How Could The Coronavirus Outbreak Impact Alitalia?

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A string of loans have been keeping Alitalia afloat since it declared bankruptcy nearly three years ago. However, the latest developments in the coronavirus are likely to have an unforeseen impact on the Italian flag carrier, further contributing to its woes. In this article we’ll take a look at how the coronavirus could impact Alitalia.

Alitalia in flight
What does coronavirus mean for Alitalia? Photo: Adrian Pingstone via Wikimedia Commons

Italy earmarked as European coronavirus epicenter

A few months ago, coronavirus would not have presented much of a threat to Alitalia. Back in January when the illness was first detected, the only flying restrictions in place were those to mainland China where the outbreak originated. However, in recent days, Italy has become the center of attention regarding the European transmission of the virus. It has been named as the European epicenter of the coronavirus outbreak after it became the first country on the continent to report skyrocketing cases.

As a result, countries have warned travelers about visiting Italy, particularly in the north. Undoubtedly, the effect of the outbreak will impact the Italian economy but it will also impact its national flag carrier.

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Alitalia A320
Will Alitalia be able to stay afloat? Photo: Alessandro Ambrosetti via Wikimedia Commons

Potential damage for Alitalia

The impact of coronavirus has come swiftly and presented an unexpected problem for many airlines around the world. But now air carriers in Italy are likely to feel the effects more than others. With a medley of financial problems playing a resounding concerto, Alitalia will likely face issues regarding its future financial outlook.

Alitalia has been struggling to stay afloat since its bankruptcy in 2017. However, it has managed to stay alive with many government loans. With 2019 revenue up by 1.7%, long-haul travelers increasing by 4.7% as well as the demise of Air Italy, the future looked like it would serve Alitalia well. However, the airline will now have to contend with a reduced demand for flights to Italy because of coronavirus.

Passenger wearing masks near deaprtures boarding in Rome Airport
The demand for flights to Italy has fallen. Photo: Getty Images

A spokesperson for Alitalia told Simple Flying:

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“As from Monday 24 February, the rate of no-show in airports of booked passengers has increased abnormally and the trend of new bookings slowed down considerably. Several disincentive guidelines for travels to Italy are producing a particular effect on the demand from foreign markets. The airline has therefore proceeded to cancel services with a large number of unoccupied seats due to the effect that Coronavirus has determined in the flyers’ travel behavior. Overall, all the capacity reduction actions undertaken by the Company on 38 national and international routes are attributable to the lower seat demand, also due to the increased number of restrictions on flights and passengers from Italy.”

Of course, reduced demand for flights constitutes reduced revenue for Alitalia. It might further reduce capacity depending on the severity of the outbreak which will see it stagnate in its debt.

Could the coronavirus lead to Alitalia’s demise?

Ultimately, what’s at stake is Alitalia’s financial prosperity. Those figures that it recently improved upon are again likely to fall. If they do, then it could see the airline struggling to maintain its operation. That’s worrying for Alitalia because it’s unlikely to receive a government bailout.

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In December 2019, when the airline received €400m ($447m) in loans, the government said that this would be the final lifeline that it would offer. Despite that warning, if Alitalia had proven itself in terms of revenue perhaps, it could have got a little bit more support. But with the Italian economy set to suffer from the coronavirus outbreak, it’s unlikely the government will have sufficient funding to spare. In addition, Alitalia could gather a significant loss of revenue from passenger cancellations. What revenue it may have secured in bookings no longer seems secure.

In the end, a lack of funding would almost certainly spell out the end of Alitalia. That said, the day is still young and no one can be sure just how long coronavirus will last.

Uncertainty over the coronavirus impact

Traveler in Milan amid coronavirus
Passengers are still traveling to Italy despite coronavirus. Photo: Getty Images

Only time will tell how long coronavirus continues to pose a threat to Italian air travel and how long it will take for travelers to regain their trust in Italian tourism. Whilst the country has experienced a drop in demand, people are still traveling to Italy.

Could the business that Alitalia receives whilst the coronavirus is at its worst be enough to keep it afloat? After all, almost every airline that serves Italy is suffering a decreased demand.

If that’s possible, then Alitalia might be able to stay out of danger post-coronavirus. It’s already taking steps towards making itself more profitable. But will it be enough?

Will Alitalia be able to prosper during the coronavirus outbreak? Let us know your thoughts.

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Howdy

My prediction: citing loss of revenue isn’t Alitalia’s fault, government will provide another loan.

Fabio

Actually to some extent this situation came right on time after Air Italy demise, as the new administrator now has the excuse to put 4000 employees (40% of Alitalia workforce) into temporary lay-off scheme (which will not be temporary but permanent most probably) and this will create the right conditions for the interested airlines (like Lufthansa, who asked for layoff first) to potentially buyover Alitalia. So it’s a bad situation but can be used by the administrator in a way to finally turn around the fate of the company.