Alitalia is going through its third restructuring exercise in the last decade as a result of its perennial loss-making business model. This time around Italian politicians are once again showing their dubious creative skills in l’arte d’arrangiarsi – the ability to solve problems with strange solutions that defy all logic.

The latest strategy is for the Italian flagship national airline to strike a strategic alliance with the Italian State railway operator, Ferrovie dello Stato Italiane. The strange plan will see the railway operator and the airline merging into a new company with the possible participation of the UK’s EasyJet and the US Delta Airlines. Is this a marriage made in heaven or yet another example of an Italian bordello?

The European airline market remains fragmented and viciously competitive. No airline is prepared to lose market share even at the cost of slashing fares at a time when aviation fuel is badly affecting the bottom line of most airlines. 

The bloodbath of European carriers that started in 2017 with the demise of Monarch in the UK and Air Berlin in Germany continued in 2018 with Flybmi of the UK collapsing just over a year ago. Lufthansa, EasyJet and IAG immediately snapped the assets of these failed airlines. Last year also saw the failure of Latvia-based Primera Air, Cobalt Air of Cyprus, Germany’s Azur Air, Lithuania’s Small Planet airlines, and the Swiss SkyWork airlines.

The afficionados of the Italian carrier argue that there are obvious synergies between Ferrovie dello Stato and Alitalia both within Italy and for tourists who visit the country. It must be said that the railway system in Italy has seen some considerable improvements in the past decade with the introduction of cheap high-speed trains on important domestic routes. Alitalia suffered from this land competition. Alitalia strategists believe that the proposed alliance will enable the rationalisation of overcapacity that has hurt the national carrier. An added benefit could be the bundling of railway tickets to international travellers to Italy especially in the important hubs of Rome and Milan. 

However, the motivation behind this weird alliance is the Italian government’s determination to keep the national airline and the Alitalia brand alive. This plan would reduce the pain of even more redundancies which would damage the political fortunes of the present populist government. 

Is this merge a marriage made in heaven or yet another example of an Italian bordello?

Admittedly, previous governments of the centre-right and centre-left had to handle this hot political potato for decades. The European Commission competition authorities seem to have closed one or both eyes when presented with the various restructuring plans for the heavily unionised workforce of the national carrier which is a symbol of national pride for Italians. 

It is unlikely that the EU Competition commissioner will ruffle the present populist government’s feathers by insisting that no further restructuring fudging will be tolerated for Alitalia. Francesco Galietti, chief executive of Policy Sonar, a Rome-based political risk consultancy said that: “Alitalia has become a shorthand for the intricacies of Italian state intervention in the economy.” He is probably right. The only way that a populist government can hold on to power is to defy market forces and promote more assistenzializmo – making more people dependant on State handouts whether they deserve it or not.

Mark Manduca is an airlines analyst with Citi. He told The Financial Times that the concept of a train company merging with an airline is unique. It is not unusual for government to own both a national airway and a public railway company. However, no examples can be found of the model proposed by the Italian government for Alitalia. 

Delta and EasyJet are beginning to have doubts about the viability of this venture with Alitalia. The strong presence of the Italian State may make further headcount reductions impossible at least without major strikes called by the strong airline employees unions.

Without further cuts in its cost base, the resurrected Alitalia will find it difficult to survive in Europe’s tough airlines market that is suffering from high fuel costs and overcapacity. 

The Italian government wants to keep Delta and EasyJet on board to give the restructuring plan a chance to succeed. The haemorrhage of state aid to the national carrier is hurting Italy’s public finances at a time when the financial markets are quite pessimistic of the country’s ability to service its debts. 

Alitalia’s future is just one of some elements that will test the ability of the new European Commission to show how capable it is of enforcing structural changes on the weaker member states.

johncassarwhite@yahoo.com