Alitalia describes itself as an ambassador of Italy. But it is above all a symbol of the country's economic problems. The airline has not made an operating profit in more than 20 years. It went bankrupt in 2008 and was restructured in 2009. Instead of a fresh start, it was the beginning of a new string of fresh losses - euro 1.1 billion in the last four years. Alitalia said in July that it would need an additional euro 300 million by the end of 2013.
The airline has turned to Paris for help. Air France-KLM wanted to merge with Alitalia in 2008 and was rebuffed by the Italian government, then led by Silvio Berlusconi. It still came out of the controversy with a 25 per cent stake in its smaller rival. Given Alitalia's lack of alternatives, it could now be bought for a song. But Air France-KLM is struggling itself and should think twice. It has lost euro 2.8 billion in the last two-and-a-half years and wants to cull 7,900 jobs. At euro 5.3 billion, its debt burden stands at 3.3 times Ebitda.
Taking Alitalia on board would distract management capacities and drain the group's finances.
Alitalia's international business, which has grown somewhat recently, is more attractive. But with only 27 percent of Alitalia's flights going abroad, it remains a small segment. Furthermore, Air France-KLM already operates two international hubs in Paris and Amsterdam. It wouldn't need a third one in Rome.
The strongest argument in favour of closer ties may be that Alitalia currently feeds up to 5 million passengers into Air France-KLM's long-haul network. But that's less than 20 percent of Alitalia's total passengers, and Air France-KLM could take over this market without any help. Alitalia should eventually be allowed to fail. It could then even become a positive showcase for an Italy finally overcoming its inability to reform.
The airline has turned to Paris for help. Air France-KLM wanted to merge with Alitalia in 2008 and was rebuffed by the Italian government, then led by Silvio Berlusconi. It still came out of the controversy with a 25 per cent stake in its smaller rival. Given Alitalia's lack of alternatives, it could now be bought for a song. But Air France-KLM is struggling itself and should think twice. It has lost euro 2.8 billion in the last two-and-a-half years and wants to cull 7,900 jobs. At euro 5.3 billion, its debt burden stands at 3.3 times Ebitda.
Taking Alitalia on board would distract management capacities and drain the group's finances.
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Alitalia needs a radical downsizing. The majority of its domestic point-to-point connections which are not feeding passengers on to long-haul flights would have to go. Competition from Ryanair and easyJet, which operates at much lower costs, has proven lethal. Together, both airlines have already taken over 35 per cent of the domestic Italian market and provide 20 per cent more capacity than Alitalia, Innovata data show. Even well-managed airlines in markets with less intense cost competition - say Lufthansa in Germany - are losing money on short-haul flights. Thanks to new players like Norwegian and Vueling, competition will become even more intense.
Alitalia's international business, which has grown somewhat recently, is more attractive. But with only 27 percent of Alitalia's flights going abroad, it remains a small segment. Furthermore, Air France-KLM already operates two international hubs in Paris and Amsterdam. It wouldn't need a third one in Rome.
The strongest argument in favour of closer ties may be that Alitalia currently feeds up to 5 million passengers into Air France-KLM's long-haul network. But that's less than 20 percent of Alitalia's total passengers, and Air France-KLM could take over this market without any help. Alitalia should eventually be allowed to fail. It could then even become a positive showcase for an Italy finally overcoming its inability to reform.