Alitalia—Linee Aeree Italiana, SPA

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Alitalia—Linee Aeree Italiana, SPA

Centro Direzionale
Via della Magliana 886
Rome 00140
Italy
(6) 65621
Fax: (6) 65624416

State-owned company (85.9 percent); publicly listed 14.1
percent Incorporated: 1946 as Alitalia-Aerolinee Italiana Internazionali
Employees: 29,641
Sales: L5867 billion (US$5.3 billion)
Stock Exchange: Milan

Alitalia—Linee Aeree Italiana, SPA, is the national airline of Italy. The company is 85.9 percent owned by the Italian government with a minority stake (14.1 percent) publicly listed. Italy’s 12th largest company and the fifth largest airline in Europe, Alitalia flies to more than 116 cities on six continents.

Alitalia was established in September 1946 as Alitali Aerolinee Italiana Internazionali, with British financial assistance consisting of an initial capital investment of L900 million and an additional investment of LI.5 billion by the start of 1947. The company began operations in the spring of that year with two three-engine Fiat G.I2s flying routes from Turin to Rome and from Rome to Catania.

During its first year of operation Alitalia expanded its airliner inventory through the acquisition of two G.I 2s, four Siai Marchetti SM.95s, and three Avro Lancastrians; by year’s end it had transported a total of 10,306 passengers and 110 tons of cargo. Furthermore, in its first year of scheduled air services, the airline covered a network of over 9,000km and employed just under 300 personnel, 55 of whom were flight crew. By 1948 the airline was able to offer its first intercontinental service, introducing service from Rome to Buenos Aires, and by 1950 it had substantially modernized its fleet with the addition of Douglas DC-4s and DC-3s. Expansion continued throughout the 1950s; by the tenth anniversary of the airline in 1956, its planes had traveled a total of 48,630km and had transported a total of 116,394 passengers. The number of employees had risen to 1,120 and the company’s capital to L4.5 billion.

In 1957 Alitalia-Aerolinee Italiana Internazionali merged with Linee Aeree Italiana (LAI), a regional operator 40 percent owned by the United States airline Trans World Airways (TWA), to become Alitalia—Linee Aeree Italiana, SPA, the single Italian domestic and international airline. The merger helped to centralize air transport operations in Italy, and the new entity was able to compete more effectively with other national carriers in Europe. The new company was also substantially larger, with a net capital of LIO billion, an expanded network, and a staff of over 3,000. By the end of 1957 over 478,000 passengers had been carried by the fleet which had been expanded to include Convair-Metropolitans and Viscount 785s.

1960, the year of the Rome Olympics, was a milestone for Alitalia. Chosen as the official carrier for the Olympics, the company introduced its first jet airliners: French-made Caravelle SE210s, which served medium-haul routes, and larger DC-8s, which were put into service on the intercontinental routes. These additions to the Alitalia inventory helped the airline achieve its goal of carrying one million passengers in one year. One year later, to facilitate the airline’s expansion, company headquarters was moved from Ciampino to the recently completed Leonardo da Vinci International Airport at Fiumicino. In 1967, the same year that it introduced its new tricolored “A” on the tail fins of its aircraft, Alitalia purchased several DC-9s for its medium-haul routes in Europe and the Middle East. The following year, with the retirement of the aging Viscount turboprop powered aircraft, Alitalia had completed its transformation into an all jet fleet consisting of 19 DC-8s, 24 DC-9s, and 19 Caravelles.

During this period, dramatic developments were taking place in aircraft manufacturing. In 1969 Boeing introduced the Boeing 747 “jumbo jet,” an aircraft that had virtually twice the passenger capacity of the other aircraft, promising an increase in revenue for the airlines. Alitalia placed an order with Boeing and received its first 747 in May 1970. The aircraft was immediately put to work on high density long-haul routes. In 1973 Alitalia expanded its wide bodied fleet and took delivery of its first 275-seat DC-10/30.

During the 1970s Alitalia experienced increasingly difficult financial circumstances. The price of crude oil quadrupled, the western economies entered a period of recession, and airlines experienced a sharp decrease in demand. For Alitalia, as well as its competitors, one solution was to furnish its fleets with more fuel-efficient aircraft. Alitalia’s gasguzzling DC-8s and Caravelles were replaced by more efficient Boeing 727s, the first of which was put into service in 1976. Inflation and political instability in Italy during the latter half of the decade left the airline facing large debts, persistent losses, and falling revenues.

By 1980, despite the partial re-equipment program of the past few years, the airline’s fleet had become outdated and inefficient; the average age of their aircraft ranged from six to eight years, generally older than those of the company’s European competitors. In 1982 the company was able to order McDonnell Douglas Super 80s to replace the aging Boeing 727s on medium-haul routes and also made plans to purchase more Boeing 747s to replace their fleet of DC-10s, the safety of which had been questioned following several accidents involving other airlines.

In order to maximize its potential for profit, Alitalia began to diversify its business interests by creating separate support companies that would provide travel services and information. These companies included Societa Italiana Gestione Sistemi Multi Accesso (SIGMA), which focused on the development and management of information services in the tourist sector, Italiatour, developed to promote tourism in Italy, and Alidata, a software marketing company.

Also during this time, Alitalia went through a substantial restructuring at the hands of Luciano Sartoretti, the managing director of finance. By 1986 Sartoretti had trimmed and reshaped the company’s debts. In 1987, Alitalia returned a profit of over L73 billion following a period that had seen a healthy expansion across much of the European airline business. Nevertheless, the airline still faced several problems. First, although the company’s performance was considered adequate, it was losing market share— both within Europe and on the transatlantic routes—to its closest rivals, Air France and Lufthansa A.G. of West Germany. These two competitors had been pursuing aggressive expansion plans through major re-equipment programs and allowing for greater passenger capacity on profitable routes. Alitalia, however, had spent the past five years diversifying its interests and had failed to expand its fleet of about 123 aircraft. Alitalia was therefore less able to benefit from a number of generally profitable years in the airline business in the 1980s.

Beginning in September 1987 Alitalia was plagued by a series of disruptive strikes by pilots, cabin staff, and ground crew—an occurrance some thought reflected both senior management’s inability to deal effectively with its employees and a general weakness in their long-term planning. The following year, in an attempt to resolve some of its structural problems and intractable disputes, Alitalia recruited Carlo Verri from the executive committee of the Swedish group Electrolux A.B. The appointment of Verri, a businessperson from the private sector with no previous experience in the airline business, was designed to provide Alitalia with free-market knowhow and top management expertise. His primary concerns were to resolve the chronic labor problems and to develop a long-term growth strategy. By May 1989, Verri had reached an agreement with the cabin crew which ran for 20 months, and in July of the same year he reached a four-year agreement with the pilots. In October he announced a plan to finance a long-term re-equipment program for both aircraft and ground equipment. Verri’s plans for the rejuvenation of Alitalia, however, were brought to an abrupt end in November 1989, when he was killed in an automobile accident.

Despite Alitalia’s losses from the interruption of its Mediterranean and Middle East routes during the war in the Persian Gulf in 1991, and despite its reputation for, in the words of Forbes writer Peter Fuhrman, “slovenly service, poisonous labor relations, and antiquated equipment,” the airline has experienced some financial recovery in the 1990s. Aggressive marketing and competitive pricing in 1991 resulted in unexpectedly good results, including a 5.3 percent growth in its cargo operations against an average decrease of 2.7 percent for other European national carriers. In March 1992 Alitalia announced an ambitious five-year investment plan calling for an allocation of over L4,400 billion for expansion of the Alitalia fleet to 165 aircraft. The plan also called for the purchase of five new planes for intercontinental routes and 14 more for operations within Europe. According to Alitalia chief executive Giovanni Bisignani, the expansion plan—at a time of retrenchment in the international airline business—is designed to enable the company to survive by “moving to achieve a critical mass, but staying fast and flexible.”