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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"Instead of subsidizing Alitalia, the Italian government should promote competition and efficiency in Alitalia. That way, everyone, especially the consumer, wins." 1

- Michael O' Leary, CEO, Ryanair, Alitalia's Competitor in Italy.

A Loss Making Company

In the second week of May 2004, the board of directors of Italy's government-controlled airline, Alitalia, met in Rome to discuss the deteriorating situation of the company.

This was following strikes organized by labor unions on May 06, 2004, in which Alitalia employees took part. These strikes caused major financial damage to the already loss-making company, bringing it a step closer to bankruptcy. The stormy meeting led to the resignation of the entire board of directors, over their "failure" to work out an amicable solution with the agitating labor unions. The Italian government, which held nearly two-thirds equity stake in Alitalia, appointed Giancarlo Cimoli (Cimoli), who was previously head of Ferrovie dello Stato, Italy's state-owned railways, as the company's new CEO. Incidentally, this was the second replacement at the top position made by the government in under three months.

Cimoli's predecessors - Marco Zanichelli and Francesco Mengozzi - resigned because they could not convince the unions to accept workforce reduction, which was perceived as essential to the company's survival.

Industry analysts and media reports accused the Italian government of mixing business affairs with political compulsions in view of the elections scheduled in June 2004.

This, they explained the government's inaction in taking any controversial decision like workforce reduction until the elections were over. Alitalia reported net losses of € 519.8 mn in the fiscal year ending December 31, 2003 (Refer Exhibit I for its financial performance during the period 1998-2003). In the first quarter of 2004, the company reported a loss of € 189.2 mn. Company officials attributed this loss to 'a temporary crisis in distribution relations and industrial conflict in the first part of the quarter.'2

Reviving Alitalia: Italy's Loss Making Airline - Next Page>>

1] Ryanair Calls on Italian Government to Support Competition,, April 27, 2004.

2] Italian Airlines Alitalia losses 190 mn euros in 1st quarter, Xinhua (China), May 14, 2004.


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