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August 11, 2014

How the Alitalia and Etihad Partnership Will Affect International Travel

Etihad Airways president and chief executive officer James Hogan

On Friday, Alitalia and Etihad finalized a $2.3 billion investment deal that will see the UAE flag carrier invest $751 million in the struggling Italian flag carrier. 

Etihad Airways will take a 49 percent shareholding in Alitalia, as well as a 75 percent interest in Alitalia Loyalty Spa, which operates MilleMiglia, the airline’s frequent flier program. The purchase also includes five pairs of slots at London’s Heathrow Airport valued at $80 million. The transaction is due to be completed on December 31 this year.

“This is a unique opportunity for Alitalia to restructure and win,” Etihad Airways president and chief executive officer James Hogan said during a press conference on Friday. “If we didn’t believe it could be restructured and win, we wouldn’t be here.”

RELATED: Etihad Buys 49 Percent Stake in Italy's Alitalia

The proposed network plan focuses on long-haul flights from both Rome Fiumicino and Milan Malpensa. This will include flights to new destinations, increased frequency in certain existing markets and an enhanced network to Abu Dhabi to capitalize on growing traffic between Italy and the UAE. In addition, Alitalia’s passengers will be able to access Etihad Airways’ global network.

“This agreement means a lot to Alitalia, for the whole of Italy and for our economy,” Gabriele Del Torchio, Alitalia’s CEO, said at the press conference, adding that the deal would give the Italian airline a line of credit with a strong investor. “They chose us. They invested. We are very proud to be the first large airline to sign a strategic agreement with Etihad.”  

New Flights, New Planes

Starting from Winter 2014, Alitalia will increase frequency between Rome Fiumicino and Abu Dhabi from five per week to a daily service, and launch a new daily service between Milan Malpensa and Abu Dhabi, in addition to Etihad Airways’ existing daily services on these markets.

From Summer 2015, Alitalia will also begin to implement connections between other Italian cities and Abu Dhabi, with plans for direct flights from markets such as Venice, Catania and Bologna.

Rome Fiumicino is poised to grow as a larger European intercontinental hub, with up to five new routes over the next four years, while long-haul flights from Milan Malpensa will more than double to 25 flights a week by 2018. Alitalia’s widebody fleet is planned to grow by a third, while its narrowbody fleet will be adjusted to meet the requirements of the new network plan.

Hogan noted that the agreement would also link Alitalia’s existing equity partners, including airberlin, Air Serbia, Etihad Regional, Jet Airways, Virgin Australia, Air Seychelles and Aer Lingus as well as the airline’s strategic codeshare partner, KLM-Air France

These combined nine airlines will be able to share revenue and cost benefits, and will reach a combined 400 cities on 700 planes. Hogan called the widespread alliance a "spine" that would reach from Europe through the Middle East into India and beyond to Australasia.

Etihad Airways currently operates daily services from Abu Dhabi to Rome and Milan, which complement Alitalia’s five flights a week from Rome to Abu Dhabi. The two airlines also codeshare to a total of 31 other destinations.

Italy and UAE Partnership

At the press conference, Hogan praised Italy's value as a partner, noting that the country is the sixth-most visited country in the world and the fourth largest market in Europe by volume. (It sees more than 46 million tourists each year.) Travel and tourism accounts for more than 10 percent of Italy's total GDP, and as of 2012 was worth more than 52 billion euros per year.

The combined airlines will have 211 origin and destination connections for use by 232 airlines. They are expected to attract more than 34 million passengers per year who will be able to connect to key markets via hubs in both Italy and Abu Dhabi. 

Calling Alitalia a "good airline," Hogan said that Italy's flag carrier had carried more than 23 million passengers last year. However, Hogan noted that Alitalia has been a "poor business," losing money and requiring an "immediate and fundamental structural change." The partnership includes three-year plan is in place to achieve profitability by 2017.

In a statement, Del Torchio said that the outcome was an “excellent” one for Alitalia: “We have had to take some tough decisions in a very robust negotiation process, but we have achieved the consensus we require to create the right shape and size for Alitalia in the future. This investment will provide financial stability and enable us to position Alitalia, and the travel and tourism industry in Italy, for long-term growth.”

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About the Author: Jena Tesse Fox

Jena Tesse Fox





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