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Alitalia to cut €1bn of costs in fight against low-cost carriers

Alitalia plane

Struggling Italian airline Alitalia plans to cut €1 billion of costs as it aims to return to profit in the next two years.

On Wednesday, the Alitalia board of directors approved a ‘turnaround business plan’ which includes a range of “radical” and “necessary” measures across the whole company.

Alitalia will meet with the government and trade unions to explain details of the plan, which will include jobs cuts and new collective labour agreement for hundreds of employees.

The airline will introduce a ‘buy-on-board’ concept ending complimentary food and drinks on flights that are four hours or less. It will also charge for checked luggage and offer passengers the chance to purchase priority boarding and seat selection.

“Alitalia will reduce costs by €1 billion in the first three years of the plan, with reductions in operating costs and manpower,” it said in a statement. “Alitalia will increase revenues, in the same timeframe to 2019, by 30 per cent from €2.9 billion to €3.7 billion.”

Following a deal in 2014 which saw Etihad purchase a 49 per cent stake in Alitalia, a plan was unveiled to return to profit by 2017. It wanted to introduce new routes, product and service standards, cost management strategy and branding.

Alitalia CEO Cramer Ball said after the first failed plan it must re-build the brand with heavy investment in staff training and technology.

“The aviation industry is ferociously competitive and never stands still. Only through radical change will Alitalia’s fortunes be turned around,” said Ball.

He added: “The radical and necessary measures across the entire airline will secure our long-term sustainability which will only materialise if the airline is the right size, the right shape and with the right productivity and cost base.

“We must do this, especially in our short and medium haul business in order to provide a platform to grow our profitable long-haul business further in the future.

 “If we can’t compete throughout Italy and Europe against low-cost carriers then we lose air travellers that connect onto intercontinental flights. Put simply, there is absolutely no alternative,” said Ball.

The airline will also rebalance its fleet of aircraft by 2018, reducing its narrow-body fleet by 20. Alitalia will increase aircraft utilisation with a particular focus on short and medium-haul aircraft.

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