The problem according to U.S. airlines is this–
The nations of Qatar and the United Arab Emirates (UAE) are funneling billions of dollars in government subsidies to their state-owned airlines, distorting the international aviation market and undermining fair competition.
Imagine a state-backed airline that runs between Milan and New York. It loses money each year, but is propped up by the government. Massive economic advantages to the preferred carrier give it undue access and market share.
That airline exists. It’s called Alitalia.
Alitalia lives in the Twilight Zone. It believes that by reducing costs by a billion dollars and eliminating 20 aircraft, it can increase revenue by 30% and return to profitably.
- €1 billion cost reductions by 2019
- Revenue to increase 30 per cent by 2019
- Profitability by 2019
- Fleet reduced by 20 narrow-body aircraft
- New competitive proposition for short and medium-haul aircraft fleet
We are trying to hold back our laughs.
The Reason For Bailout
And yet a perceptive reader on Lucky’s blog points out the reason why, quite eloquently:
The banks which are supposed to lend money to Alitalia are Intesa SanPaolo and Unicredit, the 2 biggest banks in Italy with massive political implication and infiltration. Alitalia has survived so long because of political reasons (nobody in the parliament wants to be responsible for 12,000 job losses and leaving the country without a carrier), so they force the banks to keep the airline alive. Of course the banks know they will not have any ROI, but in exchange for saving Alitalia, they will benefit from favorable policies which they need in other situations and which the parliament will approve for them. Beside, most of the debts of Alitalia are towards other Italian suppliers, which won’t see a dime if Alitalia goes bankrupt. Therefore, the economic circle will keep spinning, for everybody’s benefit. For non-italian it might sound hard to understand, but unfortunately it makes quite sense here.
It all makes sense.
But one thing doesn’t make sense.
Why Aren’t U.S. Carriers Boycotting Alitalia?
Alitalia survives only due to government bailouts. These allow it to sustain an inefficient operation that has failed to make money on a consistent basis since its inception.
Why are we not hearing that U.S. jobs are being stolen though Italian subsidies? Why is Airlines for America not working harder against Alitalia than Emirates on the Milan – New York route.
I believe it is because there is only certain competition U.S. carriers resist against: competition that threatens them.
Maybe this will help spur some action: ETIHAD owns 49% of Alitalia.
Will U.S. carriers now condemn Alitalia for distorting competition? Don’t hold your breath.