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UPDATE 1-Alitalia pledges return to profit by end-2019 through heavy cuts
March 15, 2017 / 10:49 PM / 8 months ago

UPDATE 1-Alitalia pledges return to profit by end-2019 through heavy cuts

(Adds details, context, paragraphs 3-13)

By Agnieszka Flak and Alberto Sisto

MILAN/ROME, March 15 (Reuters) - Alitalia airline expects to return to profit by the end of 2019 by cutting operating and labour costs by 1 billion euros ($1.1 billion) over the next three years and revamping its business model for short and medium-haul flights.

The loss-making carrier, in which Etihad Airways has a 49 percent stake, also said it aimed to increase revenues by 30 percent to 3.7 billion euros over the same period under a new 2017-2021 restructuring plan its board approved on Wednesday.

Alitalia said it would seek to boost traffic and use of its aircraft on short and medium-haul flights by providing more attractive fares and charging extra for any additionals such as choice of seats, checked-in luggage and food.

“If we can’t compete throughout Italy and Europe against low-cost carriers then we lose air travellers that connect onto intercontinental flights. Put simply, there is absolutely no alternative,” Chief Executive Cramer Ball said, commenting on the latest attempt at turning around Italy’s problem child.

After buying into Alitalia in 2014, Etihad pledged to return it to profit by 2017 by slashing costs, turning Rome into an intercontinental hub and growing lucrative long-haul routes.

But the turnaround hit problems after low-cost airlines such as Ryanair expanded aggressively in Italy, use of high-speed trains has increased and after attacks across Europe dented demand for travel. Today, Alitalia is losing at least half a million euros a day, sources have said.

The airline said the new targets were judged to be “realistic and achievable” by independent advisors.

However, doubts remain over whether Alitalia will succeed in getting union support for the planned cuts which in turn is necessary to unlock financing for the new restructuring plan.

While it gave no details on the financing options or proposed redundancies, sources have said Alitalia may seek to slash up to 2,000 jobs of the airline’s 12,700 workers.

This is likely to put them on a collision course with unions which have gone on strike over cuts in the past.

Alitalia will present the plan to the government on Thursday, and would then meet unions.

The carrier also said it would seek to renegotiate contracts for aircraft leasing, distribution, catering, ground handling and at airports to bring them in line with the market. Its narrow-body fleet would be reduced by 20 aircraft, it added.

The airline also plans to increase flights on the higher-margin routes to the Americas. Analysts said any such plan will depend on whether it succeeds in renegotiating the terms of an existing transatlantic alliance with Air France-KLM and U.S. carrier Delta Air Lines. (Additional reporting by Valentina Za; editing by Grant McCool)

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