Italian flag carrier Alitalia management presented a radical new business plan to the Italian government March 16 as it seeks to turn around the loss-making airline.

The plan seeks to cut €1 billion ($1.1 billion) in costs by 2019 and increase revenue 30% at the same time. It calls for reductions in staff numbers and the narrowbody fleet, as well as the adoption of a short-haul business model akin to that of the low-cost carriers (LCCs) that have siphoned off much of the company’s short-haul business in recent years.

LCCs have 47% of the Italian air travel market, the highest percentage in Europe.

The future of the airline hinges on more funding from its shareholders. Abu Dhabi-based Etihad Airways is a 49% shareholder, with Italian banks making up most of the remainder. New funding is contingent on the trade unions agreeing to a new collective bargaining agreement and job cuts. It remains to be seen how cooperative the unions will be.

The airline described the plan as “radical and necessary” to stabilize the company and secure its long-term future.

Major points include:

  • Cutting 20 aircraft from the narrowbody fleet of around 80 Airbus A320-family aircraft;
  • Implementing unspecified ‘headcount-related measures’;
  • Reaching profitability by 2019—two years later than originally announced when a three-year turnaround plan was published in 2014 and just 10 months after it predicted it would be profitable this year;
  • Increasing revenue from €2.9 billion to €3.7 billion by 2019.

Alitalia CEO Cramer Ball described the plan as the second phase of a business plan that would accelerate the company’s turnaround. “We rebuilt the brand in the first phase and invested heavily in staff training and technology, so we are now able to move ahead and implement wide-ranging changes.

“Only through radical change will Alitalia’s fortunes be turned around. We must transform this business into a dynamic entity that is attractive to customers.”

Talks are already underway to renegotiate contracts with suppliers such as aircraft lessors, ground handling companies and airports.

A major overhaul of the airline’s short- and medium-haul business is promised to provide a platform for the carrier’s long-haul services, which are profitable.

“If we can’t compete throughout Italy and Europe against low-cost carriers, then we lose air travelers that connect on to intercontinental flights,” Ball said. “There is absolutely no alternative.”

With 20 aircraft being shed by 2018, the remaining ones will be utilized more heavily, with more seats being installed and ticket prices being unbundled.

Customers in future will be “given the opportunity” to pay for such facilities as seat selection, checked-in baggage and priority boarding. Passengers on flights of four hours or less will have to buy onboard food and drinks.

However, Alitalia’s intercontinental widebody services will retain the full-service model. The Boeing 777 fleet will join the Airbus A330s in being fitted with new inflight entertainment and Wi-Fi.

The long-haul fleet will increase flights between Italy and Americas, which Ball described as an underserved market. Alitalia will both increase frequencies to existing destinations and add new ones.

It will seek to build its presence at Milan Linate, Sicily and Sardinia. It will also aim to increase the number of passengers using online methods to book flights from the current 20% to more than 50%.

Alan Dron