You have to give the management of ITA Airways one thing: they are very creative in their public statements. Especially when it comes to describing the economic situation of the Italian airline. It goes like this: If you ignore the “exogenous factors”, then the company has achieved a better result than provided for in the business plan. It also shows how cautious management has been in running the airline, with a focus on “extreme cost control.”
Against this background, Lufthansa CEO Carsten Spohr flew to Rome on Thursday for confidential talks with Italian Finance Minister Giancarlo Giorgetti. As is well known, Lufthansa first wants to take over a minority share in ITA and later buy the new airline entirely. The agreed deadline for exclusive negotiations is April 24th. It is no exaggeration to assume that the exogenous factors have just significantly worsened the Italian government’s negotiating position. In any case, Spohr made a clear statement at an industry event in Brussels: “The next big agreement we have to reach is a price that takes ITA’s losses into account.”
The successor company to the now dissolved and notoriously loss-making Alitalia is doing at least as badly as its predecessor. In 2022, ITA had sales of around 1.5 billion euros and made a loss of 486 million euros, i.e. a negative margin of around 33 percent. This makes ITA one of the world’s financially worst-off airlines. ITA blamed the deteriorating macroeconomic situation for a significant part of the horrendous loss (280 million euros).
But at least in 2022 it was less dramatic than many had predicted and also affected all other airlines. And companies like Lufthansa, Air France-KLM and International Airlines Group made billions in profits again in view of high flight prices and great demand and were able to repay all government aid where received. Even airlines that are more comparable in size to ITA Airways, such as TAP Air Portugal or Air Baltic, achieved much better results.
Personnel costs at ITA are comparatively low
However, there is one key difference between ITA and the other airlines: the airline was only founded in 2021 and has to bear high start-up losses. On the other hand, the personnel costs are low compared to those of Alitalia, because the collective agreements were negotiated in the middle of the greatest crisis, when employees were happy to be able to fly again at all.
According to reports, however, Lufthansa and ITA have taken a significant step forward. Over the past few days, they have agreed on the key data of the business plan. According to this, Rome (and not Milan) is to become the hub of the airline, which is an important strategic step: Milan would actually be the more suitable hub in terms of economic strength, but since the city has two airports in Malpensa and Linate, traffic is spread out, In many cases it is impossible to switch. The two sides have also defined a growth path for ITA, because it is clear: the airline only has a chance of making profits if it becomes much larger than it is currently. ITA currently operates a fleet of almost 70 aircraft and has ordered around 30 more from Airbus, as well as other contracts with leasing companies.
The Lufthansa Group has built up a network of shareholdings in Europe over the past 15 years. The group also includes Swiss, Austrian and Brussels Airlines. After the USA, Italy is the second most important international market for Lufthansa. However, because of the weakness of Alitalia (and later ITA), the low-cost airlines have now spread there, whose growth Lufthansa has successfully limited in Germany. Ryanair alone currently has a market share of around 40 percent in Italy.