Simone Cantagallo, the new director of media relations at Alitalia, explains the Italian flag carrier’s plan to restore its fortunes and profitability, and outlines its views on state aid
Alitalia would like to clarify statements made in a recent edition of Airline Business (Alitalia thrown a lifeline, September 2005). Having faced a critical economic and financial situation in 2004, Alitalia launched an ambitious turnaround plan which, covering all the main business areas within the company, has major implications for both revenue generation and the industrial structure of the company.
This turnaround plan is articulated in two main phases:
- Recovery phase 2005-6, aimed at guaranteeing the survival of the company and a return to profitability. During this period Alitalia, without additional investment, is focusing on rapidly increasing its commercial effectiveness and, moreover, its cost efficiency, mainly through productivity increases. This phase will lead to economic break-even in 2006.
- Relaunch phase 2007-8, which implies further capacity increase through new fleet phase-in and strong economic performance.
Alitalia has already made significant improvements, proving the effectiveness and the sustainability of the industrial plan launched at the end of 2004. First, the company succeeded in achieving all the critical preliminary steps to guarantee continuity:
- Pre-underwriting letter from Deutsche Bank supporting a capital increase
European Union approval for its capital increase and to Fintecna deal, which sees this state-holding firm investing in the spun-off ground services business (Alitalia Servizi)
- company split into two parts – Alitalia Fly and Alitalia Servizi
- new agreement with flight personnel at bases in Milan Malpensa and Venice.
Rather than modest recovery during the first half of 2005, the Alitalia Group’s operating and economic performance showed a clear improvement compared with the same period last year, in accordance with the implementation of the measures to improve efficiency set out in the business plan. Note that the group’s principal management indicators reflect the figures contained in the forecasts for the first half of 2005, showing a performance in line with the targets and, in some respects, even improving on them despite the setback of rising fuel prices. In detail, the main economic and financial factors relating to the first half year are:
- Turnover for the first half of €2.16 billion ($2.61 billion), showing an increase of €209 million compared with the same period last year. This rise is mainly due to increased revenues from passengers carried (around 15%) as a result of a significant rise in offered capacity (with the same size fleet) being more than matched by increased passenger traffic.
- The cost of materials and external services amounted to €1.6 billion, showing an increase of €148 million (10%). It should be noted that, if the effect of higher fuel prices (up 49% compared with the previous year) were to be ignored, the result would be an increase of a mere 3%, while overall capacity has risen by about 16%.
- Consolidated labour costs during the first half amounted to €576 million, showing a decline of €46 million (8%) compared with the same period last year.
The group’s average workforce during the first half of 2005 was 19,015, showing a decrease of 1,646 compared with the same period last year (1,208 ground staff and 438 flight staff). This was due in part to the introduction of the new labour contracts in which reduced unit costs and allowances, as well as the effects deriving from “diluting” labour costs through the many redundancies and early retirements that have taken place in this period.
- The group’s workforce on 30 June 2005 was 20,037, showing a reduction of 1,814 compared with the consolidated figure at the end of the corresponding period in 2004.
- The operating result for the first half showed a loss of €149 million, a significant improvement compared with the result for the first half of 2004, which showed a loss of €299 million. Half of that was down to higher fuel prices, amounting to over €100 million. Moreover, the expected benefits of Cassa Integrazione Guadagni (social security buffers already envisaged by 2004 legislation) have still not been felt. Alitalia Group’s net loss in the first half of 2005 amounted to €122 million, showing an improvement of €497 million compared with the same period in 2004.
The company announced months ago that net debt (about €1.8 billion by the end of June 2005) stays with Alitalia (Alitalia Fly) and was not to be passed to Alitalia Servizi. Indeed, Alitalia Servizi was created last May and no debt was passed to the company from Alitalia. Therefore competitors do not need to ask the European Commission to examine this, as it is sufficient for them to look at Alitalia SpA financial statements to see that no debt was passed on.
Source: Airline Business
