Alitalia has tentatively agreed to merge with Wind Jet and Blue Panorama Airlines. According to AGI reports, Alitalia has signed a MoU with both Italian carriers to this effect. Wind Jet is a LCC operating short haul European services and Blue Panorama operates charter and scheduled services from its Rome and Milan bases. According to Innovata data, Wind Jet and Blue Panorama hold 10.6% and 2.9% of Italy’s domestic capacity, respectively.
Alitalia to merge with Wind Jet and Blue Panorama Airlines
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Airline consolidation: could Europe follow North America's path to improved margins?
IATA's latest airline industry financial forecasts highlight the different performance of the different regions of the world. North America is the most profitable region, measured by its net margin (net profit as a percentage of revenues) and Africa the least profitable. Europe has the second lowest margin, but has gained a little on fourth ranked Asia Pacific. Latin America has improved the most since 2012 to rank second, just ahead of the Middle East.
North America has had a relatively good recovery, while Asia Pacific's margins have fallen from their 2010 peak. Even North America's net profit is only 4.3% of revenues, its best since the late 1990s, but still a very thin margin.
Analysis of the relationship between net profit margins and various explanatory factors appears to confirm that market concentration is a key one. Europe's perennial underperformance in airline margin terms – in spite of the region's wealth, high propensity for air travel and high load factors – owes much to the fragmented nature of the market. Nevertheless, a European deal that is truly transformational in terms of its market structure remains unlikely for now.
Alitalia's long-haul network and Etihad's short-haul feed are enhanced with Etihad's proposed stake
Alitalia has lost over EUR1.1 billion since its 2009 reincarnation, hardly an indication of fundamental change. Despite this, Etihad Airways remains in negotiations to invest potentially up to EUR500 million for a 49% stake in the carrier, the maximum allowed under EU regulations. What, it might be asked, does Etihad see of enough value to be in nearly five months of serious negotiations?
First, possibly, is Italy's domestic market, the 13th largest in the world and largest in Europe after Spain for seat and ASK capacity. Overall when ranked on all seats to/from/within the country, Italy is the world's eighth largest market overall for seats but lower when looking at ASKs. Etihad is weak in Italy, entering only in 2007 when Emirates and Qatar already had a sizeable presence. Etihad's 2014 capacity into Italy is expected to be a fraction of Emirates' and Qatar's. A role in Alitalia can help bolster Etihad in Italy, building on their existing codeshare.
In turn, Etihad can provide a virtual network solution for Alitalia in Asia, where Alitalia is extremely small despite sizeable capacity from competing Asian carriers. Etihad meanwhile can feed Alitalia's European network, alleviating some pressure from LCCs, in addition to Alitalia's eastward long-haul flights to the Americas. The network synergies have potential, but Etihad will need a long time-frame to capture a return on its investment; that is, assuming the Italian government is finally willing to restructure Alitalia in a sustainable way.