Posts: 1319
Joined: Tue Feb 10, 2004 4:54 pm

Alitalia & Cabin Crew Reach Deal

Sat Sep 18, 2004 3:15 pm

BBC reporting AZ have crossed the last hurdle with an agreement with their cabin crews with the loss of 900 jobs. In all, agreement with all factions involve a total of 3700 positions. These agreements do not address the plan to split the company into two units but will probably pave the way for the release of the government loan.

What happens next is anyone's guess. I ask all fellow members: Is this enough to keep AZ as a going concern, or is it a stop-gap measure starving of the inevitable?

There have been many posts on this subject and temperatures have been running a little high over some of the comments made. As with the ATSB in the US, the underlying sentiment is that it has made matters worse for the airline industry as a whole and staved the shake-out the industry needs. Many foresee a lot of majors disappearing not only in the US, but in Europe as well. AF/KLM, LH % BA as the likely survivors here in Europe, and not to forget some LCC's.

In the US it is hard to predict which major will fail and which will not only survive, but thrive in a very competitive marketplace, much more competitive than here in Europe.

Granted, US & UAL are in bankruptcy and DL may be close. Last few days reporting has been that DL's auditors have expressed their fears of DL as a going concern.

Since 9/11 BA has undertaken to reduce almost 14,000 positions; DL is mentioning 6000; UAL 7000. Not to mention the airlines that have gone completely.
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Joined: Sun Aug 15, 2004 12:49 am

RE: Alitalia & Cabin Crew Reach Deal

Sun Sep 19, 2004 8:00 am

This seems to be along the same lines.
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Joined: Thu Nov 20, 2003 7:02 pm

RE: Alitalia & Cabin Crew Reach Deal

Sun Sep 19, 2004 9:30 am

Well, since I spoke near last on the previous subject about Alitalia, I suppose I'll take a stab at this one. Mind you, my crystal ball is as murky as everyone elses. This is strictly my opinion, nothing more.

Reaching agreement with the cabin crews was crucial. They have perhaps one of the strongest unions in Italy backing them and for Mr Cimoni to have gotten this done is extremely good news. Hopefully, however, he hasn't promised them the keys to the kingdom in doing it, should Alitalia return to full health.

Now to the question of if Alitalia will survive with these changes? The short answer is: It depends.

Lets walk through the strengths and challenges right now and see where we stand:

1. Alitalia is a strong partner in SkyTeam. If they can fill in the gaps in the alliance route network, e.g. Alitalia does most of the Italy flying from some parts of the world, Delta, and the other carriers support them. Alitalia must help Air France solidify its position in its dominance of southern European traffic. With CO and NW on board SkyTeam as well, there are big opportunities for the foreign carriers to provide additional feed to the CO/NW and DL domestically, which gives them a much stronger position than Star Alliance and OneWorld, in which there is only one US domestic partner.

When Mengozzi was at Alitalia, his idea was to downsize the carrier and make it a feeder for Air France. This was a ludicrous idea and one that frankly got him fired. I believe Mr Cimoni's vision for Alitalia is much more independent. However, it must be continue to have a strong presence in the alliance and there is no reason to believe that will not happen.

2. The fleet is relatively young. By the time AZ dumps the MD80s and the older 767s, it will have one of the youngest fleets in Europe. This will significatly reduce maintenance costs and yes, while the lease payments are going to be stiff overall, I believe they have negotiated themselves into a position in which a good balance can be struck between the two costs to achieve a overall lower fleet operating cost. With a solid fleet of Boeing, Airbus and Embraer, they can truly adjust their fleet to the demands of the market. If an EMB170 can be swapped for an A319 if the loads are not there to support it, and if Alitalia can become nimble enough to do that, they can reduce unit costs and continue to provide a really nice onboard product (have you seen the EMB170? It has the range to fly anywhere in western Europe with only 70 pax).

3. With lower wages and fewer employees, the airline is reducing its highest cost, its labor. If there were certain guarantees provided to protect the senior members while giving hope to the younger group that their sacrifices will be rewarded (without significant downline costs), then perhaps the overall attitude of the work force will change from an advisarial relationship with management to a collaborative one. If that can translate into more consistent service (not better--but consistent), then people will come to expect a level of service from Alitalia that will bring more customers back to the airline.

4. Route Net: When the management of AZ decided to make Milan a hub and center most of its flying around connecting at Milan and some via Rome, it actually created a better route net for through connecting service than what they had in the past, which was really point to point into Italy. If they can shift some of that traffic down to Fiumacino, where the capacity to grow can exist (and is less impacted by weather), then a dual hub system could work. As some of you may remember, SAS did the same thing with Copenhagen and Stockholm: Copenhagen was the principal hub, Stockholm the secondary one (hard for the Swedes to swallow, but they did it), now SASs flights are jammed into both CPH and STO, and with a great deal of beyond traffic through both those hubs. If Alitalia can follow that model, then it will be in a better position to take some of that traffic from our friends from the middle of Europe, where the weather is less than hospitable in the winter.

5. Cargo: AZ has an extremely well developed cargo operation, using the old 747s from passenger and converting them from cargo and wet leasing other more advanced 744Fs when they need the greater lift and range. With some of the MD11s being converted to MD11F, their flexibility is even greater. If they can fill the belly of their passenger flights with more cargo, the larger stuff can go on the big planes and they will become as competitive as any other carrier in Europe. From a shipping perspective, in terms of pricing, they kill other carriers in Europe dead. SFOUF(cargo) shipped a single 10,000lbs load of material I was involved with during my tenure at AZ, the cost to our customer was 1/3 the cost of sending it on another airline.

1. Management: This is the biggest problem they face, and the most difficult one to fix. Unlike some American companies, it takes forever for a decision to be made in AZ, because no one wants to take the responsibility for making a decision, because they don't want to take the hit when it goes wrong...and because a great many things do go wrong and opportunities are lost because there is too much discussion and not enough action, this is their #1 biggest weakness, and one that I am not convinced they can do on their own. This is where some outside consulting can come in and help reorganize the carrier, help to support change in the management philosophy that encourages risks and does not punish for mistakes when they were legitimate business risks.

2. Airport Operations (in Italy) - in most airports in Italy, the airport performs the airline functions for the carriers (the most notable exception being Alitalia Airport in Rome, in which ADR (aeroporti di roma) was working with AZ Airport to show to the rest of the operation what can happen if people focused on their own productivity, and not just showed up for a job because their uncle or father in law had ties to the government. AZ had an opportunity to place AZ Airport in Milan three years ago, but they could not get it done, because SEA (Milan Airports) ultimately got help from the government to put pressure on AZ to withdraw their request.

3. Service Product/Marketing: This is an area which needs radical improvement. It has been said that the overseas caterers perform better than the Italian ones. WHY? Mostly because their is no competition. Once again, the government needs to step back and let the various independent caterers compete to provide a catering operation which will improve the passenger experience on board. There is no excuse that an Italian airline should serve BAD food. Also, in terms of their marketing, they need to work together as a team to develop one marketing plan for the entire airline, not a marketing plan for the airline in different parts of the world. There should be one marketing plan, but tailored to each individual world market and target audience---the business traveler to Italy (Milan) and the vacation traveler who can go to the south in the winter and the north of Italy in the summer. Their website is more functional than before, but it still is not as efficient as others.

4. Rome must coordinate revenue management and pricing, but it must do so with each individual destination to which they fly. They are way understaffed in these positions in Rome. While the computerized revenue management and inventory control systems are good enough (they bought it from a major US airline), they need to grow the department so that ultimately people are making the final decisions about maximizing revenue, not the computer. It is easy to blame the computer for the mediocre performance of revenue management, but it is a lack of people there and an overreliance on a computerized system that hurts their ability to manage inventory to maximize revenue.

5. Last, and most importantly, the government has to get out managing the airline by proxy. Too many unqualified people are being promoted to positions to which they have no ability to succeed, simply because they are a friend of a member of Pariliament or a personal friend of Mr. Berlusconi. ALITALIA MUST BE PRIVATIZED. Until this can happen, the government must stay out of the way of Mr Cimoni and company. A good many of the problems that Alitalia faces are the direct result of meddling on the part of the Italian government. Mind you, most of it is well meaning, but politicians are politicians. They can make good laws, but they know ZIP about running an airline and the requisite experience required to bring people up through the organization. Oh and one last point. Do you imagine why people at Alitalia may have a lack of enthusiasm? It is because of the almost certain knowledge that good, qualified people from within the organization will be passed over for a promotion by someone who has ties to the government in one way or another.
Once this has stopped and merit, qualifications, experience and success become the criteria for management advancement, then you will really see what the Italians can do.

These are just some examples of areas in which Alitalia needs to "reinvent" itself. There are many more. However, there are stories of other airlines who were on the edge of the cliff and made it back to health. If Alitalia can have that opportunity, then the future is much brighter for them.

So in closing, can Alitalia succeed in turning itself around? I believe the answer is YES, but only if Alitalia and the government can take a hard look at themselves and say that they will not do business they way they have for the past 30 years. Let newer, fresher management come in from within under Mr. Cimoni, keep the government out of running the affairs of the airline and yes,they have a chance. If not, and they get their money and burn through it, with no changes in the relationship between the carrier and the government, then Alitalia will fail. The rest of the EU will not support any more injections of money, nor should the Italian taxpayer.

Many times before, Italians have been on the brink of disaster and have saved themselves from certain doom. They have heart and soul and a desire to succeed unlike most other people I know. If they can apply that energy in the right way and all pull in the same direction under Mr. Cimoni, then Alitalia can become that airline that beats the odds and truly can become the gem and pride of Italy.

buona fortuna Alitalia!!!
David L. Lamb, fmr Area Mgr Alitalia SFO 1998-2002, fmr Regional Analyst SFO-UAL 1992-1998
Posts: 310
Joined: Mon Sep 22, 2003 9:49 pm

RE: Alitalia & Cabin Crew Reach Deal

Sun Sep 19, 2004 8:09 pm


Thank you for taking the time to explain AZ's situation. After so many half-baked posts, your posting is most informative. You earn my respect with this one.

I am actually flying EWR-MXP-MRS and back later this week. The price was about $100 less than AF on Orbitz, and I bought the ticket on AZ's web site, which worked very well (It isn't an e-ticket. The paper ticket was Fedexed).

It will be my first time on AZ, and I am looking forward to it very much. Since there have been rumors that travel agents have been skittish to book AZ, I will get back to the group later with the loads.

Good luck Alitalia!
I've flown thousands of miles and I can tell you it's a lot safer than crossing the street!

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