Rome Fiumicino Airport

Alitalia battles for survival in 2013, again, despite operational improvements

In 2012 Alitalia lost EUR280 million, bringing its cumulative net loss to EUR843 million since the ‘new Alitalia’ was created in 2009. In Feb-2013, with its cash reserves almost evaporated, it had to ask its shareholders for a EUR150 million loan to fund its operations. Following the 2012 results announcement, CEO Andrea Ragnetti resigned his position after only a year with the company. A permanent replacement is being sought while chairman Roberto Colaninno takes the controls on an interim basis.

Since 2009, there have been operational improvements, leading to rising load factors and much improved on-time performance, and a major fleet replacement and renovation programme. Unfortunately, these positive developments have not set Alitalia on the path to financial health. Moreover, while its cost base is fairly competitive against full service network carriers, it remains very high cost compared with the short-haul point-to-point LCCs with whom it increasingly competes. Alitalia looks strategically isolated between these two sets of competitors and it now seems unlikely that Air France-KLM will throw it the once anticipated life vest. Loss-making, bleeding cash and currently leaderless, Alitalia faces a battle for survival in 2013.

IAG seeks full ownership of LCC Vueling as its cuts Iberia to the bone

International Airlines Group (IAG) is putting its Spanish house in order and will eliminate up to 4500 jobs at Iberia and downsize the fleet by 25 aircraft while planning a full takeover of the Barcelona El Prat-based LCC Vueling Airlines.

Iberia is on a downward rollercoaster and is burning EUR1.7 million cash per day with operating losses deepening in the first nine months of 2012 to EUR262 million owing to Spain's challenging recession, the unstoppable inroads of LCCs and the airline’s high cost structure.

Iberia management was crystal clear in assessing the situation and warned that the airline is “in fight for survival” and tough decisions are needed now to save the company.

IAG’s intent to make a formal takeover offer for the 54% of Vueling that it does not already own is part of the Group’s remedy to help restructure Iberia's money bleeding short-haul operations and regain leadership in this segment. The LCC has managed to follow a steady and profitable growth path despite the Spanish economic slowdown, with a near doubling of net profit in 9M2012 to EUR41.3 million compared to the year-ago period. Vueling will bring a low-cost platform within IAG and give IAG geographic diversification as it has bases in Amsterdam, Toulouse, Rome Fiumicino and a noteworthy presence at Paris Orly Airport.

Qantas-Virgin dispute over Italy rights goes to the heart of the new alliance partnerships

Virgin Australia and Qantas are squaring off over a limited number of codeshare seats available for use with third airlines between Australia and Italy, setting the stage for a looming battle for Europe. The Italian dispute goes to the strategic heart of the alliances created between the two Australian carriers and their Middle East and Asian counterparts.

Qantas currently holds the entire 1,000 weekly codeshare seats available under the air services agreement between the two countries. But with an expanding virtual European network through partners Etihad and Singapore Airlines, Virgin Australia is gunning for its share to keep up with the proposed Qantas-Emirates mega-alliance to Italy.

Qantas has reapplied for renewal of the entire capacity which until now it has used in conjunction with Cathay Pacific over Hong Kong and British Airways via Singapore and London, arguing that as the incumbent it has first rights. But Virgin Australia believes it is entitled to a commercially viable share as a new Australian airline entrant on the route.

Air Canada touts continuing transformation as 2Q2012 losses widen

Two major elements driving Air Canada’s 2Q2012 negative financial results – labour strife and pressure created by the sudden shutdown of its major maintenance provider Aveos – are the areas where the carrier sees prime opportunities in the future as new labour agreements allow for the creation of a new low cost carrier and negotiations with new suppliers ensure a substantial improvement in the costs of airframe maintenance.

Air Canada management during the last year has often cited the transformation that needs to occur at the carrier in order for the airline to compete in the new competitive environment ushered in by LCCs and spiking fuel prices. But in the short term the company still must deal with disgruntled employees and increasing competitive pressure that will not pause as Air Canada works to complete its transformation.

During 2Q2012 Air Canada widened its losses year-over-year by CAD50 million (USD50.2 million) to CAD96 million (USD96.4 million), while net losses for 1H2012 expanded by CAD241 million (USD242 million) to CAD306 million (USD307 million).

Delta's 4Q2012 international route cuts free up significant widebody capacity

Planned route cuts by Delta Air Lines being instituted in late 2012 as part of the carrier’s capacity management scheme to reduce trans-Atlantic supply by 5% and trans-Pacific capacity by 1%-2% will free up a number of widebody aircraft. As the carrier makes seasonal adjustments throughout its network it is not exactly clear where the widebodies exiting certain markets will be deployed.

The carrier’s planned 4Q2012 cuts in trans-Atlantic capacity will mostly be implemented in late Oct-2012, at the start of the IATA winter 2012 schedule and about one month after the peak travel season in the US ends. Most of the capacity will be restored at the start of the summer 2013 schedule in late Mar-2013. Nearly one-third of Delta’s international capacity (seats) is currently deployed on routes to Western Europe.