The Strategist

European airlines are fighting for Alitalia's sky

03/19/2018 - 13:47

While the Italian airline Alitalia, which commenced the bankruptcy procedure in the last year, is still trying to survive, its competitors are already fighting for its place in the sky. According to Bloomberg, several international players from Europe and the Middle East, are ready to take on Alitalia’s flights. Among the applicants for the assets and flights of the airline are Qatar Airways, Lufthansa, Delta, Ryanair, EasyJet.

Bill Abbott via flickr
Bill Abbott via flickr
Although the Italian airline Alitalia began bankruptcy procedure only last year, the problems of the air carrier have been going on for more than two decades. Alitalia has not made a profit since 1999. According to some reports, the Italian budget allocated € 10 billion to support the company. In 2013, Alitalia was bought by Etihad Airways, which also repeatedly poured funds into it. After Alitalia filed for bankruptcy, several competitors have already expressed a desire to acquire its assets. Among them are the Irish low-cost airline Ryanair and Lufthansa, which in November last year offered to buy most of the Alitalia fleet for € 250 million. Potential buyers are considering different scenarios, from the restructuring the airline to its elimination while acquiring the most efficient parts of the company or its fleet. Until April 30, bankruptcy managers Alitalia will have to consider these options.

At that, competitors are also interested in the opportunity to replace it with their own flights and enter the Italian market of air transportation. Last year, Qatar Airways acquired a 49 percent stake in AQA Holding, which owns Meridiana Fly, the second largest airline in Italy. In February, this airline changed its name to Air Italy and announced plans to expand its covered international destinations and update the fleet. The airline, which used to carry out mainly intra-Italian flights, will start flying to New York, Miami and Bangkok already this year, and will add other international destinations in 2019. Already in April, Air Italy will receive the first of its 20 Boeing 737s ordered. In addition, it leases five Airbus A330-200 aircraft from Qatar Airways. In general, according to the plans of the airline, the number of passengers carried by it should reach 10 million a year by 2022, and the number of aircraft in use is expected to amount to 50 pieces.

Among other interested is Lufthansa, which previously acquired assets of bankrupt airlines, for example, Swiss Swissair and Belgian Sabena (Brussels Airlines was created on its basis), as well as Air France-KLM Group, which owns 25% of Alitalia. The management of Air France has already stated its desire to keep Alitalia as part of the SkyTeam alliance, but without buying its shares. Among possible contenders for the assets of Alitalia were also named the American Delta and British low-cost airline EasyJet.

Most likely, the situation with Alitalia will repeat the development of events after the liquidation of the Hungarian national airline Malev in 2012. Now flights to Hungary are performed by several airlines, including Wizz Air, EasyJet, Lufthansa. This is by no means the only example when a national airline has existed on state subsidies for decades, but still went bankrupt in the end. Among such examples are the Belgian airline Sabena, liquidated in 2001, Swissair and the Bulgarian Balkan, which went bankrupt in 2002, as well as the Greek Olympic Airlines, which ceased to exist in 2009. Managing Partner of the Airline Weekly publication Seth Kaplan says: "If Alitalia ceases to exist, most of its flights will most likely be filled by other airlines that can really make money."

Domestic flights operated by Alitalia are less attractive to other airlines, as the competition in this market is extremely thanks to low-cost Ryanair Holdings and EasyJet. The competition in the European market of air transportation and in general is unprecedentedly high. In the past year, in addition to Alitalia, two large European airlines - Germany's Air Berlin and the British Monarch - went bankrupt. The European market is still much more fragmented than the American one. Six largest airlines account for 90% of the market in the USA, but this figure reaches just 43% in Europe. According to Official Airline Guides (OAG), at the end of last year, 217 airlines were operating on the European market, and this number is bigger than in any other region of the world.