Alitalia to go low-cost on short-haul routes

by Steve Creedy -editor
49
March 16, 2017

Alitalia plans to cut costs by 1 billion euros ($US1.07 billion) over three years, cut its single-aisle fleet by 20 aircraft and move to a domestic low-cost model in the latest plan to turn around its fortunes.

Losing money in an environment where low-cost carriers make up almost half the market and shape consumer habits,  the airline's board has put forward an ambitious restructuring plan aimed at making it profitable by 2019.

The plan is subject to the airline's fractious trade unions agreeing to job cuts and new work agreements.

It will see the Italian carrier fit extra seats to its single-aisle planes, increase aircraft utilisation and cut short- and medium-haul air fares as it tries to boost revenues while reducing costs.  It will also charge for ancillaries such as seat selection, checked luggage and food.

But it will stay a full-service carrier on its long-haul markets.

Also in train are plans to grow the number of flights from Italy to the Americas by increasing frequencies on existing routes and adding new cities as well as to build a bigger presence in Milan Linate, Sicily and Sardinia.

“In the short and medium-haul markets – domestic flying in Italy and throughout Europe – passengers will be able to personalise their journey.’’ Alitalia chief executive Cramer Ball said.

 “We will simplify air fares and offer customers the opportunity to purchase products such as seat selection, checked-in luggage and priority boarding throughout the booking process, and all the way up to the airport gate.

“On flights that are four hours or less we will introduce the buy-on-board concept that is not only commonplace with low-cost carriers but is happening more and more at traditional, network airlines.’’

On the long-haul front, the airline said its wide-body intercontinental flights would be based on a full-service model but maintain “an intense focus on costs and efficiency”.

The airline will fit new in-flight entertainment and wi-fi to its Boeing 777s and said its new flagship, a 382-seat Boeing 777-300ER, would join the fleet in August.

Alitalia, which has been 49 per cent owned by Abu Dhabi-based Etihad since 2014,  has lost passengers as low-cost rival Ryanair grew strongly in the market. According to one analyst quoted by The Wall Street Journal, it is losing 1.5 million euros a day.

The airline did not reveal in its announcement how many jobs would go as a result of the change but said it present details of the board-approved plan, including “head-count” measures to the Italian government and then unions.

 It said the plan’s funding by shareholders was subject to the airline's trade unions agreeing to a new collective works agreement and the job cuts.

The three-year cost reduction plan would be accompanied by a push to boost revenue by 30 per cent to 3.7 billion euros by 2019, when the airline would be expected to be profitable. This included renegotiating contracts in areas such as aircraft leasing, global distribution, in-flight catering, airport ground handling and airports.

Ball said the airline had rebuilt its brand and invested heavily in staff training and technology. 

“The aviation industry is ferociously competitive and never stands still,’’ he said. “Only through radical change will Alitalia’s fortunes be turned around,'' he said.

 “We must transform this business into a dynamic entity that is attractive to customers who have plenty of choice for their air travel needs.''

The Alitalia chief expressed confidence the next stage of the airline’s industrial plan would be successful “provided that all interested parties play their part”.

“The radical and necessary measures across the entire airline will secure our long-term sustainability which will only materialise if the airline is the right size, the right shape and with the right productivity and cost base,’’ he said.

“We must do this, especially in our short and medium haul business in order to provide a platform to grow our profitable long-haul business further in the future.

“This is a critical aspect because most of our customers fly on our short and medium-haul planes to connect onto our long-haul services.’’

Other parts of the airline's "four pillar strategy'' include plans to build on a 200 million euro investment in technology to develop new sales channels to help boost revenue as well as to improve efficiency and productivity.