 10 million passengers annually.
However, since Ryanair and EasyJet operate a large number of Italian domestic flights and flights from Italy, compared to international routes, Alitalia’s domestic routes are of relatively small value. According to the data of Airline Weekly, in the 12 months of July 2018, Italy is the country with the largest number of seats in terms of seating capacity for Ryanair, which is expected to increase by 6%.
The managing partner of Aviation Weekly, Seth Kaplan, said: "If Alitalia disappears, most of the markets occupied by Italian Airlines are likely to be divided up by the truly profitable airline."
There are such precedents in reality. In 2012, Malév Hungarian Airlines, the national carrier of Hungary, was suspended after years of financial difficulties. Today, Wizz Air, EasyJet, Lufthansa, and other aviation divisions dominate the Hungarian aviation market.
Europe has also witnessed other aviation companies that have been operating since the 20th century but have survived for decades thanks to state subsidies. These aviation divisions were eventually defeated by market forces and went bankrupt. In 2001, Belgium's Belgian Corporation for Air Navigation Services (Sabena SA) went bankrupt; in 2002, Swissair went bankrupt; in 2009, Greece's Olympic Air was suspended; in 2015, the Portuguese government sold a majority stake in TAP Portugal.
For Alitalia, interested players may include: Lufthansa, Lufthansa’s previous acquisitions of Brussels Airlines, Austrian Airlines, and Switzerland’s bankruptcy carrier’s shares; Air France & KLM which once held 25% of Alitalia’s shares and Private investment company Cerberus Capital Management. In February, Frederic Cagey, Air France’s chief financial officer, said that Air France wanted Alitalia to remain a member of SkyTeam Alliance without buying shares from them.
According to informed sources, Thiborow Capital Management intends to acquire the entire Alitalia Airlines and plans to completely retain Alitalia.
Delta Airlines and Easy Jet may also be interested in Alitalia. Delta Airlines spokeswoman Olivia Cullis said that Delta is paying attention to Airline’s bankruptcy but does not comment on “rumors”. Delta Air Lines President Glen Hauenstein served as Chief Business and Operations Officer of Alitalia from 2003 to 2005.
