Alitalia chairman Roberto Colannino was in a reflective mood during Friday’s press conference in Rome to mark Etihad’s landmark purchase of a 49 percent stake in his airline. Colannino recalled having dinner in Mantua with a prominent Italian journalist shortly after taking the top job at the flag-carrier, who questioned why he was getting involved with the risky aviation business, and especially with a troubled brand like Alitalia.
The chairman replied that it was his “dream” to try and secure the airline’s future by tying up with a heavyweight partner – preferably from the Gulf – a point that elicited a fair degree of scorn from the journalist. After all, he said, why on earth would a major Gulf airline want to invest in Alitalia?
Colannino’s words revealed a lot about how many Italians feel about their national airline – with a twinge of embarrassment. In balance-sheet terms, it has had a woeful history, last posting a profit more than ten years ago. Last year, its net loss more than doubled to 569 million euros. It was used as a political football by former Prime Minister Silvio Berlusconi, who trumpeted it as a national asset and refused to sell it to foreign investors when it entered bankruptcy in 2008. Instead, the airline was kept it in the hands of Italian shareholders who have clearly lacked the funds required to turn it around.
On top of that, it flies from a set of Italian airports that have by and large seen better days, operates a series of loss-making domestic routes, is subject to the whims of some pretty fractious unions and has a brand that could best be described as dated. To put it bluntly, Alitalia has not had a lot of love in recent years.
Enter Etihad Airways. Make no mistake, of the eight equity stakes that the UAE flag-carrier has taken in other airlines, this deal is by far the most significant. No wonder Etihad chief executive James Hogan – who has spent almost exactly a year putting this deal together – looked equal parts exhausted and exuberant during the press conference. There was plenty of backslapping with Colannino and Alitalia chief executive Gabriele del Torchio and the conclusion of Hogan’s speech was even greeted with what appeared to be an impromptu round of applause from the Italian press corps.
Hogan will be hoping the feel-good factor persists. After all, let’s not forget that this is the national airline of Europe’s fourth-biggest economy, and the world’s ninth biggest. Companies like Ferrari, Finmeccanica, Eni and Enel may be both innovative and influential, yet they operate in an economy whose main airline doesn’t have direct flights to emerging markets like China, India or South Africa. In addition, Italy is the world’s fifth-biggest destination for inbound tourism. The potential is clearly there – even though the announcement came only two days after the government of Prime Minister Matteo Renzi confirmed that Italy had entered triple-dip recession territory.
But as Hogan was at pains to point out, the hard yards start now. A team from Etihad will return to Rome in September to brief Alitalia’s staff. Roughly 2,000 of the airline’s 12,500-strong workforce will be made redundant, although an unspecified number have already found jobs with Etihad in Abu Dhabi.
Management changes seem to be on the cards and neither Colannino nor del Torchio look likely to stay in their jobs. The European Commission will examine the deal to ensure that it doesn’t fall foul of competition regulations. A plan to add new wide-bodied aircraft, new long-haul routes and a new brand will be implemented. In the near term, the purchase of a 75 percent stake in Alitalia’s frequent flier programme will presumably see a healthy 112.5 million euros booked against the airline’s bottom line for 2014 if the transaction goes through in time.
And the immediate goal? To see Alitalia turn a profit by 2017. To be even thinking in those terms would not be possible without Etihad’s investment – in terms of both cash and management experience. Perhaps the UAE carrier’s trump card is the size of the existing equity partnership: a combined fleet of 700 aircraft, 400 destinations and 110 million customers. In all likelihood, the new aircraft that Alitalia needs have already been bought. It also means cheaper fuel, cheaper catering, cheaper maintenance and so on.
So can Hogan pull off his most audacious move yet and prove the doubters wrong? Time will tell, but it is hard to think of a partner better equipped to help Alitalia get back in the black.
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