Will Alitalia Be The Next Legacy Airline Failure?

by Barbara Peterson
Will Alitalia Be The Next Legacy Airline Failure?

Photo: Aero Icarus

Updated April 28, 2017, 9:00 a.m.

Travel industry observers were experiencing déjà vu this week when they saw the news headlines suggesting that Alitalia, the once-proud Italian flag carrier, was on the verge of bankruptcy yet again.

After all, the airline’s demise has been predicted repeatedly over the years.

“I’ve heard these stories about Alitalia for so long,” said Blake Fleetwood, of Cook Travel in New York.  “They are always in trouble, but I just don’t see them shutting down.”

Fleetwood said he heard from clients who are worried about their bookings on the carrier. “We’ve had one customer call us who’s booked to fly on Alitalia in October, so naturally he is concerned,” he said.  He said he reassured them that the more likely outcome would be a “face-saving maneuver” such as a merger or partnership with another airline.

Given the importance of tourism to Italy’s economy, not to mention the national pride associated with a flag airline, the prospect of Alitalia disappearing altogether is considered by many to be a last resort. Indeed, the Italian government has already thrown the airline a lifeline once, offering a bridge loan of between 300 to 400 euros ($326 to $435 million), though it said this week it will not do that again.

Alitalia already had one brush with bankruptcy, in 2008, after a sale to Air France/KLM fell through. Since 2014 Etihad Airways has owned a 49% stake in the airline, so this week’s events are a major blow to the Middle East carrier’s strategy of expanding its reach through ownership stakes in European airlines.  Etihad also owns a piece of Air Berlin, Germany’s second-largest airline, which also is losing money.

As always in such cases, there’s speculation of a merger with a variety of other European airlines, but Lufthansa has already denied reports that it might be interested in acquiring the company. And there’s always the possibility Air France/KLM could take another stab at acquiring the airline. Alitalia’s storied past – it has been around for 70 years – might not matter, but it still has a recognizable brand and a presence on choice long-distance routes to the United States and other marquee destinations.

What led the airline to the brink this time was another familiar story. The Etihad deal was partly contingent on Alitalia setting a goal of becoming profitable by this year. But the combination of rising costs, fierce competition from budget carriers and falling passenger traffic kept it in the red. To reverse the slide, the airline came up with a multi-billion capitalization plan that anticipated steep cuts in workers’ compensation. While leaders of the airline’s unions agreed to the plan, the 12,500 employees voted it down this week.

The Italian government has made it clear that nationalizing the airline is out of the question. “Somebody believed there would have been yet another public rescue. I will say it clearly: there will not be one,” Italy’s transport minister Graziano Delrio told the La Stampa newspaper.

ASTA last night sent out an announcement saying, "The carrier will now receive a government bridge loan valued at between $326 million and $435 million to keep it operational for the next six months while under receivership.

"Travel agents selling the services of financially distressed suppliers should consider advising their clients to pay by credit card. Under the Fair Credit Billing Act, credit card customers have certain rights to refuse to pay charges for services which ultimately are not rendered, whether due to a supplier's bankruptcy or otherwise. Details about the Act can be found on the Federal Trade Commission's website. Additionally, to support you ASTA provides members with supplier bankruptcy resources – a variety of tools to assist in the event a travel service provider files for bankruptcy protection."

But many travel providers mourn the loss.

"Tourism is really on the rise in Sicily and if people are now ready to go and then have trouble getting there, Sicily could lose a lot. This can’t be bad news for Meridiana, however, which has been trying hard to improve its market standing. Maybe this will open some slots for them in Catania, where I’ve been told over the years they would like to be. Alitalia may pull out, in the end, if they find a buyer, but maybe this will make way for competition to come in. Alitalia has pretty much monopolized the flights from the US to Sicily and having just one major player is never good," said Karen La Rosa at La RosaWorks Sicily Tours and Travel.

Some pundits say they would prefer this long-running soap opera to come to an end. In a blog post on the Economist website headlined “Arrivederci Alitalia,” one commentator put it this way: “The time may have come to park Alitalia in the hangar for good."

Additional reporting by Maria Lisella

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