5 questions hanging over Italy’s new airline

ITA takes over from Alitalia but shares many of its predecessor's problems.

5 questions hanging over Italy’s new airline

Italy’s new flag carrier ITA took its maiden flight Friday, following Thursday’s final landing of its bankrupt predecessor Alitalia.

While the brand of Italia Trasporto Aereo, its financing, route structure and approval from Brussels are settled, there are still a lot of unanswered questions looming over the new carrier.

1. What’s its name?

Not Alitalia.

“ITA Airways” is painted on the side of the airliners, and they’re decorated with Italy’s tricolor flag on the tail. The historic Alitalia brand, with its 1970s chic, was sold to ITA at the last minute for just €90 million (a bargain compared to the initial asking price of €290 million), but ITA’s jets won’t be emblazoned with that livery.

The decision to use the name ITA Airways comes from “listening to people,” the company said.

ITA retains the right to use the Alitalia brand in the future if it wants to, and the old website redirects to the new carrier. The sale also means the Alitalia brand can’t be bought by a rival — something Ryanair, which is a big player on the Italian market, mischievously said it might try to do.

2. Will it be able to compete?

Many of the external conditions that saw Alitalia falter haven’t changed.

Low-cost airlines, long a powerful presence on the Italian market, have done better than their older rivals in the pandemic and picked up several airport slots from Alitalia.

Italian high-speed rail also helped undermine Alitalia’s business model. This time, ITA is eyeing partnerships with rail operators for combined rail-and-fly tickets. It’s a move made by several former flag carriers as they look to offer something different to no-frills rivals.

ITA CEO Fabio Lazzerini said it’s a “necessity” for both his airline and the state railways Ferrovie dello Stato to get a competitive advantage over low-costs. 

The global aviation industry is only slowly recovering from COVID; IATA, the global industry lobby, expects net losses of $20.9 billion for European airlines this year and $9.2 billion in 2022.

The long-haul market suffered the most during the pandemic but, with the United States removing its travel ban on Europeans on November 8, ITA’s arrival on the market comes at a time when such lucrative routes might revive.

Alitalia lost a fortune no matter the broader economic environment, but ITA has made moves to become more efficient — much to the fury of unions. It has drastically slimmed down its workforce and provided its employees with a contract unions say is significantly worse than under Alitalia.

3. Will it join an alliance?

Lazzerini said last year that an alliance is “fundamental” to his company’s future, saying: “The world of airlines is made up of alliances. It is difficult to be alone.”

Alitalia was a member of the SkyTeam alliance along with Air France-KLM and Delta, but this was one asset ITA didn’t inherit from its predecessor. The new airline will have to bid to take part but could also switch to the rival Star Alliance, which includes Lufthansa, Tap Air and Air Canada.

“Activities are underway to identify a long-term strategic partner,” said Deputy Economy Minister Laura Castelli.

Getting into bed with some partners is crucial for ITA’s success, given the company starts life with only 52 jets. ITA’s chairman Alfredo Altavilla said the airline is giving itself a year to make a deal.

4. Will it cost the Italian taxpayer more money?

The new company starts life with €1.35 billion of fresh money injected from Rome, and it hopes to make better use of that cash than Alitalia, which burned through multiple expensive rescues before going bust.

The early days will be difficult. ITA is expected to lose €1.9 million a day during its startup phase, according to Corriere della Sera, which had a look at the airlines’ financial plans. 

Next year, when the airline is supposed to expand its fleet by 50 percent and add 1,000 more hires (although still keeping its payroll well below Alitalia’s), the carrier plans to lose €267 million. It’s hoping to cut losses to €33 million by 2023 before making profits of over €100 million in 2024 and more than €200 million in 2025. 

Lazzerini has tried to calm worries about the sense of investing in an Italian airline by pointing to other corners of the country’s aviation industry that benefit from state cash. He called out smaller airports that receive state support and play host to discount carriers that “​​open in June with the ribbon-cutting with the president of the airport and the region, leave in September, return in June to the same ceremony.”

5. Will it survive? 

Rivals don’t hold out a great deal of hope for ITA.

Wizz Air CEO József Váradi predicted earlier this week that the airline would go “badly, as all the other Italian carriers before.”

The government is hoping he’s wrong. Castelli said the company “must produce value over time and become profitable.”

One way of keeping ITA afloat would be selling it to a big airline group.

But ITA isn’t the only small national carrier that might make a tempting morsel for a larger carrier. Then there’s the tricky political question for the Italian government of selling off a majority stake its new crown jewel to foreigners — something that never happened to Alitalia despite its many travails.

Pietro Lombardi and Giorgio Leali contributed reporting.

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Merkel cautions EU: Talk to Poland, Hungary before cutting funds

German chancellor said Commission should 'wait' for decision of the highest EU court and called threats by MEPs 'a bit saddening.'

Merkel cautions EU: Talk to Poland, Hungary before cutting funds

German Chancellor Angela Merkel on Friday urged the EU against rushing to halt funds to Poland and Hungary despite mounting pressure for the bloc to take action over democratic backsliding concerns in both countries.

The European Commission has been considering whether to suspend certain EU budget payments to the countries, using a recently acquired power meant to punish member states for breaching the rule of law. While the Commission has held off on using the new tool while it is challenged in court, many activists and MEPs want the Commission to take action now, citing ongoing allegations that Poland and Hungary are undermining their own democracies.

Merkel, the outgoing German leader, was speaking to reporters a day after a European Parliament committee threatened to take legal action against the Commission over its reluctance. And EU leaders are expected to discuss Poland’s rule-of-law crisis at a summit next week.

Merkel on Friday backed the high-level discussion but not the Parliament committee’s stance.

“I think it is now time to talk in-depth with the Polish government, how we can overcome the difficulties … We have big problems, but my advice is to solve them in talks, to find compromises,” Merkel said in Brussels following a meeting with Belgian Prime Minister Alexander De Croo.

Merkel said she doesn’t agree with those who believe “political differences” should “always be resolved through court proceedings.” She added: “That’s why I’m a bit concerned about the large number of cases that are now being settled in court.”

The chancellor also criticized the European Parliament over its threat, saying: “From my point of view, I find it a bit saddening, if I may say so cautiously, when Parliament says that now we may have to sue the Commission. I don’t think that will lead to anything.”

The Polish government on Tuesday ratcheted up its rule-of-law battle with the EU by adopting a verdict from the country’s Constitutional Tribunal, which found that the Polish constitution has primacy over some EU law. Many saw the ruling as questioning the treaties undergirding the EU itself.

Merkel said that the EU’s rule-of-law mechanism, which was negotiated under last year’s German presidency of the Council of the EU, had required “a great willingness to compromise on all sides.” Part of that compromise, she stressed, was that Poland and Hungary had the right to go to the Court of Justice of the European Union and “ask whether this directive is in line with European law,” which the two countries have done. The Commission has been waiting to deploy the mechanism until the court challenges are settled.

Merkel warned against rushing to activate the mechanism before the court had ruled on the issue. “I think we can wait for this decision of the European Court of Justice now,” she said.

She also stressed the need for EU countries to remain united on difficult questions, recalling that “the exit of the United Kingdom was a great sadness” for her.

In addition to the rule-of-law mechanism, the Commission is also withholding coronavirus recovery fund payments to Poland and Hungary over rule-of-law concerns. Merkel did not directly refer on Friday to the potential withholding of those payments.

De Croo said he was “on the same page” as Merkel when it comes to the rule of law. “This could become a big issue, but you could prevent it from becoming a big issue if you engage,” he said. “I think that just criticizing and finger-pointing from the outside is not going to lead us anywhere, so we need to engage and we need to understand what the next steps [by Poland] will be.”

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