With contributions from Gaetano Intrieri – Gaetano Intrieri is an aviation consultant and lecturer in Air Transport Economics at Sapienza University’s Faculty of Aeronautical and Aerospace Engineering.
ROME – In the most difficult time for aviation, ITA intends to step out of the shadows, pursuing the principle of discontinuity translated into a strong downsizing of operations.
The feeling is that nothing will be done. Or rather, the result will be a complete mess that will end with the stock phrase we did everything possible.
But what has been done so far?
Fleet
The sensational announcements are more like suggestions. ITA’s fleet would consist of brand-new 12 Airbus A220-300, 40 A320neo, 5 A321neo, and 23 A330neo or A350 aircraft (Berberi, 2021).

According to an Italian newspaper, the war between Airbus and Boeing sees the European manufacturer ahead.
While in Seattle they would be trying to sell off the aircraft (up to 60-70% discount), in an attempt to get out of a stalemate caused by the grounding of the 737 MAX. In other words, in a confidential negotiation, Boeing would have flipped the cards showing a clear favorable treatment for her friend Alitalia.
Although the shift to an Airbus fleet is likely to happen, the huge discount outlined in the previous paragraph would cause an unavoidable discontent among Boeing’s customers. In recent months, the same newspaper reported that Alitalia was considering the 787 as a replacement for the 777.

However, if the goal is the “fleet homogenization” and the “confluence towards a single strategic partner”, as stated in the business plan, Airbus already holds the largest share (ITA, 2021).
Thus, the process of converting the flight crews would be facilitated both in terms of time and costs, but this does not mean that the European manufacturer is ahead in the negotiation.

Furthermore, it is not known how real and concrete these negotiations are, even considering that ITA takes a new operating license relying only on two planes in the Alitalia fleet and using the little granted by EU regarding Alitalia’s assets which, in any case, will have to be bought at a proper market price and hopefully with the endorsement of Alitalia’s creditors.
Branding
The annihilation of the airline also passes through the brand, which suffers from the commissioner management and the never renewed flight experience.
The uniqueness of the trademark is an essential element of branding. Alitalia is a one-of-a-kind composite name, as well as Iberia and Lufthansa, followed by less impressive brands like Air France and British Airways.
None of the above-mentioned names can be imitated, but it seems clear that Air and Airways, like France and British, are recurring words.
Accordingly, the audience recognizes the Alitalia brand, but do they associate it with the glorious company of ’46 or with the swindle of recent years?

In this specific case, there are two factors that negatively affect the brand experience:
- For twenty years, Alitalia has transformed itself from a carrier to an international dispute.
- It is a company in a regressive phase, the experience of the passenger (and also of the crew) is equal to that of the early 2000s.
For instance, a change in the booking can only be made through the Call Center (the line is always busy), while for other European carriers it is possible to carry out the procedure on the web or through the app.
Another case of regression concerns the IFE (In-flight Entertainment) onboard the 777-200 which, excluding the renewed one in premium and business class, remained stuck in 2002, when the first triple seven landed in Fiumicino.
Another last bad example is the shameful crew rest of the A330-200 obtained from the back rows of the economy class.

It is a true riches to rags story. And not only does Alitalia risk converting passengers into brand detractors, but even employees lose their will to be brand champions, in other words, promoters of the airline.
Alitalia SAI (2015-2017)
Before the pandemic, Alitalia spent around €3.5 billion to manage and operate a fleet of 117 aircraft which, considering the turnover of the fleet, means about 100 actual aircraft. The cost of leasing was approximately €600 million which, with an over the market rate of 25%, means 150 million in higher annual costs.
According to Cirium’s financial data, in 2016 Alitalia recorded a net loss of €397 million, which became €564 million in 2017 and €404 in 2018, but no other data appears. (It is not clear why Alitalia is one of the few airlines in the world not to have complete financial figures on aviation intelligence platforms) (Cirium, 2021).
In May 2018, the Extraordinary Administration (EA) of Alitalia presented a 41-page document describing some numbers relating to the management of the airline (Senato, 2018).
The depreciation (EBITDA) for the 8 months of 2017 reveals a loss of €24 million, which became €117 million in the first three months of 2018. Despite the seasonality of the business model, it is not explained how the airline’s daily losses increased tenfold, from around €100 thousand to a loss of €1.3 million per day.

On the other hand, the contraction in revenues of about 30% on a daily basis in the eight months of 2017 and the first three of 2018 is understandable, considering that the first quarter of the year generates lower revenues for all airlines.
However, there is still a question mark on the change in total costs which is reduced by only 8% despite fewer aircraft, 1,500 employees on layoffs, and an average 15% reduction in operating times.
There is also a problem with the inhomogeneity of the fleet that the EA has not been able to solve. By contrast, it is safe to say that special executives have worsened the situation.
In fact, there is no industrial logic in the decision to lease a single 777-300ER (EI-WLA), resulting in an exponential increase in operating costs both relating to maintenance and the impossibility of having a backup aircraft in case the only one in the fleet can’t be operated.
It should be pointed out that there is a significant difference between the 777-200ER (of which Alitalia flew 11, now it seems that half are parked) and the 777-300ER.

Despite being from the same family, the two aircraft differ mainly in MTOW (656,000 lbs vs 775,000 lbs) and the number of passengers (293 vs 384, ± 4/5 cabin crew).
Like other data, the leasing costs of the 77W were also not disclosed. Knowing them would be a legitimate request of any citizen.
Although the calculation of the DSH (Daily Stick Hour) coefficient shows negative figures: the aircraft, seen as a single cost center, produced no less than €15 million of higher costs for Alitalia in extraordinary administration.
The Airbus A320s are a mixture of -214 and -216 versions configured with 180 or 171 seats (until two years ago there was a third Y174 configuration) (Alitalia, nd).
The A320-216 formerly belonged to Air One, has a CFM56 engine that is depowered for reasons attributable to lower maintenance costs, airport, and overflight taxes, but which forces a lower coefficient of climb and a lower MTOW.

Hence, the 216 is a solution that could become critical for flights longer than 3 hours.
At least Alitalia’s A320-216s were identical. Neither. In the fleet of the company, there are some -216s equipped with CFM56 5B6/P, the same engine adopted by the younger brother A319-112, others are instead 5B6/3.
The two engines are similar but differ in the design of the high-pressure compressor, turbine, and combustor. Maintenance is almost identical, but the engines contain different components which in any case do not facilitate the homogenization of the fleet.
Evidence of the limitations imposed by this version is provided by Planespotters’ data fleet.
The site shows that four -216s with 5B6/P, returned to the BBAA lessor and passed to the U.S. ULCC Allegiant, were converted to -214 and configured with 186 seats, a capacity close to the aircraft’s exit limit, which would not be feasible on the depowered version (Planespotters.net, 2021).
Furthermore, from 2017 to 2018, Alitalia would have operated 444 ferry flights, causing no less than €10 million in disbursements for the airline.

Ferry flights are positioning flights without passengers due to the low degree of correlation between network and fleet and are one of the most important indicators of an airline’s level of operational efficiency.
A final issue that certifies the disaster of the Extraordinary Administration is the sale of precious slots at London-Heathrow airport.
In 2015 Alitalia sold off five pairs of slots at different time slots to Etihad for a value of $12 million for each pair (Filippetti, 2019).
During a hearing in the Senate, airline commissioner Luigi Gubitosi said that the slots had been sold at a “reasonable price, even considering the slots of the same” (Senato, 2018). The commissioner had also stated that Alitalia’s right to repurchase the slots is valid for ten years.
During the same period, SAS sold two pairs of slots on Heathrow for $22 million to Turkish Airlines. Shortly thereafter SAS sold another pair of slots to an “unidentified major carrier” (American Airlines) for $60 million (Maslen, 2015), five times the price paid to Alitalia.

Also, in 2015, Air France sold 6 pairs of slots to its partner Delta, for $257 million, 3.5 times the amount paid by the Italian airline. It is, therefore, possible to estimate pecuniary damage which, on the basis of the examples cited above, is between $200 and $300 million.
ITA vs Low-Cost
The newco starts with the intention of keeping its main hub at Rome Fiumicino and a secondary one at Milan Linate (ITA, 2021). Meanwhile, in a dark period for aviation, which forced the FSC to limit expansionist aims, the low-cost carriers invaded Alitalia’s Lombard fort.
The scenario shows on the one hand the most profitable airlines in the world, with a modern fleet of hundreds of aircraft and a sustainable business model. On the other hand, there would be a full-service hub & spoke that promises magnificent fortunes with 52 aircraft.
In addition, it is still unclear how Alitalia will structure its machine in the making: it will start with a few planes, reducing staff, but it expects over one hundred at the end of 2025. It is the portrait of two different airlines: their positioning on the market changes, competitors change, as well the entire organizational structure.
Furthermore, the plan would not be within the framework of a typical full-service airline, rather the process pursued by budget airlines. That is to say, the start of operations with a dozen planes and the subsequent expansion to hundreds, over a period of years.

The zero-time estimated by ITA (3-4 years) is a fairy tale also considering the enormous limitations imposed by DG Competition on public airlines, which must be authorized by the Commission for any type of strategy and business initiative in order not to distort the principles of market competition.
Moreover, the airline aims to attract “high-quality business and leisure” (Lazzerini & Caio, 2021). High-quality leisure for Alitalia only means offering three long-haul travel classes, which is nothing new.
In an unprecedented phase for aviation, no one has a crystal ball, but the newco could have intercepted the model that seems to work for the foreseeable future, namely the price-sensitive and non-quality-sensitive leisure model.
Or at least the hybrid model implemented by JetBlue and Bamboo with a team of managers from the LCC world. In particular, because full-service carriers struggle to differentiate their product which is increasingly similar to the low-cost one, especially in the short-medium range.
In other words, the separation between the FSC and (U)LCC model is a blurry line. If Alitalia also loses differentiation, only the uniqueness of a brand will remain. Nothing behind.

In view of the lack of real planning, there is room for opinions of alleged experts who advise Alitalia to make an important long-range investment and to join a European group such as Air France-KLM, Lufthansa, or IAG.
Post-pandemic aviation will likely be characterized by a financial performance of the large European aggregates lower than the one of low-cost airlines.
In this challenge of the skies, a comparison with the United States is unlikely, where the main airline groups were born by incorporation, becoming, in fact, a single airline (i.e., American Airlines first with TWA and then with US Airways).
IATA’s forecasts confirm that demand is oriented towards leisure, which has always been the market segment most sensitive to price changes (Pierce, 2021).
On the flip side, the market business segment is in sharp decline, as it is greatly affected by the technological advancement of the tools that nowadays allow businessmen, entrepreneurs, and managers to meet remotely, rather than in person, especially when meeting in person means undergoing long and exhausting journeys.

The lockdown imposed by the pandemic has further accentuated the use and consolidation of online meetings.
Before the pandemic, Alitalia’s long-haul flights were the most profitable, with New York at the top of the list followed by Los Angeles (Berberi, 2020).
There was a substantial break-even on those cost centers despite the leasing contracts on wide bodies (A330 and 777) are still up to 40% higher than the actual market value of the aircraft, Ascend by Cirium shows.
The long haul is, therefore, an essential component of ITA but the problem will be making it profitable and today no one will be able to say when the long haul market will return to pre-pandemic levels and primarily with what kind of passengers.
There is no doubt that the current scenario will lead to a change in the industrial strategies of the FSC, in a global system that sees in a favourable position the LCCs, that is starting to gain ground even in the long haul.

The ultra-low-cost airline French Bee has ousted the monopoly of the flag carrier Air Tahiti Nui on flights from Europe to French Polynesia (Air Tahiti Nui, 2019).
Intermodality
A press release from MIT states that “ITA will be able to offer answers to the new needs of air transport, in an increasingly intermodal perspective, integrated with rail transport” (MIT, 2021).
It is a shame that in the face of the fine words of Minister Giovannini, there are facts. The intermodality intended by ITA is the high-speed connection with the main Italian airports.
A look at environmental sustainability and halved times is a correct principle. There is no doubt that the airline and railway industry globally has embarked on a path of dialogue, however, the result cannot be achieved quickly.
Just think of the shuttle train that should connect the city of Bergamo with the Orio al Serio airport which is the third Italian airport for passenger traffic. It has been discussed for years, there is the final project, but the construction has not yet begun (MITE, 2021).

Intermodality, as interpreted by ITA, is, therefore, an inconsistent value in the short term. A separate case would be an agreement with Ferrovie Dello Stato, for now only announced (MIT, 2021), which should lead to shared action.
But the framework of intermodality must be extended. Today in the domestic market the train often takes on the role of a substitute for the plane.
The Rome-Milan route by plane is today an odyssey if compared to the smooth journey by train, including in the effort of moving by air: be at the airport two hours before departure, pass through security checks and wait for boarding.
On the other hand, the train is still threatened by frequent delays mainly caused by breakdowns on the line or, as in recent days, by wildfires. But problems on the railway do not legitimize Alitalia to present itself with the usual recipe, and this is supported by another case: after the construction of the Eurotunnel and the introduction of the high-speed train Eurocity on the Paris-London line, the air connections between the two metropolises collapsed (Rowland, 2015).
There is no longer talk of intermodality, but of a substitute.
The French parliament recently approved a bill abolishing internal flights for distances that can be traveled by train in less than 2.5 hours (Grogan, 2021).

In Spain, the HS railway transport company ILSA is 51% owned by the regional airline Air Nostrum and 49% by Trenitalia.
On the basis of the initiatives underway in the European panorama, all conversations about the high-speed connection of the airports are superficial.
However, mitigating the inconsistencies, Alitalia’s proposal to bring high speed to the main Italian airports could be feasible. A question inevitably arises from this assumption. At which airports is high-speed essential today?
None. The two main Italian airports, Rome-Fiumicino and Milan-Malpensa, are already connected by a dedicated regional service. In airports where there is no shuttle train, such as Orio al Serio or Ciampino, Alitalia has little or no presence, so the proposal would become counterproductive.
Finally, assuming that Alitalia’s presence at Malpensa is stable, currently limited to very few intercontinental flights and the newco’s business plan that puts the Varese airport out of the game (ITA, 2021).
In fact, Trenitalia has already started to operate high-speed trains from Fiumicino and Malpensa taking as an example two major European airports, but with one substantial difference: Frankfurt-am-Main and Paris Charles de Gaulle are intermediate stops of a high-speed line connecting the country, while in Italy airport stations are terminals, therefore an end in themselves.

The project to connect Malpensa airport with the Turin-Venice line is interesting, also in light of the proximity to France. But, looking at how passengers travel to the airport, it emerges that only 15% arrive or depart from Malpensa by train (Northern European airports reach percentages close to 50%), 17% use the bus and beyond 60% the car (Balotta, 2020).
In addition, the timing of construction of the line remains, which cannot, as already pointed out, constitute the industrial plan to 2025 of Alitalia-ITA.
A different case is the Fiumicino Airport station which is in an incompatible position with the Florence-Rome high-speed train, so the train is forced to pass through Rome-Termini, partly losing the aim of intermodality.
In this case, the choice meets a crossroads between the use of high-speed rolling stock or the augmentation of the Leonardo Express service.
A smart proposal, which politics would probably not have bet on, would have been the creation of a marketplace. In other words, an integrated system in which Alitalia, together with FS and other transport companies, would appear to be totally intermodal in offering an A-Z experience in the European area.
In the same direction, a few years ago IATA launched the NDC (New Distribution Capability) system with the aim of intensifying communication between airlines and travel agents.
Alitalia’s situation is critical on all fronts, including information systems, which are objectively too many and disconnected from each other.

While the Italian airline still uses a dozen of them to manage internal processes, other successful companies are pursuing the simplification and standardization of systems to ensure the efficiency of the administrative apparatus.
In the same context, the migration from Arco, the booking system owned by Alitalia, to Saber is relevant. A move imposed by Etihad upon entry into the capital of the new airline cost approximately $57 million-plus $30 million annually in contract fees.
Saber has a greater range of functions than Arco, also because it is constantly implemented and developed, unlike Arco in which Alitalia has invested very little.
However, the partnership did not last long because the EA led by Gubitosi agreed that the system was too onerous and resulted in legal action taken by the commissioners against the American company (Senato, 2018).
Lost time. It will not be difficult for Saber to prove that the mistake was in Alitalia’s implementation of the systems. The fact remains that the airline has now outsourced its IT services when it would have been of essential importance to preserve an in-house IT department.
Once again it seems like we are destined to remain mentally analog in a digitally interconnected world.

Today ITA lives on improvisation and contradictions in terms.
The discontinuity imposed by Europe is declared, but then, in spite of what has been agreed with Europe, they try to be smart in the Italian way, avoiding, for example, following the rules in the passage of the two airplanes from Alitalia to ITA.
Obviously, for anyone who wants to request access to the documents, it will be easy to verify whether the procedures for the phase-out of the two aircraft from Alitalia’s fleet and the phase into the ITA’s one have been followed in compliance with the declared discontinuity.
Certainly Ryanair, for example, will want to make sure that everything has been done in compliance with the rules.
Furthermore, in terms of aircraft operator operating license, pursuant to European regulation 1008/2008 and subsequent amendments, it is not clear what the business plan presented by the nascent airline is and, above all, whether it is economically and financially compliant with the dictates of the regulation.
And, while ITA flounders along a path without any entrepreneurial logic and in perfect contradiction with the concept of discontinuity, Alitalia in EA continues to burn public money as before and more than before with an operating also without any logic, with a crumbling organization and completely inefficient internal process mechanisms.
All at the expense of the Italian taxpayer who, to make matters worse, must also pay the millionaire fees of the umpteenth consultants called by the Extraordinary Administration to set the sale of the now completely worthless assets of what was the glorious airline of the Italian flag.
References
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