A friendly warning to Air Italy: learn from the mistakes of others, for you cannot live long enough to make them all yourself.
Air Italy is in expansion mode. Last week, the carrier announced plans to add service to San Francisco and Los Angeles next year. This week, the carrier announced new flights to Toronto and Chicago.
On the one hand, this is all good news. Very good news, in fact. With limited direct competition and an above-average product, Air Italy may perform exceptionally well on these routes. Italy remains, and will likely always remain, a beloved tourist destination and important business hub in the fashion industry. The demand appears to be there.
My problem is not that of the 12 U.S. Senators who argued that Air Italy is flying routes it would not otherwise be able to sustain without Gulf subsidies provided by Qatar Airways. It is certainly not that these new flights represent an insult to Donald Trump.
Rather, my problem is that too ambitious of an expansion has spelled trouble for so many airlines in the past. Our most recent example is WOW Air, which was well-capitalized from the start, but burned through far too much cash far too quickly.
Different airline, different model, I know. But what about Alitalia? In the case of that beleaguered carrier, Etihad poured millions into it, promising a lean, profitable, and exceptional Italian airline. Sound familiar?
While we hope that Qatar Airways has learned from the mistakes of the failed Etihad-Alitalia marriage, I am not fully optimistic. Labor is an ever-present concern in Italy. Last month, Air Italy workers held a four hour strike. Imagine a four day strike, or worse.
Let’s just play out one potential scenario. Air Italy continues to expand but struggles to profit early on. Qatar pulls funding, leaving the carrier forced to rapidly cancel routes. Italy would be left with two ill carriers. A more conservative build-up might avoid this.
CONCLUSION
Perhaps I being too cautious, but I see some warning signs. Let’s hope that Air Italy is far more skillful at navigating labor and political pressure than Alitalia. In the meantime, I am very pleased to see Air Italy’s North American expansion.
> Read More: As Air Italy Looks To California, Congress Looks To Block
Labor is too expensive in Italy. Not only is it very difficult to fire someone, but there are various forms of additional compensation and retirement benefits that must be accrued for. For instance, if an Italian earns 36k EUR annually (3k per month), a company must additionally pay a full month’s salary in the summer (for vacation) and at Christmas. Running an airline out of such a country becomes inherently more difficult, and Alitalia and others have shown the challenge of trying to make up for these expenses on the revenue side. Hard to do when Norwegian flies to the US!
I wish them the best
Etihad, in the investment activity for the last 5 years, acted such as the reverse of King Midas, whatever they touched (or almost) turned into crap, Air Berlin, Alitalia, Air Serbia also does not seem to be in good shape…EY management had for sure his own relevant responsibilities in the AZ default, beside the other well known unsolved AZ (and Italian) internal problems.
QR for sure seems have chosen much better where to put their money before IG, thus I wouldn’t consider such experiences that similar, IG has been restructured quite heavily for the took over, while AZ at the time of EY still remained the same wreck in the hands of politicians and unions; so far the state does not have any stake into IG.
About labor cost in Italy? Oke it is slightly higher than average EU zone but definitely lower than France, Belgium and Scandinavian countries for instance, if the problem would be the labour cost, half of EU airlines would have had already bankrupt.