The aviation industry has always been a fiercely competitive business and nowhere is this truer than in Italy, where several carriers are vying to take on Alitalia’s mantle as the peninsula’s dominant airline.
The Italian legacy carrier’s bankruptcy and subsequent merger with Air One was the final chapter in a long and painful decline, which saw the carrier haemorrhaging €2.3 million a day by August 2008 as it struggled to compete with aggressive rivals such as Ryanair, easyJet and Lufthansa.
Their expansion across Italy was the final nail in Alitalia’s coffin; and in its newly merged form, the carrier has ditched many of its less profitable routes and has withdrawn the bulk of its operations from Milan’s Malpensa Airport to its base at Rome’s Fiumicino Airport.
The vacuum at Malpensa has provided rivals with a golden opportunity to take advantage of Alitalia’s woes and expand into northern Italy, which is exactly what Lufthansa did in February when it took the unprecedented step of launching a wholly owned subsidiary, the aptly named Lufthansa Italia.
Operating a fleet of nine A319s, the carrier was initially set up to connect Malpensa with short-haul European destinations such as Madrid, Budapest and London Heathrow, but its success led to the start of domestic services from Milan to Rome, Naples and Bari in April – in direct competition with Alitalia.
“The catchment area of Milan and Lombardy with almost 10 million inhabitants is Italy’s most important economic region and the high number of business travellers makes it particularly attractive. In addition, Alitalia significantly reduced its flights from Milan Malpensa, while the airport itself offers significant growth potential,” explains Heike Birlenbach, vice president of division Milano at Lufthansa Italia.
The new carrier’s operations are designed to compliment those of Air Dolomiti, Lufthansa’s established carrier for regional and feeder flights connecting northern Italian cities with Lufthansa’s hubs at Frankfurt and Munich. Now there is also the possibility of Malpensa becoming a Star Alliance base.
Tapping into the region’s thriving business traffic is a priority says Birlenbach, and as such, Lufthansa Italia is the first airline to offer a dedicated business class on Italian domestic routes.
Now, the carrier is even looking to expand operations to neighbouring Linate Airport. “While Lufthansa Italia will operate the majority of flights from Malpensa, there is potential to enhance its flight offering with flights from Linate, especially on Italian domestic routes. Therefore, we are demanding fair competitive conditions in order to enhance our offering with additional flights from Linate.”
But Lufthansa is not the only carrier challenging Alitalia in its own backyard. Ryanair opened its first base in Milan-Bergamo in 2003, a move that was to herald the start of its aggressive expansion campaign in the country.
Operating from Rome’s Ciampino and Pisa airports, among others, Ryanair undercut Alitalia on the lucrative Pisa and Bologna routes and squeezed local carriers Meridiana, Wind Air and Myair on their home ground.
Since 2005, the no frills giant has gone on to open seven bases across the peninsula, including Venice’s Treviso and recent additions Alghero, Bologna, Cagliari and Pescara. It is little wonder then that Ryanair’s outgoing director of new route development, Bernard Berger, believes the Irish carrier will soon become the country’s biggest airline.
“We are certainly going to become the biggest airline in Italy and the second largest in Spain,” believes Berger.
“We have recently opened bases in Italy in Calari, Alcero, Bologna, Tramponi and Sicily and there are further opportunities in that market to grow existing bases, with more aircraft and to open up a number of new bases,” he adds.
Ryanair is not the only European LCC to recognise the potential for expansion in Italy; its rival easyJet has long had a significant presence in the country operating from airports such as Olbia, Pisa and Rome Ciampino to major European destinations.
In 2005, easyJet expanded its capacity in Italy by 78% and by June 2008 it had 11 aircraft based at Milan Malpensa.
Italian passengers are also increasingly embracing low-cost travel. In March 2008 low-cost traffic at Malpensa accounted for 23% of operations, while a year later it had jumped to 34%.
The change illustrates the huge opportunities within the Italian market and the chance to fill the space left by Alitalia, believes Jon Woolf, principal consultant for Airport Strategy and Marketing (ASM).
“Carriers such as easyJet and Ryanair are pumping a lot of resources into Italy, and Milan Malpensa is proving a very attractive market. A battle is developing between Lufthansa, which has put a wholly owned subsidiary in there, and the low-cost giants Ryanair and easyJet,” he says.
With Alitalia now completely refocused on lucrative domestic routes and its long-haul operations from Rome, Woolf believes the big challenge for Malpensa will be to attract new airlines in order to boost its long-haul network.
“Once the market is back to normal there is the chance of growth from carriers based in the Middle East, India and other countries in Asia. The key issue is the ability of Milan Malpensa – which used to be a connecting hub with 25–30 markets, to attract new operators.”
In the short-term, the strength of the euro will make holiday destinations outside the Eurozone (such as Turkey and Egypt) particularly attractive for Italians over the next year.
This could mean demand at regional Italian airports for medium-haul services will also heat up. “The big challenge from the airports’ perspective is getting the right balance of growth of LCCs while at the same time running connecting flights to key European hubs, because inevitably they will start to compete with each other. Managing that equation from an airport’s point of view will be very important,” Woolf says.
But he is also quick to point out that it is far too early to write off Italy’s home-grown carriers such as the Sardinia-based Meridana, or to underestimate the challenges of operating in Italy.
Chief among these could be a resurgent Alitalia, which in its newly privatised form could potentially compete more aggressively from Rome and Milan through its new acquisition, Air One.
The legacy carrier also holds several other trump cards, not least its still extensive route network, its lucrative slots at Rome’s Fiumicino Airport and its subsidiaries Alitalia Express and low-cost CAI Second, previously Volare Airlines.
“Alitalia still has the ability to make money now that it is concentrating on one market and it could benefit from being a wholly private company. There is also the spectre of its sudden return to Malpensa to cherry pick the best routes,” says Woolf.
In January, Alitalia announced a new strategic partnership with Air France-KLM following the group’s purchase of a 25% stake in the airline, leading to the possibility of a global network consisting of Paris Charles de Gaulle, Amsterdam Schiphol, Rome Fiumicino and Milan Malpensa.
But Alitalia aside, airlines hoping to take a dominant position in Italy, and in Milan in particular, must also be aware of several other challenges they could face, not least the arrival of new high-speed rail links.
Italy is a predominantly mountainous country with the Apennines intersecting its centre and the Alps stretching across its northern borders, creating a demanding travel environment, which the Italian government is hoping to ease through several high-speed rail projects.
December 2008 saw the opening of a high-speed Bologna-Milan service, which will cut journey times between the two cities by half to 65 minutes. More worryingly for air operators will be the launch of the Freccia Rossa (Red Arrow) service, which will see journey times between Milan and Rome reduced to just three and a half hours.
While high-speed trains will present competition in Italy, more worrying is the effects of the recession and the subsequent traffic declines being seen in the country. The latest figures from Airports Council International (ACI) Europe revealing a staggering 33% drop in traffic at Milan Malpensa in February alone.
Nevertheless, the restructuring and downsizing of Alitalia will no doubt produce a more level playing field in Italy, encouraging more services and more competition, which is as they say is good for everyone.
This article is featured in Routes News 2009 Issue 3