Alitalia: rescue or condemnation? Interview with Stefano Fazari

The Alitalia crisis is becoming more and more serious. In this regard, we again contacted an established professional, Daniele Fazari, Aeronautical Consultant and technical forensic consultant in military criminal civil proceedings, as well as business consultant.

The Alitalia crisis after 3 failures comes back at the door. Is the cause of this due to the covid?
Alitalia is under extraordinary administration for the third time, just as it will be reborn for the third time, ever smaller and more and more fragile. As already abundantly highlighted by the press and the judiciary, Alitalia suffers from well-circumscribed problems, which can be summarized as follows: poor management capacity; unbridled competition from low cost private companies; unfavorable leasing contracts and, finally, asphyxiating contracts for the supply of fuel. Not to mention that the fleet has gone from two hundred and forty (in 2008) to less than one hundred aircraft (2020), and the staff has been halved. This contraction has meant that over the years Alitalia has lost its market and become less competitive.

She said that over the years the company has become smaller and more fragile. Does this mean that the shrinking fleet is a contributing cause to the failures?
The business in air transport is done with planes. As part of a competitive growth plan, we must gradually aim at the development of the fleet and personnel as well, it is logical, right? Otherwise what network can you have. Continuously resizing a vector, ie subtracting pieces from time to time, means depriving it of productivity. In the last ten years Alitalia has always been reduced in the number of aircraft and personnel, and the result obtained in the eyes of all is evident.

In your opinion, would the starting project with 45/50 aircraft and 4500 employees be sustainable over time?
Given that a national airline should not start with 45/50 aircraft, as it would start not competitive and therefore would enter into crisis even earlier, not being able to stay on the market. Suffice it to say that the Lufthansa group has around 750 aircraft, Air France-klm has around 550 aircraft and the IAG group in which British Airways participates has around 600 aircraft; In all this purely by way of example, Ryanair has over 300 aircraft with expansion targets of around 550 in 2025. Alitalia in 2008 had almost 240 aircraft and in 2020 the fleet was around 120 aircraft. Despite the fleet cuts, the losses with a smaller fleet were proportionately higher. As for the employees, it depends on the operational structure of the company. If it had maintenance and handling in its belly, 50 aircraft and 4500 employees would be numbers in line, on the contrary, with 50 aircraft without maintenance and handling the indicative personnel would amount to 3000 of which 2200 sailors.

In your opinion, should Alitalia expand the fleet to survive?

Given that if one sets up a company, he does not have to do it to survive but to provide a lasting and profitable service over time. That said, it is clear that Alitalia to stay on the market must expand to at least over 200 aircraft, restructuring part of the network and recovering those routes that in the past were profitable but eradicated by competitors who have "invested" in Alitalia. The ideal would be to start with a fleet of at least 110 aircraft (equal to that of 2020), so as to eliminate redundancies and make the machines operate at full capacity, so as to require additional resources to be included in the workforce, in order to reach at least 150 aircraft in the short term, and continue to grow to over 200, 220 aircraft. In this way, in addition to solving the problem of Italian air transport, it is possible to be competitive on the market.
By way of example, Austrian Airlines has a fleet of just 82 aircraft and an Austrian population of around 10 million. Belgium has a population of around twelve million and a fleet of around 55 aircraft to Brussels Airlines. Switzerland has a population of around nine million and Swiss has a fleet of 90 aircraft.
If we made a comparison, Italy with sixty million inhabitants should have had no less than 400 aircraft.

You brought up Lufthansa-owned carriers purely by way of example, why?
Given the fact that among the rumors, Lufthansa is on the list for Alitalia, I brought up Swiss, Brussels Airlines and Austrian Airlines as when Lufthansa took over them after the bankruptcy, it started the new companies with a fleet initial of just 40/50 aircraft. Similarity with Alitalia.

So you say that downsizing is not a good choice?
Absolutely, resizing isn't the best choice. If you look at the results from 2008 to today, downsizing was not the best choice, immediately cuts expenses but in the long term that small saving turns into a loss. If we go to study various realities of companies in crisis, we see that many have gone through the delicate situation by growing and expanding their reference market.
In my previous writings, I have specified how such a strong vector downsizing would be a strategic mistake. We would pay dearly for it. Just to give an example, think of the Phase-Out and Phase-In processes. In the first case (phase-out), alienating an aircraft from the fleet is a process of a few weeks. While, on the other hand, to add a new aircraft to the fleet (phase-in), the operation is extremely long, even about two months of paperwork, bureaucratic steps, without counting all the essential technical phases to be carried out under strict control. Not to mention that both phases entail, in turn, onerous operating periods, namely: the non-operation of the flight crew in the event of alienation (phase-out); or reintegration for training cycles in the event of entry (phase-in). Stopping a production machine to resize it according to what appeared in the press, would involve higher costs. Not only! There is a risk of losing slots on major national and international airports, and what is happening at Linate is proof of this. In addition to what has been highlighted up to now, the very delicate issue relating to flight scheduling must be considered. To do it as well as possible, it takes no less than twelve months. In order for the network to match the rotation of the machines, it is essential to foresee the maintenance cycles in advance, respecting the flows of the high and low season, in the jargon Winter-Season (October-March) and Summer-Season (April-October). By way of example, summer flights for the year 2023 are scheduled two years in advance, starting from 2021; and closed by the first half of 2022. All these elements must be considered as a whole and placed in a market framework. Therefore it is necessary not to be caught unprepared. It is necessary to aim at the growth of the carrier and of the personnel in order to make productive a company that operates in a rich and advantageous market context (the Italian one) for the beauty of the territory and for the presence of important industrial realities.

She says she is growing, but in reality it turns out that the major airlines have cut significant numbers of planes.
This statement is not entirely true. Many companies have anticipated the retirements of old aircraft pending replacement with new and better performing ones, thus taking the opportunity of reducing operating to cut costs. For example, Delta, which has not fired anyone, has retired about 150 "old" aircraft and from 2022 will start receiving new aircraft in its fleet. Same thing Lufthansa, which has contracted the fleet of 150 aircraft, retiring the four-engine and replacing them with cheaper twin-engines, also with the contraction is retiring the personnel who are eligible and they too will soon have new aircraft, whose deliveries are already resumed.

Low-cost Ryanair has signed an order for 210 Boeing B737s which will begin receiving shortly.
The period is favorable to the purchase and rental of aircraft, it must be grasped, because once it has passed, Alitalia will again find itself having higher and out-of-market operating costs, with a possible epilogue by now well known.

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The Alitalia article : rescue or condemnation? Interview with Stefano Fazari comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/alitalia-salvataggio-o-condanna-intervista-con-stefano-fazari/ on Mon, 26 Apr 2021 07:00:17 +0000.