Alitalia Airline Company’s Marketing

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Table of Contents

Introduction
Consumer Targeting
Issues with Alitalia
Market Position
Access to New Customers
Recommendation
Conclusion
Reference List

Introduction

Alitalia is one of the largest airlines in the world and is currently ranked 18th in terms of fleet size and the amount of countries that it currently services. From an operations perspective, the company currently services both the domestic market within Italy as well as several locations within Europe, Asia and the Middle East (Stefania and Chiara 2010). Do note that since 2008 the company has been undergoing a considerable level of restructuring given its previous debt obligations as well as issues related to the proper management of the company. In 2008 the company was actually close to bankruptcy if it was not for the intervention of a group of Italian investors that absorbed Alitalia into the “Compagnia Aerea Italiana” (CAI). Since then, the company has experienced a considerable amount of shortfalls related to management issues, decline in profitability as well as various issues related to its viability as a business (Alitalia – Compagnia Aerea Italiana S.p.A. SWOT Analysis 2013).

In fact, by 2013 the company was once again facing potential bankruptcy with Eithad Airlines potentially stepping into to invest into the company to save it. Upon examination, the primary reason behind Alitalia’s financial issues can be traced to a considerable reduction in its net operating income by €119 million (Alitalia – Compagnia Aerea Italiana S.p.A. SWOT Analysis 2013). This was due to the declining number of passengers that chose the airline as well as the current proliferation of budget airlines that have far cheaper prices as compared to Alitalia. Overall, when taking the current financial position of Alitalia into consideration, this report assumes that it would not be a viable investing for Etihad in the long term despite the potential the deal has for enabling the Middle East based airline to expand into Europe.

Consumer Targeting

Based on recent data examining the type of consumers that Alitalia targets, it was noted that business class customers were the primary consumer group that the airline was after.

Issues with Alitalia

Simply put, the Italy based airline has not been a viable source of income for its owners since its 2008 bankruptcy restructuring since it is finding itself in the exact same situation a few years later. In order to resolve such an issue, the company is trying to sell a portion of itself to Etihad airlines, however, some of its creditors are hesitant if not outright against a debt restructuring deal (Barnard 2014). Combined with the various demands of Eithad in the form of assurances from the Italian government involving potential financial support, lucrative labour agreements as well as a host of other assurances that would justify investing into the struggling airline (Sparaco 2013).

What must also be taken into consideration is the fact that this is not the first time that the airline has had to almost declare bankruptcy and restructure its debt obligations. This creates a considerable amount of risk since it creates the potential that the same problem may occur again in a few years time (Sparaco 2013). One of the reasons behind this is connected to the aging fleet of Alitalia combined with the increase in the amount of low cost airlines that are currently in Europe and are in effect eroding the market share of the company (Dunn and Clark 2014).

Market Position

There are 2 types of carriers within the European aviation market that: legacy carriers and low cost carriers. Legacy carriers within Europe can be classified as some of some of the oldest airlines within the European Aviation industry today or are a result of mergers and acquisitions by regional airlines (ex: Alitalia, British Airways, etc.) (Alitalia – Compagnia Aerea Italiana S.p.A. SWOT Analysis 2013). Low cost carriers on the other hand have actually come about rather recently and are defined by their no frills, low cost, and above all lean business models that emphasize savings for passengers. Alitalia can be categorized as an LC (Legacy carriers) which continues to be the dominant form of travel, however, LCCs (low cost carriers) have been noted as continuing to eat away at their market share due to recent trends in consumer purchasing behaviour which focus on the concept of affordability over amenities and services (Alitalia – Compagnia Aerea Italiana S.p.A. SWOT Analysis 2013).

LCs such as Alitalia have attempted to respond to this shift by developing their own low cost alternative as seen in its Classica series passenger tickets, however, this method of market positioning failed to be competitive enough compared to LCCs since they were still under the business model of LCs and thus were subject to the same spiralling costs (Alitalia – Compagnia Aerea Italiana S.p.A. SWOT Analysis 2013). Since Alitalia focuses on short and medium haul flights within Europe and low cost carriers are focusing on the same type of market, Alitalia simply cannot compete with the low prices of its LCC rivals (Alitalia – Compagnia Aerea Italiana S.p.A. SWOT Analysis 2013). The airline has attempted to combat this by providing more amenities in the form of higher baggage weights and more leg room; however, it has not been effective.

Access to New Customers

When analyzing the viability of Alitalia and as an investment opportunity for Etihad, it is important to examine the current problem with the airline passenger market within Europe. Based on the analysis of Fusari (2013), it was shown that European consumer spending is at an all time low due to the present day economic downturn within the region. This is in part due to the debt crisis that occurred 2 years ago yet the region is still feeling the after effects (Fusari 2013). Unfortunately, the inherent problem with the current situation is that it creates a vicious cycle wherein low consumer spending results in companies reducing various aspects of their operational capacity (i.e. manufacturing of products, low level employees etc.).

The result is that while Europe does have one of the largest passenger markets in the world, the fact remains that the regional airline passenger market does not reflect this. Evidence of this can be seen when Alitalia was almost facing bankruptcy in 2013 which Valentini and Romenti (2011) explains was a direct result of fewer passengers per flight, high fuel costs, landing fees as well as the proliferation of low cost regional airlines which adversely impacted Alitalia’s consumer market share (Valentini and Romenti 2011). Since a majority of Alitalia’s passenger market is located within Europe and that this current market is focused on low cost flights, this shows that Alitalia is simply not in a good position to attract new consumers especially when taking into consideration the age and type of its fleet.

Recommendation

After examining the various factors related to Etihad and Alitalia, this paper has developed the notion that investing in the company would be ill-advised given the current issues surrounding the European airline market. The fact is that Alitalia’s potential bankruptcy in 2013 was in part due to wasteful operational costs related to storage, utilities, taxes, worker salaries and employee benefits. The current consumer market within Europe is simply not at all conducive towards sales. It is thus the recommendation of this paper that one possible avenue of approach that would be feasible for Etihad is to shift resources towards foreign markets which have not been as adversely affected by the current economic downturn and focus efforts there instead of in problematic European markets.

Asian markets such as those within China, Japan and the A.S.E.A.N (Association of South East Asian Nations) presented themselves as viable consumer markets due to the fact that despite the slowdown of various western economies, eastern economies have actually grown on average by five to eight percent annually. This is due to the fact that as the expense of doing business within western nations rises companies start to shift their manufacturing operations to other countries with far lower operational expenses.

Other legacy carriers such as Singapore Airlines, UAL, Cathay Pacific, Qatar Airways and other such carriers have focused more on business and first class passengers who take international flights to various destinations within Asia (particularly China and Japan) due to the higher fees derived from such customers. It is based on this that when comparing the cathartic local markets in Europe where Alitalia is based with the expanding markets of Asia, it becomes immediately obvious where Etihad should invest instead. Simply put, Alitalia is not a good investment given that the current rate of growth momentum for the airline industry is in Asia and not in Europe.

Conclusion

Overall, when taking the current financial position of Alitalia into consideration, this report assumes that it would not be a viable investing for Etihad in the long term despite the potential the deal has for enabling the Middle East based airline to expand into Europe.

Reference List

‘Alitalia – Compagnia Aerea Italiana S.p.A. SWOT Analysis’ 2013, Alitalia SWOT Analysis, pp. 1-8. Web.

Barnard, B 2014, ‘Etihad Close to Deal for Alitalia Stake’, Joc Online, p. 2. Web.

Dunn, G, and Clark, O 2014, ‘ANALYSIS: Why would Etihad want to invest in Alitalia?’, Airline Business, vol. 30, no. 3, p. 20. Web.

Fusari, S 2013, ‘‘A miracle. Madonna!’: Irony in the representation of Alitalia’s privatization by the Italian, British and American press’, Discourse and Society, vol. 24, no. 3, pp. 315-333. Web.

Stefania, R, and Chiara, V 2010, ‘Alitalia’s crisis in the media – a situational analysis’, Corporate Communications: An International Journal, vol. 15, no. 4, pp. 380-396. Web.

Sparaco, P 2013, ‘Alitalia’s Swan Song?’, Aviation Week and Space Technology, vol. 175, no. 35, p. 20. Web.

Valentini, C, and Romenti, S 2011, ‘Blogging about crises: The role of online conversations in framing Alitalia’s performance during its crisis’, Journal Of Communication Management, vol. 15, no. 4, pp. 298-313. Web.

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