CXBA

I think AF wanted to repeat the same stunts that LH used successfully with its European acquisitions, getting an airline weakened and unable to get back on its feet by itself in a fire sale price and being invited as the ultimate savior. In that period Spinetta started making some strong statement in the French media about the need for AF to take over totally AZ and downsizing its workforce. Among the proposals he put forward was the closure of AZ long haul network and the reduction of AZ to a mere regional feeder for CDG and perhaps Schiphol. I never completely understood why he spoke in a way that was assured to alienate whatever support he had in Italy, Prodi was (and still is) a notorious supporter of the Franco-German "European" establishment and pushed forward as much as possible, and talks with AZ were proceeding quickly and without noticeable bumps, mostly because AZ financial situation was worsening at a rapid pace. After that Italian trade unions were quickly up in arms against the threat of massive layoffs, and a substantial portion of the business and political elite started to become highly suspicious of AF motives. Prodi government was weakened by his leftist coalition infighting and in less than two years was defeated in the polls and gave in to Berlusconi. I tend to agree to Orbitmic version, that was a badly thought, badly executed attempt to an acquisition.

FD1971

And this is exactly the point NickB raised yesterday.

One should never forget that both Swiss and Austrian came with a package of benefits for LH, in other words, AUA came with a lot of financial compensation and Swiss already went through two major cost cutting exercises, so basically LH was able to calculate the risk.

KL/AF also saw a lot of risk (the whole industry is still massively influenced by the death of Swissair) hence they reduced their exposure to something controllable aka 25%.

In this industry, it is not really defined what 5,15 or 25% means, when it comes to saving an airline or at least restructure it. Does it mean you have to pay for everything, does it mean you have to provide a sum equivalent to your percentage?

We learned a lot from Swissair and Airline Management has advanced insofar that ownership is not perceived as necessary to get something you want (in this case feed), something that changed from the late 1990's (it was obvious, until Etihad started to change it again, but Etihad is not an example for rational management)

One should also not forget that the market expected LH to take over Italy, well, at least Northern Italy and SAS, so the famous North-South axis Weber talked about since the 1990's.

This would have left KL/AF with Benelux Lite (minus B+L) and parts of Eastern Europe, which are actually irrelevant.

Hence, the investment made sense from several perspectives and was probably controllable.

One should never underestimate the research that goes into such decisions, it was pretty obvious for some airlines that MXP is not really a hub worth creating and LH lost some money using MXP as a training ground for low cost operations. Within LH, you will hear several voices, some argue that LH Italia was indeed just a huge training exercise, others point out that they intended to make it work and were serious about it.

In any case, Northern Italy is considered to be LH territory at least in the minds of Lufthansa, so KL/AF had to do something to prevent a complete takeover and still get the feed.

Of course, both KL/AF and LH were smart enough to understand that AZ is not worth the risk. As pointed out before, domestic routes are infected by low cost airlines, Italy as a whole did not really perform well financially, so aisde from a lot of tourists and business in Northern Italy, there are too many unions, old aircraft, old infrastructure etc., way too much money needed for a low return.

CXBA

Neither your current employer (?) nor AF/KL should get entitled to any area of EU as an exclusive domain, at least in theory. Any concerned government will do what it can to make sure there are no dominating incumbents. But we all know that there are little, invisible men in both Cologne and Paris working tirelessly in order to get more "juice" for their employers, and at the same time denying the same for inconvenient competitors @:-)

FD1971

Absolutely, but that was expected, wasn't it?

Like I posted before, Alcazar would have changed the playing field, after that it was Business as usual resulting in the status quo we see at the moment. The only unexpected change, carriers like AB and AZ are actually still around, not because the market needs them, but solely because Etihad needs feed and cannot accomplish that on their own metal.

SAS is still 'independant', because they have 3-4 dozen unions and after all the market is small, used to be high yield, but saw the LCC take over more and more routes as well, so SAS is not that interesting anymore, same with Alitalia.

It is difficult to predict the exact market shares for 2020 or 2025, but the ME3 have all their hands full thanks to DC, Berlin and Paris, costs at Ryanair will increase if they want to grow and they are basically one accident and a few TV Features about their practices of hiring pilots away from far more scrutiny than ever before.

And for KL/AF, Italy became just another unwanted construction side, LH faced the same when the JV with SAS did not continue, so it will be interesting to see how they manage the challenge.

In any case, the cost of getting feed from Italy will increase and you simply cannot cut spokes as a major hub&spoke carrier. Cutting spokes like MIA or MCO is completely insane, cutting spokes like CGN might be acceptable, but in this case we are talking about far more markets.

brunos

Interesting and challenging comments.

FD1971

I really do not know a single agreement that is benefitial for an airline feeding a much larger airline in Europe, of course subsidies might come into play to sweeten the deal, but under the bottom line it is not a really desirable position.

LH, as always, is the biggest slaveholder and really squeezed out the poor souls in Slovenia, Croatia or Poland...on the other hand where would those airlines be without some connecting passengers fed into their networks via the big LH hubs, probably gone.

KLM went through the loss of such a feeder once (with EW) and needed years to recover, probably at higher costs per pax.

It will be interesting to see how this one works out for both of them and with both of them I mean KL and AF.

It is just amazing to see AZ still flying around and it will be even more interesting to see them ramping up their long-haul network..., in a market subject to yield erosion due to overcapacity already.

brunos

Hi FD1971. You are much more an expert than I am. I wonder what is your forecast for the European skies.

Let me venture some ideas and see if you agree with me.
Clearly LCCs have changed the pictures as they now capture an important share of the PtP European market. My guess is that many national legacy airlines were barely sustainable when they had a longhaul feeder role (as well as some very few longhaul flights from their home base) plus PtP European flights. The LCC competition on PtP make them highly unprofitable overall. Even disguised subsidies by their State are becoming too expensive given the poorly European economies. The US3 and ME3 are biting on their longhaul business. The EU3 (say IAG, LH Group and AFKL) do not desperately need those small national airlines as feeders as they can send their own planes. All smaller legacy European airlines, including AZ, will disappear or be "slaves" of major airlines. We will end up with US3, ME4, EU3 (if AFKL survives) plus a few Asian airlines. And many profitable LCCs, even high-end LCCs.

Asia can entertain many international (longhaul) airlines as long as Asia economy is good. MH is on the way out; TG is in deep trouble. GA comeback is turning into defeat. VN is a question mark. SQ will probably become the only major international airline in SEA. Besides CX in Hong Kong, China, Korea and Japan have several airlines each. All these countries are quite good in restricting ME3...

irishguy28

I recently cancelled an Alitalia booking; it was made originally via the Alitalia website, and all flights had Alitalia flightcodes. None of the flights were operated by AF or KL and my FB number was never associated with the booking.

I was surprised, then, to see the refund to my card appear as "Air France Milan"! Perhaps they are currently closer partners than I had originally thought!

Henry III

It's probably the C/C company's policy not to accept refunds from Alitalia (being financially prudent, as C/C companies generally are)!

-- Henry

irishguy28

A credit card company refusing to accept money?

Are you mad?

Goldorak

I am reviving an old thread I started last year. The announced deadline for the end of the JV between AF and AZ for the France-Italy routes is approaching fast (january 2017). Is there any update . Is there any form of cooperation which will remain afterwards (outside the SkyTeam alliance one of course) ?

AlicorporateUK

Salut, Goldorak - I hope all well.

As far as I'm aware, there are talks in place in order to renew the IT-FR/NL (and vice-versa, needless to say) code-share agreements between AZ-AF/KL.

G

brunos

Would that be all that survive?
No more TATL JV?

Goldorak

The transatlantic JV with DL is another one and AFAIK, AZ has not going to leave it (even if EY gave some signs at one point that they thought this JV was not beneficial to AZ).

Goldorak

thank you AlicorporateUK
indeed, some code-shares seems to be still loaded for the 2017 program.