Reviving Alitalia: Italy's Loss Making Airline

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Case Details:

Case Code : BSTR126
Case Length : 25 Pages
Period : 1995-2004
Organization : Alitalia
Pub Date : 2004
Teaching Note :Not Available
Countries : Europe, Italy
Industry : Airline

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Problems

Apart from adverse macroeconomic factors such as airline deregulation and unprofitable diversifications, Alitalia had to address several internal and external problems. Being Italy's national airline with full government support, Alitalia was accused of becoming complacent. Its customer service was criticized as being well below standards. Passengers complained that employees were arrogant and flights were delayed frequently.

In fact, industry analysts cynically expanded the acronym Alitalia to mean Always Late in Takeoff, Always Late in Arrival. By the airline industry's standards for the 1990s, Alitalia's fleet was outdated, contributing to rising costs. The entire fleet was due for a complete overhaul. Alitalia also earned a bad reputation for its un-cooperative work force that resorted to frequent strikes, halting the company's operations. Reportedly, the labour unions had a strong government backing, enabling them to successfully oppose any move by the management to privatise the company and reduce the workforce. Repeated government intervention in the company's matters, especially those concerning labour and leadership, deprived the management of functional autonomy to run the company on commercial lines...

The New Management

Alitalia's new management faced the same problems as their predecessors. The company's largely undisciplined workforce was backed by notoriously strike-prone labour unions. The pilots often refused to take off, forcing passengers to get off and preventing the planes from being flown by other pilots, who were willing to do so.

They earned the sobriquet 'aquile selvaggier' (wild eagles). Alitalia's fleet, largely comprising MD-11 aircraft, was inferior in quality compared its competitors, who had aircraft made by Airbus and Boeing. Alitalia's operating costs were 25% to 30% higher compared to its European competitors and 30% to 35% higher than American airlines. The new management team embarked on a massive restructuring exercise, involving work force reduction of 20% over three years (about 4000 employees), total cost control across the company, further negotiation of agreements with trade unions and a possible merger between Alitalia and ATI. Another significant decision was to enter into a code sharing agreement with Continental Airlines...

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