You can bet that there was euphoria in the C-Suites of Delta Air Lines over the news of Air Italy’s collapse. But the untimely demise of Air Italy does not excuse Delta of hypocrisy nor validate its longstanding protest against Air Italy.
From Air Italy’s inception, Delta cried foul, arguing the market could not support another airline (serving U.S. routes that no else did) and that the airline was kept alive only by the “terrorist-linked” dollars of Qatar.
Well, clearly the market could not support another airline and mounting losses spelled doom for Air Italy.
But while Delta may have been correct about the bottom line, it was not correct about why Air Italy failed.
In investing in Air Italy, Qatar Airways took a strategic gamble. Its goal was not to use Air Italy as a way to further claw its way into the U.S. market. On the contrary, it believed that the Italian government would finally let Alitalia fail leaving Air Italy as the new flag carrier of Italy. Furthermore, Qatar Airways already had (and still has) the right to operate its own Fifth Freedom flights from Italy to the United States, just like Emirates does from Milan to New York. There was no need to acquire a minority stake in a “front” airline if that was the only goal.
A Huge Blunder By Qatar Airways
Look, Qatar Airways made a huge blunder. Air Italy was likely not a viable concept with Alitalia in the picture and the long-term grounding of the 737 MAX and bailout of Alitalia only exacerbated the issue.
But it’s not like Qatar Airways did this for power and not money. This investment wasn’t to score political points. It’s not like Akbar Al-Baker was hoping to scare away Delta and then swoop in with drastically higher fares between New York and Milan (the only route the two carriers competed on). Delta was really not in his gambit of thought. Instead, Qatar Airways and Alisarda, the majority investor in Air Italy, just wanted to make money.
The market does not always take care of itself. Here, however, it did. The downward pressure that Air Italy placed on fares will now be lifted. The strong will be come stronger. Alitalia lives to see another day. Delta now has one less challenger.
But Delta is left with an uncomfortable paradox. Air Italy failed, at least in part, for exactly what Delta decries. Delta argues that government subsidies distort markets and create artificial winners and losers.
That is EXACTLY what happened here. By throwing Alitalia lifeline after lifeline, Italy sealed the fate of Air Italy. You cannot compete against the government…at least in Italy. It was a David vs. Goliath battle and Goliath won this one.
Air Italy was a noble effort, but ultimately a futile one. Before Delta dances on Air Italy’s grave, however, it should understand that its premise was wrong from the start. Air Italy did not steal American jobs: it provided them. Nor did Air Italy hurt customers: it helped them by offering competitive fares between many city pairs that had no direct competition.
If Delta was consistent, it would be raising the alarm bells on the state aid that Alitalia is receiving from Italy. But since Delta and Alitalia are partners, it is more likely that Delta will simply take its own “subsidies for me but not for thee approach”.
> Read More: Why Airlines Struggle In Italy