Ita Airways: problems, accounts and prospects (with Lufthansa)
The strengths and weaknesses of Ita Airways, the errors on the planes, the 2023 accounts and the scenarios (with Lufthansa). Start Magazine conversation with Cristiano Spazzali, air transport expert
How will Ita Airways close 2023? Were the MEF company's choices regarding aircraft correct? And will the operation with Lufthansa go through?
Here is what Cristiano Spazzali, an air transport expert, responded to Start Magazine 's questions: he has collaborated with various airlines and airports and was general manager of Azzurra Air, currently working as a consultant for strategies in the aeronautical sector.
Spazzali is the only expert in the sector who agreed to comment on Start Magazine 's advances on Ita's accounts : the overall picture of Ita sees it with (estimated) costs of around 220 million euros per month (average) while the revenues at the moment, again according to estimates, they would be 195 million euros per month (average). In terms of the budget, Ita will have to deal with the devaluation of the Alitalia brand, with the introduction of extraordinary reserves for the ongoing lawsuits with the former Alitalia and with the cash which should now be running low; all these projections indicate a possible financial need for Ita by 31 December 2023, Startmag revealed a few days ago.
Sweep them, what do you think of the data revealed by Start Magazine ?
I had the opportunity to analyze what you sent me and I would say that, with a margin of error of 5%, the estimates are most likely quite accurate. In recent days I myself have done an in-depth analysis of Ita's activities and I must say that the data is quite similar to what you have shown. If these data, as of 12/31/23, were to be confirmed to Ita, a lot of money would be needed immediately, initially I would say no less than 5/600 million euros, first of all for investments and then also for current management . The danger is that the company, as you rightly said, gets stuck in its daily activities and is unable to continue its investments. For the good of the company this eventuality must be absolutely avoided.
Let's talk about the Lufthansa dossier: you recently published an in-depth analysis on the topic on Sussidiario.net , stating that Ita needs Lufthansa to survive. Why?
Ita is a hybrid animal, and in the panorama of full service carriers it does not yet have a specific place, it does not have a well-defined product and a clear role in alliances. The carrier is not yet fully structured and has undergone various managerial changes in two years. Such a delicate company requires tranquility from both the economic and managerial sides and Ita was unable to enjoy the latter and only partially the former. In my opinion, much more could have been done with that initial financial allocation.
Much more? And how?
Personally I would have chosen different planes. The feeling is that these choices can be traced back to a clear intent, namely that of not using the older commanders who flew for Alitalia on the long-range Boeings, who were certainly very experienced, in Italy. And therefore for this reason Boeing, despite itself, may have been cut off from any reasoning. Let me add that when you create a company from scratch, these critical issues, very much linked to the interests of a few, should never weigh on strategic choices. Choices that must be weighed only on the basis of cold numbers and consequently in the results. In the end you pay for these choices, and at a high price too.
What would she have done?
If it had been up to me, I would have opted for a mixed fleet type, Boeing/Airbus, I would not have taken the Airbus A350, preferring the larger Boeing B777-300 to that model, and therefore I would not have limited myself to choosing just one manufacturer . Furthermore, I believe that some reflection should also be done on the choice of the Airbus A220s.
What kind of reflection?
The A220s are built by Airbus, but the original design was created by Canadian Bombardier. They are aircraft designed for point to point flights and for feeder operations on regional routes with low traffic capacity, but require, on average, higher fares for economic balance. These are aircraft that should not be used on domestic routes with high traffic capacity, where the fare must be competitive with that of low-cost ones. The A220s were chosen by ITA to replace the old Airbus A319s, now obsolete and quite expensive in terms of operating costs, but they do not solve the underlying problem.
For what reason?
Because it's as if she had to replace her washing machine at home because the family has gotten bigger. If you then take a different model but with the same load capacity, the problem will never be solved. He needs one that can carry more weight. For Ita, the same philosophy applies.
Can you give us a concrete example to better understand this dynamic?
Absolutely: Ita has based the bulk of its A319 fleet, which can carry up to 141 passengers, on Milan Linate, where the North-South routes are covered every day. Destinations operate within a range of one hour and twenty minutes, to one hour and fifty minutes of flight time. The bulk of the A320 fleet, with 180 passengers, is based at Rome Fiumicino. Planes at Fiumicino operate more or less the same domestic destinations as Linate, but take less travel time, around 50 minutes, a maximum of one hour of flight time. So why use a more expensive and less capacious aircraft on a longer route and an aircraft that costs more or less the same but carries more passengers on a shorter route? It would make more sense to do the exact opposite…
And did you give yourself an answer?
I did a lot more. I created a report, simulating the transfer of planes that are based at Milan Linate and took them to Rome Fiumicino. And vice versa, I transferred those from Rome Fiumicino to Linate, to understand if with a reorganization of the network there could be improvements both in operational terms and in terms of economy of scale.
What is the result?
Discounted! There is a significant improvement in terms of both capacity, supply and frequency of flights, costs are falling and there is an improvement in all areas that involve variable costs linked to flights, with an improved result compared to the income statement of the original network, of almost 110 million euros per year. The margin of error can be quantified at around 10%, but the result is still appreciable.
So in your opinion Ita would have done wrong to buy or rent these planes?
Not in absolute terms, it always depends on what you want to do when you grow up and where you want to fly. In Italy, in 2022, the low-cost air transport system, in the Italy-Europe basin, recorded more than 78 million passengers, out of a total traffic originating from Italy of approximately 87 million passengers. The load factor of the various Ryanair, EasyJet, Wizz etc. etc., just to mention the most important ones, was almost 94% full. In the same period, Ita transported only 13.8 million passengers, with a occupancy rate of 70%, and the figure is constantly evolving, always in favor of low-cost airlines. We, as a country, have a conformation of the territory that forces people who have to move from North to South, with time constraints, to take the plane, and this explains why low-cost companies, not finding much competition in Italy, manage to their intent, which I would define as "predatory", to always introduce new destinations at competitive prices compared to those of Ita, using larger aircraft, those with at least 180 seats so to speak. So to your question, the most correct answer is that for every destination there is the right plane.
And could the train be ITA's competitor in the near future?
If we talk about rail, the railway system in Italy works quite well, in particular on the East-North-West and vice versa and North-Centre-North routes. Unfortunately, once we cross the dividing line with Lazio, the problems begin. Based on these assumptions we must imagine a future where the train will certainly be a competitive means of transport to the airplane but, in fact, it could also be a system to support and integrate flights. Therefore, fleet choices must be weighed not according to "likes", but according to what "it brings me", both in terms of profit and cost savings.
Let's go back to the planes.
Personally I would have opted to include a maximum of 5 Airbus A220s in the fleet, so as to be able to operate routes such as London City and Florence Peretola which are airports with short runways and therefore limited by law. For the rest I would have chosen a homogeneous fleet of Airbus A320 and A321, in order to significantly increase my offer in terms of seats and at the same time apply a tariff policy, certainly more aggressive, to recover part of the traffic which today, instead of on Ita planes, it uses low-cost airlines for its travel, but with higher fares applied, without therefore necessarily having to come into conflict with low-cost carriers.
What do you think of Ita's management to date?
For better or worse, I prefer not to answer this question.
Let's try differently: in your opinion, what would Ita need to support herself with her own legs?
Let's put it this way. The current president Antonino Turicchi (in the photo, ed.) is certainly an excellent public official, an expert in finance and banking, but in my opinion, to run an airline you need a figure who has more experience in the aeronautical sector. How can a person make decisions if he doesn't know the subject thoroughly? For example, how can you sign a leasing or purchase contract for an airplane if you don't know all the variables which, dare I say, for an airplane are infinite. It's not a car. Only experience, and believe me sometimes even that isn't enough, can help you make these decisions, otherwise you are always at the mercy of others, who you think know more than you, but who sometimes just pretend to know… Let's say that Ita really doesn't need these people.
Let's go back to Lufthansa. When do you think the Germans will actually be able to enter Italy?
First of all, a premise must be made: the Lufthansa group is made up of serious people and they are people who know the aeronautical world well. In all these months Lufthansa has tried in every way to reach a compromise with DG Competition. In my opinion this mediation was unsuccessful not for one, but for several reasons. At a certain point, the Germans had to surrender to the evidence of the facts, namely that the Commission, at this moment, would prefer not to take decisions of this magnitude until the European elections have concluded.
So what does it predict?
My prediction, despite the reassurances of recent days by the pro-tempore Commissioner Didier Reynders on the speed of the evaluation operations, is that with Brussels, in all likelihood, we will go beyond the so-called "Phase 2", and that Lufthansa could do its entry into Ita no earlier than October/November 2024. Without taking anything away from the professionalism of the current Ita managers, and this being the case, it would be truly appropriate for the Government to evaluate a change of management, entrusting the company to people with more specific and would prevent the current Board of Directors from making new hires which could be extremely harmful.
According to your experience, could Lufthansa be the right partner for Ita or will we find ourselves faced with yet another failure like that of Alitalia?
The commercial aviation sector in Italy has given birth to many interesting professional figures in recent years. But most of these professionals in the sector have failed to innovate and have brought with them a strong historical legacy, almost always attributable to "mother" Alitalia. Having then left Alitalia and entered new realities, they applied the same methodologies as the former national airline, which was in fact bankrupt or in any case had a strong welfare profile. And it was therefore a logical consequence that saw Italy in the 2000s have more than 20 airlines, while today, unfortunately, we can count the Italian carriers on the fingers of one hand.
If we take the example of the Germans and the managerial figure of Carsten Spohr, current CEO of the Lufthansa Group, we realize that this gentleman has spent more than 20 years covering various roles within the company, accumulating experience in many areas, and that have led him to be the head of one of the most important airlines in the world today. The Germans, and it is worth remembering, respond to exclusively industrial, not very political logic, and certainly do not like welfare, and they understood before anyone else that the real challenge is to innovate, diversify and team up. Today we can't go anywhere alone, it's a failed policy. To answer your question, if Lufthansa is the best choice for Italy, I answer yes.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/primo-piano/ita-airways-problemi-conti-prospettive/ on Mon, 11 Dec 2023 10:28:13 +0000.