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Case Title:

National Pride vs Business Logic: Alitalia's Strategy within a Strategy

Publication Year : 2006

Authors: Samad & Sumit Kumar Chaudhuri

Industry: Transportation


Case Code: COS0035

Teaching Note: Available

Structured Assignment: Not Available

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Alitalia was established in 1946 and was a monopoly in the Italian Airline industry till the mid-1990s. However, with factors like the airline deregulation, arrival of low-cost airlines, Iraq war, terrorist attacks at New York in 2001 and the SARS epidemic in Asia, it went into trouble and posted a loss of $1,107.6 million in 2004. Along with the Italian government, it drafted a four-year restructuring plan (2005-2007) to return profit. The plan included lay-offs, the splitting of the company into two units, financial aid from the government and the acquisition of a bankrupt Italian low-cost airline, Volare. Alitalia expects that the acquisition would enable it to foray into the low-cost segment, and enable it to earn quick profits. However, sceptics feel that the initiative is just a protectionist measure as there is no rationale behind a financially-troubled company acquiring another bankrupt company with the help of state aid, which is against EU Competition Commission rules

Pedagogical Objectives:

  • To highlight the downturn of Alitalia since the mid-1990s and its restructuring strategies to turn itself around
  • To understand how state protectionism can affect the business prospects of a national carrier
  • To discuss whether the acquisition of Volare by Alitalia is just a political manoevoure by the state or there lies a business logic which can help Alitalia to turn profitable

Keywords : Government and Business Environment Case Study,AirOne, Ryanair, easyJet, British European Airways (British Airways), Volare Airlines, Italy's airline industry, Italy's low cost carriers, Economic protectionism, Alitalia's restructuring initiatives, Code-sharing partnerships, Alitalia's financial problems, European Low Fares Airline Association, SkyTeam alliance, Alitalia's aggressive pricing

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