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Air Italy liquidated; fails to fulfil Qatar Airways' expansion aims

On 11-Feb-2020 Air Italy announced that its shareholders Alisarda and Qatar Airways, operating through AQA Holding SpA, had resolved to liquidate the airline.

Operations are to be suspended from 26-Feb-2020.

Formerly operating as Meridiana, it rebranded in Mar-2018 as part of a restructuring plan following the sale of a 49% stake to Qatar Airways in Sep-2017. The plan included fleet modernisation with aircraft procured from Qatar Airways and an expansion of the fleet from 11 aircraft in 2018 to 50 by 2022. It also aimed to reverse the airline's years of decline as Meridiana and for Air Italy to carry 10 million annual passengers by 2022 (versus 2.4 million in 2017).

Sadly, none of its ambitions were fully realised. It refocused from its Olbia base on Sardinia to Milan Malpensa and launched new long haul services to New York, Miami, San Francisco, Los Angeles and Toronto. However, other long haul services came and went and a second hub at Rome Fiumicino failed to take root.

The 737 MAX grounding certainly did not help, but Air Italy simply did not reach sufficient scale (its network continued to shrink), it struggled with LCC short haul competition and could not achieve profitability.

Summary

  • Air Italy is the 11th biggest airline by seats in Italy. It is fifth by domestic seats, but its share has halved since 2013.
  • More than two thirds of Air Italy's capacity was domestic.
  • Air Italy faced competition on 14 of its 19 summer routes and all of its 17 winter routes.
  • Air Italy has struggled financially. Its annual capacity grew in 2019 but was still 30% below its 2013 level.

Air Italy is the 11th biggest airline by seats in Italy

Based on capacity it had planned for summer 2020, Air Italy is the 11th ranked airline by seats in Italy, with a seat share of 1.5% (week of 22-Jun-2020, source: OAG).

The ambitious expansion plans proposed at the time of the Qatari investment and subsequent rebranding never materialised.

Air Italy's planned summer 2020 share compares with 1.7% a year earlier and 2.5% in summer 2017, which was immediately before the Qatar Airways investment.

Among airlines with an Italian AOC, its fleet is the sixth largest, ranked by the number of passenger aircraft in service.

It is also the smallest, ranking behind Alitalia, Alitalia CityLiner, the LCC Blue Panorama, the Lufthansa subsidiary Air Dolomiti, and Neos.

Italy: airlines ranked by seat share*, week of 22-Jun-2020

Rank

Airline

Seat share,

percentage

1

Ryanair

22.3%

2

easyJet

12.4%

3

Alitalia

12.2%

4

Vueling

4.1%

5

Wizz Air

3.2%

6

Lufthansa

3.1%

7

Volotea

2.8%

8

British Airways

2.3%

9

Eurowings

1.9%

10

Air France

1.9%

11

Air Italy*

1.5%

 

All others

31.5%

...and has the smallest Italian registered passenger fleet in service

According to the CAPA Fleet Database, it had a fleet of six aircraft in service at 10 Feb-2020, comprising four Boeing 737-800s, one 737-700 and one A330-200, with four more A330-200s in storage.

In addition, Air Italy had four grounded Boeing 737 MAX-8 aircraft. The MAX groundings had a negative impact on the airline's cost base in 2019, since it had to wet lease replacement capacity. This contributed to further losses in 2019.

Qatar Airways provided Air Italy with its MAX equipment and also its A330s (before the investment by Qatar Airways, Air Italy's widebody fleet consisted of Boeing 767-300ERs). It was planning to replace the A330s with 787s.

As recently as Oct-2019, Air Italy was reiterating plans to expand its fleet to 50 aircraft by 2022 from the current total of 13 (including grounded/stored aircraft).

Air Italy is fifth by domestic seats, but its share has halved since 2013

Air Italy ranks more highly in the Italian domestic market, where it was fifth by annual seats in 2019. However, although its domestic seat share grew from 5.2% in 2018 to 6.0% in 2019, it had approximately halved from 11.6% in 2013.

LCC share grew from 49.3% in 2013 to 52.1% in 2018. Although LCC share eased back a little to 51.5% in 2019, it is back up to 53.8% in 1H2020 (source: CAPA calculations on OAG data).

Italy domestic market: seat share of top five airlines and LCCs, 2012 to 2020*

 

More than two thirds of Air Italy's capacity was domestic

In its planned summer 2020 schedule, 68.8% of Air Italy's seats were domestic, with 31.2% on international routes (week of 22-Jun-2020, source: OAG).

Its biggest external market was North America, accounting for 65.8% of its international seats. Its only other foreign markets were North Africa (17.8% of international seats) and Central/Western Africa (16.4%).

Air Italy: planned international capacity share* by destination region, week of 22-Jun-2020

 

Air Italy faced competition on 14 of its 19 summer routes…

Air Italy's planned summer 2020 schedule had 19 routes (week of 22-Jun-2020, source: OAG), of which 13 were operated year-round and six were summer only.

All but two of the routes were to/from Milan Malpensa. Six were widebody operations and 13 were narrowbody.

The summer-only routes were Milan Malpensa to Toronto, Los Angeles and San Francisco (widebody services); and Olbia to Bologna, Milan and Verona (narrowbody services).

Five of its 19 summer routes were monopolies, but they were all ranked among its smallest six routes by seat capacity. These services on which it faced no competitors were: three widebody routes, Milan Malpensa to Los Angeles, San Francisco and Dakar; and two narrowbody African routes, Milan to Accra and Lagos.

Air Italy faced competition on 14 of its 19 summer routes and more than one competitor on seven routes, including six out of its top nine routes by seat numbers. Out of 11 routes to Europe or North Africa, it competed with LCCs on eight of them.

Air Italy was the leading operator by seats on only four of its 14 competitive routes.

Air Italy: routes ranked by planned seat capacity, summer 2020*

Rank

Origin

Destination

Weekly frequency

Seats

Airlines operating

(in order of seat capacity)

1

Palermo Falcone Borcellino

Milan Malpensa

21

7,812

Air Italy, easyJet, Ryanair

2

Naples Capodichino

Milan Malpensa

21

6,048

easyJet, Air Italy

3

Catania Fontanarossa

Milan Malpensa

21

6,048

easyJet, Ryanair, Air Italy, Neos

4

Rome Fiumicino

Milan Malpensa

19

5,700

Air Italy, Alitalia, Neos

5

Milan Malpensa

Cagliari Elmas

17

4,896

easyJet, Air Italy, Neos, Alitalia

6

Bologna Guglielmo Marconi

Olbia Costa Smeralda

12

4,464

Air Italy, Alitalia

7

Milan Malpensa

Lamezia Terme

15

4,320

easyJet, Ryanair, Air Italy

8

Milan Malpensa

Olbia Costa Smeralda

10

3,720

easyJet, Air Italy

9

Milan Malpensa

New York John F Kennedy

7

3,640

Emirates, Delta, American Air Italy

10

Milan Malpensa

Toronto Pearson

6

3,120

Air Canada, Air Italy

11

Milan Malpensa

Miami

5

2,600

American, Air Italy

12

Milan Malpensa

Cairo

7

2,548

EgyptAir, Air Italy

13

Olbia Costa Smeralda

Verona Villafranca

6

2,232

Volotea, Air Italy

14

Milan Malpensa

Los Angeles

4

2,080

Air Italy

15

Milan Malpensa

San Francisco

4

2,080

Air Italy

16

Milan Malpensa

Dakar Blaise Diagne

4

2,080

Air Italy

17

Milan Malpensa

Sharm el-Sheikh

3

1,080

Air Italy**, Neos**, easyJet, Air Cairo

18

Milan Malpensa

Accra Kotoka

2

648

Air Italy

19

Milan Malpensa

Lagos Murtala Muhammed

2

648

Air Italy

…and on all of its 17 winter routes

In the current winter season it has operated 17 routes, all to/from Milan Malpensa, and faced competition on all but three of them.

Six were widebody operations and 11 were narrowbody.

Four services are winter-only and all launched at the start of winter 2019/2020: Milan Malpensa to Malé, Mombasa, Tenerife-Sur and Zanzibar. All four have competitor airlines (more than one on three of them).

Air Italy has struggled financially

In 2018 Air Italy made a loss of EUR164.2 million on 2018 revenue of EUR283.8 million (a decline of 21.3% from 2017's revenue).

This was its first year after the investment by Qatar Airways and its rebranding from Meridiana. Losses were attributed to costs associated with the relaunch and some failed long haul routes, such as Mumbai, Delhi and Bangkok.

For 2019, it reportedly made a loss of more than EUR200 million, burdened by the 737 MAX grounding.

Its annual capacity grew in 2019, but was still 30% below its 2013 level

In 2018, the last year for which traffic numbers are available, Air Italy carried 1.91 million passengers – a decline of 21.7% from 2.44 million in 2017.

Traffic figures for 2019 are not available, but OAG data indicate that the airline increased its annual seat capacity by 16.0%. In spite of the capacity increase in 2019, the route network continued to reduce.

Its summer 2019 total of 23 routes compared with 27 in summer 2018 and as many as 90 in summer 2017, when it was still operating as Meridiana.

Between 2013 and 2018 the annual seat count had dropped by 39.9% and, in spite of the return to growth in 2019, capacity was still below its 2017 level and 30.3% below its 2013 peak.

According to OAG, Air Italy's winter 2019/2020 seat numbers were due to increase by 10.9% year-on-year, but summer 2020 capacity was set to fall by 8.2%.

Air Italy: annual seat numbers, 2012 to 2019

 

Alitalia has operated in administration for longer than Air Italy's rebranded life

Air Italy's demise will have a small impact on the Italian market overall, particularly in the domestic market where its seat share was approximately 6%, and in the Italy-North America market, where its share was approximately 7%.

However, the wider landscape of European consolidation will not look very different. In summer 2019 Air Italy had just 0.2% of all seats to/from/within Europe.

The investment in what was then Meridiana and the subsequent rebranding as Air Italy took place in the 12 months after Italy's national airline Alitalia went into special administration in May-2017.

See related reports:

Air Italy and its minority shareholder Qatar Airways sensed an opportunity to fill the 'flag carrier' brand gap expected to open up upon Alitalia's demise.

For Qatar Airways, Air Italy's liquidation will be a painful lesson as the first failure of an airline in which it has taken a stake. However, it was not prepared to invest further funds without a similar commitment from the other shareholder.

Alisarda, which owns 51% of Air Italy, has links to the Aga Khan, who originally founded the airline in 1963 to promote tourism in Sardinia. It seems that Alisarda has finally lost enthusiasm for Air Italy after more than five decades.

The Italian government has called the liquidation unacceptable and is attempting to persuade the shareholders to suspend the decision, although there may not be much that it can do.

It is ironic that Air Italy is entering into liquidation while Alitalia is close to entering its fourth year of operating while in administration.

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