Alitalia requires ‘radical’ cost cutting in face of ‘ferocious’ competition

Alitalia requires ‘radical’ cost cutting in face of ‘ferocious’ competition

Alitalia will seek $1 billion in cost cuts as part of a financial turnaround plan in the face of “ferocious” competition from budget carriers.

Low-cost carriers represent 47% of the Italian air travel market, the highest market penetration in Europe.

An unspecified number of jobs are at risk as a result of efforts to return the loss-making Italian flag carrier back to profit by 2019.

Measures include the fleet being cut with the removal of 20 narrow-body aircraft and raising the level of online bookings to more than half of the total.

The turnaround business plan includes a range of “radical and necessary” measures across the whole of the airline to stabilise it and secure its long-term sustainability, Alitalia said.

But the scheme is subject to trade unions agreeing to a new collective works agreement and “headcount-related measures”.

Airline management will present the plan to the Italian government and then meet with unions to explain the details and resume talks on a new collective labour agreement.

The aim is to reduce costs by €1 billion in the first three years of the plan by 2019 with reductions in operating costs and manpower.

Alitalia hopes to increase revenues by 30% from €2.9 billion to €3.7 billion in the same timeframe.

“These financial performance indicators are judged to be realistic and achievable by independent advisors and the projected figures would turn Alitalia into a profitable business by 2019,” the airline said.

The business plan is based on ‘four pillars of change’ – a revised business model, cost cuts and enhanced productivity, optimisation of network and partnerships, and developing commercial initiatives by using technology investments to drive revenue.

Fares in Europe will be simplified and charges imposed on in-flight meals and ancillaries such as seat selection, checked bags and priority boarding.

Extra seats are to be fitted into short and medium-haul aircraft and increased utilisation is planned.

Alitalia plans to raise the number of flights from Italy to the Americas – one of its most underserved markets – and build its presence at Milan Linate, Sicily and Sardinia.

The airline will re-evaluate its transatlantic options to try and fly more often on existing routes and to add new cities in the Americas.

Alitalia has spent €200 million in the last two years on new technology and it will now use the investment to improve efficiency and productivity to drive further revenue opportunities.

Chief executive Cramer Ball said: “Our investment in technology will enable us to develop new sales channels and this will contribute to increasing our revenue by 30% by 2019.

“Consumers use tablet devices and mobile phones more than ever to manage their travel experiences, and we will make it easier for them to interact with the airline.

“About 20% of our customers already use online ways to book their flights and we aim to increase that figure to more than 50%.”

Outlining the action plan, Ball said: “The aviation industry is ferociously competitive and never stands still. Only through radical change will Alitalia’s fortunes be turned around.

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

“Consumers’ buying habits have been shaped by how low cost carriers sell their products.”

He added: “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.

“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.

“If we can’t compete throughout Italy and Europe against low-cost carriers then we lose air travellers that connect onto intercontinental flights. Put simply, there is absolutely no alternative.”

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