Air Italy Reports MASSIVE Losses

Filed Under: Other Airlines

Air Italy is the controversial Italian airline that Qatar Airways has a 49% stake in. The airline used to be known as Meridiana, but with funding from Qatar Airways the airline relaunched in March 2018 with new planes, a new onboard product, and a new business plan.

Air Italy’s challenging year

While I’m in general supportive of what Air Italy is doing, they’ve had some massive missteps, and it sure seems to me like at times the airline isn’t being run in the most profit-oriented way.

For example, the airline announced flights to Chicago, Bangkok, Delhi, and Mumbai, and all of the routes were either cut before they even launched, or were cut within weeks of launching. That doesn’t exactly make it look like the company did their homework before announcing new service.

Just how bad have these mistakes been for the airline financially?

Air Italy’s A330 business class

Air Italy’s 2018 losses

Air Italy has now reported their financial results for 2018, and they’re brutal. Air Italy has reported losses of 164.18 million EUR. You might be thinking to yourself “well, there are airlines that have lost a lot more than that.”

While that’s true, the losses are based on revenue of 283.76 million EUR. So their losses amounted to about 58% of their revenue. Ouch!

Air Italy A330

Some concerning numbers

You might remember that when Air Italy was first announced, the plan was for the airline to grow significantly, having 50 planes within a few years, and leasing 787s from Qatar Airways. They’ve eased up on their plans to get such a big fleet, though what makes this situation worse is that the airline has gotten smaller by just about all metrics, except fleet size:

  • Revenue in 2018 was down to 283.76 million EUR from 360.33 million EUR the previous year
  • Passenger numbers in 2018 were down to 1.91 million from 2.44 million the previous year
  • Flown hours in 2018 were down to 42,283 from 50,592 the previous year
  • The airline has reduced charter flying, which led to a loss of about 65 million EUR
  • The fleet size was increased to 15 from 14 the previous year (that includes three 737 MAX planes, which are grounded at this point)

So the airline flew significantly less, transported fewer passengers, and recorded much bigger losses. Qatar Airways’ CEO, Akbar Al Baker, has wanted Air Italy to become the national airline of Italy, though it seems the way in which they’re best competing with Alitalia is by sustaining similar losses.

Air Italy’s A330 business class

What went wrong?

What does Air Italy management blame these losses on?

  • The relaunch of Air Italy required significant investments, some of which were necessary to resolve Meridiana’s historic problems, like an outdated fleet
  • The airline made some bad decisions with routes, like trying to launch flights to India and Thailand
  • The completely new business model of the airline (operating out of Milan, rather than out of Palermo, Naples, etc.) has taken a while to build up
  • The 737 MAX groundings have impacted their performance on short haul flights in the past several months

However, an Air Italy spokesperson says “our performance is better than expected and we expect to grow further.”

Air Italy’s business class catering

Bottom line

While it’s understandable that completely changing up a business model can lead to some short-term losses, I still find these numbers to be concerning.

The airline’s losses amounted to about 58% of their revenue, and on top of that the airline actually shrunk while sustaining these losses. It’s one thing if they were making a big push for market share and sustained some losses along the way, but to report such a massive loss all while getting smaller doesn’t paint a very good picture of what’s going on there.

There are certainly some factors that impacted this that were outside their control, but also some big mistakes within their control, like poor route planning.

Perhaps the bigger picture issue here is that Meridiana was a unique airline that added value in the market — they operated point-to-point flights, they had a low cost business model, and they sort of had an identity. With Air Italy they’re just trying to replicate part of Alitalia’s long haul route network, and I’m not sure that’s exactly a recipe for success.

Regardless, as I’ve said before, Air Italy has an excellent business class product. So they’re a pleasure to fly, just not a pleasure to invest in. 😉

I suspect the US airlines will have a field day with these financial results…

Comments
  1. I see Trump’s non-standard capitalization has made its way into headings on this site. Chicago Manual of Style be damned.

  2. @ Memento

    Shouldn’t that be “Chicago Manual Of Style”?!

    I dunno: to my eyes American English over-capitalises headlines. Every newspaper page (and blog post) is an ugly mish-mash where even the least important words get their own initial capital.

    Modern British English tends to capitalise even less on the web than it does in print. News sites like the BBC or the Guardian mainly run headlines as if they were sentences, albeit emboldened. The effect is much less rant-y.

  3. What a surprise! I mean, the track record of the ME3 in doing these kinds of projects is… oh, wait!

  4. While I’m no investor, I think the best would have been to keep some of Meridiana’s old routes active as they were making money and expand with some new planes on (some) new routes. That way they still have a back up plan in case they fail.

  5. @John
    The ME3 insinuations or otherwise are purely laughable at this point. Trump said as much when he told the US3 to kick rocks and file a complaint through the normal channels for which the US3 have so long refused.

  6. So basically the airline flew more passengers and made more money back when it was Meridiana? Wow, sure is a pity they completely dismantled that brand and basically all of its routes…

  7. Ben

    I had the opportunity to have a read through the full financials; they are in Italian and not suitable to be published fully (they’re deposited in the Sassari chamber of commerce) as the company is not publicly listed.

    One reason for the large losses – compared to last year – is that Air Italy has bought in the old Meridiana maintenance arm. Previously that was a separate company and its P&L was separate from Meridiana’s. This also means that base maintenance activities are now a cost on Air Italy’s ledger and not on a separate company’s.

    On the revenues front, Air Italy has all but discontinued the charter activities that constituted a lot of the revenue streams of the old Meridiana; there’s some ACMI but not enough to offset that reduction.

    All in all there are some one-off expenses and a major operative readjustment. I think that 2019 vs 2018 would be a much better way to analyse their behaviour, at least from a revenue and operating costs point of view.

  8. Still do not get the business plan of basing operations at MXP. For travelers from the US, it’s a decent business market but not so much for leisure. I think they would have been better off keeping their unique point-to-point routes such as Naples and Palermo, maybe even adding in a few other underserved but popular tourist destinations.

  9. @Memento, I write for a major international publication (published worldwide) and although I write for the North American edition, we are instructed to use international format for titles (because it is read internationally…) This means only the first word is capitalized, and personal names obviously. Only in the US do they capitalize the entire title.

  10. I don’t consider their six across Business Class hard product to be competitive given that their prices are basically equal for what I’d pay to fly AA and DL with better cabins. And making it worse, even from a big market like San Diego, I’d have to position to take their flights. Maybe their business plan is okay for other markets but from my vantage point based in the US, it’s a loser.

  11. @Lucky
    So their losses amounted to about 58% of their revenue. Ouch!
    So what does a negative profit margin tell us? Nothing useful that we already know.

    The only useful info here is
    Flown hours in 2018 were down to 42,283 from 50,592 the previous year and the fleet size.

    Daily Airborne Hours comes out to roughly 8.5 a bit low given how many A330 they have but still isn’t much far off from industry standards.

    Which at least can tell, their planes are not horribly utilized and not parked somewhere too long. It’s not a scheduling issue, they just can’t make money out of their planes.

  12. Great read! A few thoughts:
    1. This loss is an insignificant number wrt to the scope of Qatar’s overall investment portfolio.
    2. The Hub Spoke model is the most efficient business model.
    3. The focus on biz markets makes complete sense. The rest of world is racing to the bottom. Qatar and the others are happy to fill the void at the top with their superior product and service offerings.
    4. Bastien’s no-show guaranteed that The ME3 can finally deploy their breath of fresh air services (I.E. “Air travel that doesn’t hurt!) to more Transatlantic markets! Wonderful news!!!

  13. Is anyone surprised? The ME3 don’t need to make money. Operating unprofitable routes with massive aircraft that are half empty all while buying more aircraft and expanding…

  14. Since famous comedian Pam Ann has been hired as the star of this airline, its profits went down. What a heck! Pam Ann, now your job will be solve this italian-qatar airline! Did you notice this coincidence, Ben?

  15. Copying is the highest form of flattery. So as Air Italy aims to become the Italian flag carrier it has decided to imitate the current flag carrier Alitalia

  16. MXP still makes sense, but should have kept Palermo and Naples. Italy is tough! So much corruption.

Leave a Reply

Your email address will not be published. Required fields are marked *