Arrivederci, Alitalia?

By Thomas Lifson

Another major company may vanish soon, unless something changes, and unions will have played a major role in killing it. This time, it is the Italian flag carrier Alitalia which may not survive.

Alitalia hasn't made a euro of profit since 2002. It has suffered from all of the problems of legacy carriers, plus some others unique to the company (see below). But worst of all, Alitalia is world-renowned for the frequency and suddenness of strikes by its unionized employees.

The Italian state announced that it wished to sell its 49% stake in Alitalia and has been conducting talks with interested parties. But the last serious suitor withdrew from talks yesterday, leaving the company without a taker. A leveraged buyout company remains, but this possibility is being discounted by industry observers. Air France/KLM, which owns a small percentage of stock and which once tried to form a broad partnership, is completely uninterested.

Most people familiar with the situation agree that any potential suitor would be far better off letting Alitalia go bankrupt and buying some of its assets, in order to avoid the troublesome unions. Although the company is not running short of cash right now, the winter is traditionally a leaner season. With the Italian state unlikely to inject any more cash, the airline may join the ranks of Sabena and Swissair, two vanished European flag carriers, along with Pan Am, Braniff, Eastern, TWA, and other American airlines that couldn't make it and vanished into the maw of creative destruction.

I have personally flown Alitalia a couple of times and never had a terrible experience. And I think their cabin attendants have nice uniforms (it is an Italian airline, after all, so you would expect fashion excellence). But I have heard my share of horror stories, too. An Italian-American friend who goes back and forth to Italy regularly and who loves the country makes a point of not flying Alitalia.

It will be very interesting to see what becomes of Alitalia's hubs if it does in fact cease operations. The splitting of intercontinental hubs between Rome and Milan has long cost the company extra money, though in recent years the company has concentrated intercontinental flights in Malpensa, a very modern airport which benefits from the premium fare business traffic of Italy's business capital. In addition, Alitalia splits operations in Milan between Linate Airport, very close to the city center, and Malpensa Airport, which is something like 35 or 40 miles away, making it often difficult for a passenger from, say Copenhangen, to connect via Milan for a flight to, say, the Middle East. Alitalia tried a number of years ago to get Linate closed for all but flights to Rome, but other EU airlines protested, and the move was scrapped. So the company has never been able to develop a super-hub for Italy and gain the full benefits of connecting traffic.

I count myself an Italo-phile, and strongly suspect that a purely profit-oriented Italian carrier could replace Alitalia and do well, driven to serve the market in a way that a politically-encumbered carrier like Alitalia finds difficult. If when and when the company vanishes, there may be some unpleasantness, particularly for jobless former employees. But the market will be served, and the pending US-EU open skies agreement will ensure that there will be plenty of seats coming available for my next trip to Italy.