Flying out of the crisis. Only in Italy

Try to imagine the worst business decision you could possibly make right now. The most half-witted, Covid-blind strategy you could follow. Thought about it? Yes, Italy is starting a new airline.

by Tim Hedges on 11 May 2020 05:22

The news comes so thick and fast these days it is difficult to keep up. Many European countries are beginning to loosen the lockdown following the Covid-19 crisis.

In parts of the Far East, notably Japan and Singapore, they have locked down, loosened the restrictions, and then the virus has returned. Earnest looking politicians all over Europe have assured us they wouldn’t do that. No.

To be fair to Italy, the celebrations for 1st May, usually a noisy and well lubricated affair, were silent. I woke on the Phase 2 morning of 4th May to find I can visit relatives in Umbria (none) but not friends. There are no shops open and no bars or restaurants.

My hair is growing to New Testament levels and I can’t get it cut. My cleaner was turned back by the police, trying to get here to wash the floor (don’t write in, thanks).

Yet the pressure is on governments. GDP in France and Italy has fallen by 5.8% and 4.7% respectively in the first quarter (and that’s not counting April), so they are in recession, having both suffered a downturn in the last quarter of 2019. It is Italy’s fourth recession since 2008/9.

Plenty of people are suing their health services. Others are suing their own governments claiming the lockdown is illegal. One American state, perhaps to be joined by others, is suing China.

The German Constitutional Court has suggested that the European Central Bank’s fairly limited rescue measures may be illegal. Other countries simply have to obey European Law but the Germans have an opt out for anything their Constitutional Court doesn’t like. Well, they’re paying for it all.

So, business is on its knees, except for the lawyers. But there is some astonishing news. Astonishing. I can hardly wait to tell you but for a second just try to imagine the worst business decision you could possibly make right now. The most half-witted, Covid-blind strategy you could follow. Thought about it? Yes, Italy is starting a new airline.

To be fair, it is not completely new. As far as I can judge, this is Alitalia’s seventh incarnation. When it started, it was a Milanese outfit and would only employ staff from Milan. Those working from Rome or Palermo had to be flown back to Milan each night.

As it entered the last decades of the twentieth century the cash-hemorrhaging disaster became an increasingly heavy millstone round the government’s neck. Alitalia - Always Late in Take-off, Always Late In Arrival - was overstaffed, the hordes of employees were overpaid, and the unions decided how the company was managed.

I remember well in the 1980s and 90s you never really knew if the flight was going to take off or not. The stewardesses had uniforms designed by Armani, though.

So, I’ll bet investors have got their cheque books twitching. The previous attempt had leased some aeroplanes from Etihad at what was estimated to be double the going rate, but they are going to be sent back. Yes indeed. And here is the good news: there are plenty of new planes available. No need to ask why. No passengers, of course, but plenty of planes.

The new Italian success story, and I can hardly believe I am writing this, has decided to compete in the European short-haul sector. Perhaps unknown to the new management, if I can dignify them with the term, during the time they have been idle or on strike or just not taking off, Ryanair has become the largest airline in Italy.

It and EasyJet, followed by Whizz, Vueling and some others, control the short-haul budget routes. They are tightly run, not overstaffed, and known for value for money. And yet even they are laying people off.

The last attempt, Alitalia VI or whatever, was owned by the Post Office and the Railways. Both of these entities, good in their way, are overstaffed, over-unionised and completely unused to competition. Airlines, before the Coronavirus, were tightly run and operating in a cutthroat international market.

If the airlines get going again in the next two or three years they will be the same, only more so. Alitalia, and perhaps Italy in general, are completely unsuited to this market. I am not licensed to give retail investment advice but, trust me, this is a sell.

Tim Hedges, The Commentator's Italy Correspondent, had a career in corporate finance before moving to Rome where he works as a freelancewriter, novelist, and farmer. You can read more of his articles about Italy here

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