The pope’s mobile is on the clock

 

Hickory Dickory dock, the pope ran up the clock,

The clock struck one, and hit his bum, Hickory Dickory dock.

An old rhyme slightly adjusted and gives light to a joke that mattered, it is old and it goes like:

Q: Why does the pope kiss the ground when he arrives?
A: You’ve never flown with Alitalia have you?

That is where we are, the clock is counting down; Alitalia is on its last legs and merely has two weeks left. As sources report that EasyJet pulled out of the race and even as Delta is still on board, someone needs to be found for the remaining 40% and that is the hard ball, consider on how much of an issue Alitalia is when people like Warren Buffett and Bill Gates will not take a shine to it, it might be too harsh to call Alitalia a money pit, but that is what is amounts too. The flight market is close to saturated, even as we all needed to fly (quite literally) 20 years ago, the companies started to figure out not to give their profits to the airlines. On a global scale close to 9750 planes were in the air last year at any given time, transporting up to 1.3 million people. The operative part is ‘at any given time‘, so how much travel is required nowadays? In 1998 I was flying close to 21 weeks that year, giving trainings and doing consultancy round the clock, at times living from a suitcase with added support from my laptop giving IT trainings and software training. I circled the planet twice that year, from Amsterdam, New York, Atlanta, Sydney, Singapore, Istanbul, via Munich and back to Amsterdam. I thought it was great and as long as the profits were outshining the costs, my bosses kept on sending me to more locations, it was all fine by me. These days are over, even as we see more and more airports expanding to ‘facilitate’ for more passengers, we see a dangerous curve, Stockholm Arlanda is expanding to facilitate for 40 million visitors a year. The numbers give us that the top 25 carriers facilitated for 13,718,655 passengers and if they are all tourists, that would be fine, yet the business side is not adding up. You see 15 out of the 25 had a decrease the went up to 27.3%, the lowest 10 were below 4.5%, still they were all still decreases and the largest increase came from Riga, Latvia.

Now consider that on the other side, on the airline side, apart from the element where we see that Alitalia had no operating profit between 2009 and 2015 with added low points of well over minus a quarter of a billion, the setup of airlines seems to be too odd.

I do get it, a nations having a national airline is a matter of pride, we get it, but at what cost? The airline has about 100 planes as part of the mainline fleet and the cost of doing business is just too high, there is no decent chance that whomever owns the airline might do so, so that they can say that they own an airline, it seems the weirdest of reasons, but from the financial view that is as much as we are going to get and the bad news is not done at this point.

You see, the work I used to do can be done remotely more and more, when 5G is totally here, we can see the shift where the classes can be given remotely with a phantom screen and with the presentations running in the background, the speed will enable us to give individual service to all the participants in up to three locations at the same time, almost like remotely run classroom software with camera’s in all locations. At that point we will see even less traffic required implying that the business classes on these flights will be close to a thing of the past.

The more immediate and difficult part is that none of this is the fault of Alitalia. Yes, we can look at the scandals and the past sting operations, yet the foundation is not that, it is the need of people to travel. In that light the traveller will be the one using their local airline (like many would), some will select airlines for their service and there we see groups of people seeking flights by Singapore Airlines, Cathay Pacific Airways and Emirates. So these airlines are also poaching local travellers as they have shown and proven themselves to be a cut above the others. When it comes to business and tourist Italy, we see decline of both and falling harder, yet Italy is still the destination to several countries, namely Germany, France, UK and US as the largest four. These four add up to 23%; the rest is from all over. So, what makes me the specialist? I am not; I am merely using common sense. 100 planes, in an age where their power is tourism and we are going into the summer season, but that setting is a stage that represents merely 18 weeks out of 52, the numbers and the economy do not support the fleet, or so it seems.

when we consider that Rome Leonardo da Vinci-Fiumicino supported 42,995,119 passengers last year, there is a decent case that I am seeing it wrong, but that is from all airlines, beside Alitalia, we see Air India, Emirates, Turkish Airlines, United, Etihad Airways, Thai Airways, Asiana Airlines, Qatar Airways, Cathay Pacific, Air China, Lufthansa, Ethiopian Airlines, Finnair, British Airways, SWISS, EL AL Israel Airlines, Air France, Saudia, Ukraine International, Jet Airways, Air Canada, Egypt Air, KLM, Kuwait Airways, Brussels Airlines, Aeroflot, Korean Air, China Airlines, Singapore Airlines, China Southern, Iran Air, all flying to Rome, now we see a different picture, even as the airport needs the space and growth, we see no decent numbers on how the Alitalia flights are doing, some sources were giving me ‘No Data‘ and that is fair enough, but it makes a much stronger case that unless there is someone with deep pockets that Alitalia is on its last legs and in its final stage of a mere two week notice until it shuts down. Planes would be auctioned off and the lot to be repackaged for other management styles. And I do believe that the end is not in sight, Alitalia is not the only one in such a sordid state of affairs. I believe that the business case of airlines should have changed a long time ago, and it will get worse soon enough, as the oil price goes up, so do the prices of flights. You see the one element we seem to ignore is not the drop in non-tourist passengers. It is the fact that one barrel of crude oil only facilitates for up to 4 gallons of jet fuel, the turnaround is that high, 42 gallons can only make 4 gallons of jet fuel, after that it boils down to gasoline, diesel and other items, so when the barrel goes up in price, the impact is seen quite fast. Consider that a flight from Rome to New York takes 9 hours and 40 minutes (or 2,088,000 seconds), now consider that a 747 needs 1 gallon a second, so if the oil goes up by $1, the maximum cost of a flight would go up by 2 million times the price increase and we can only get 4 gallons bet crude oil barrel making it an optional increase of $500K per flight (which is not completely true as diesel and gasoline would need to bear part of those costs too, but with only 4 gallons to the barrel, jet fuel would take the hardest hit).

That part counts too and as such tourist numbers would go down to some degree, especially from America. These are all still mere elements in the hardship calculations, but the elements are starting to add up, more optional other choices, more localised incentives and less options for Alitalia, that is the sad reality for Alitalia. As far as I was able to see, the press (the non-Italian press) did not take a look at these elements. Even as the BBC did look at one element “At the time the Irish airline was struggling to contain the fallout from a pilot shortage, which led to the cancellation of flights for about 700,000 passengers“, the abundance of competition, as well as the dangers of fuel changes were not looked at. Yet there are other sources, Bloomberg (at https://www.bloomberg.com/news/articles/2019-03-18/easyjet-drops-from-alitalia-bidding-in-setback-to-government) gave us a month ago that Delta is “exploring ways to work with Ferrovie dello Stato and maintain our partnership with Alitalia in the future“, yet I am not convince that they are in it with their heart and soul. Merely a stage where their accountants can optionally see plans for the Alitalia infrastructure and options to give Delta a streamline boost and let Delta grow in other ways accepting Alitalia to some degree for some time, yet how that ‘for some time‘ develops will remain an unknown. Part of it is seen with “Delta would take a 10 percent stake, which would double within four years if certain business goals are met“, yet these business goals are not really heralded by any party. In that regard Lufthansa was open and clear by stating that Alitalia needs to shed 40% of the workforce and that is where the cost of the Delta business goals are likely to be seen as well and that 40% will remain part of the problem. The Italian government would had to euthanise 40% of the workforce in a time when it could not afford to do so and that is the issue to the larger extent. If that knife is thrust hard and deep Alitalia might be around on April 30th, yet at present that is not a given, the pressured parties are not willing to get to that point until the 11th hour and at that point it might just be too late, because in the end the airline is not the only player, the airports will try to make sure that their part of the equation remains safe and there are plenty of airlines offering to ferry people to these locations making the equation unbalanced and unrealistic for the bookkeepers of Alitalia, a sad story for an airline that only recently made it to its 10th year.

 

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